-----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, MfNcF3//0qQFBXZ9+z/5Kruv6kovZhcX92l4WozArGnhWmWJQ56Q7AWu9plBda8p BvruDsH8PiDhJfe4TYK0iQ== 0000005187-01-000003.txt : 20010319 0000005187-01-000003.hdr.sgml : 20010319 ACCESSION NUMBER: 0000005187-01-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOME PRODUCTS CORP CENTRAL INDEX KEY: 0000005187 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 132526821 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-01225 FILM NUMBER: 1570168 BUSINESS ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 BUSINESS PHONE: 9736605000 MAIL ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 10-K405 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 31, 2000 1-1225 ----------------- ------ AMERICAN HOME PRODUCTS CORPORATION ---------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2526821 - ----------------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) Five Giralda Farms, Madison, NJ 07940-0874 - ----------------------------------------- ---------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (973) 660-5000 Securities registered pursuant to -------------- Section 12(b) of the Act: Name of each exchange on Title of each class which registered - ----------------------------------------- ---------------------------------- $2 Convertible Preferred Stock, $2.50 par value New York Stock Exchange - ----------------------------------------- ---------------------------------- Common Stock, $0.33 - 1/3 par value New York Stock Exchange - ----------------------------------------- ---------------------------------- 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. [X] State the aggregate market value of the voting stock held by nonaffiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. Aggregate market value at March 2, 2001 $80,853,128,750 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Outstanding at March 2, 2001 ------------- Common Stock, $0.33 - 1/3 par value 1,313,617,039 Documents incorporated by reference: List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statements; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes. (1) 2000 Annual Report to Stockholders - In Parts I, II and IV - -------------------------------------------------------------- (2) Proxy Statement will be filed on or about March 19, 2001 - In Part III - -------------------------------------------------------------------------- PART I ------ ITEM 1. BUSINESS -------- General ------- American Home Products Corporation (the "Company" or "AHPC"), a Delaware corporation organized in 1926, is currently engaged in the discovery, development, manufacture, distribution and sale of a diversified line of products in two primary businesses: Pharmaceuticals and Consumer Health Care. Pharmaceuticals include branded and generic human ethical pharmaceuticals, biologicals, nutritionals, and animal biologicals and pharmaceuticals. Principal products include women's health care products, infant nutritionals, cardiovascular products, neuroscience therapies, gastroenterology drugs, anti-infectives, vaccines, biopharmaceuticals, oncology therapies, musculoskeletal therapies and transplantation products. Principal animal health products include vaccines, pharmaceuticals, endectocides and growth implants. Consumer Health Care products include analgesics, cough/cold/allergy remedies, nutritional supplements, herbal products, and hemorrhoidal, antacid, asthma and other relief items sold over-the-counter. Unless stated to the contrary, or unless the context otherwise requires, references to the Company in this report include American Home Products Corporation and its majority-owned subsidiaries. In October 2000, the Company increased its ownership in Immunex Corporation ("Immunex") from approximately 53% to approximately 55% by converting a $450 million convertible subordinated note into 15,544,041 newly issued shares of common stock of Immunex. In November 2000, through a public equity offering, the Company sold 60.5 million shares of Immunex common stock. Proceeds to the Company were approximately $2.405 billion resulting in a pre-tax gain on the sale of $2.061 billion. The public equity offering reduced the Company's ownership in Immunex from approximately 55% to approximately 41%, which represented the ownership at December 31, 2000. As a result of the reduction in ownership below 50%, the Company included the financial results of Immunex on an equity basis retroactive to January 1, 2000. On March 20, 2000, the Company signed a definitive agreement with BASF Aktiengesellschaft ("BASF") to sell the Cyanamid Agricultural Products business which manufactures, distributes, and sells crop protection and pest control products worldwide. On June 30, 2000, the sale was completed and BASF paid the Company $3.8 billion in cash and assumed certain debt. The Company recorded an after-tax loss on the sale of this business of $1.573 billion and reflected this business as a discontinued operation in the 2000 first quarter. The loss on the sale was due primarily to a difference in the basis of the net assets sold for financial reporting purposes compared with the Company's basis in such net assets for tax purposes. This difference related, for the most part, to goodwill which is not recognized for tax purposes. As a result, the transaction generated a taxable gain requiring the recording of a tax provision, in addition to a book loss related to a write-off of net assets in excess of the selling price. I-1 In July 1998, the Company purchased the vitamin and nutritional supplement products business of Solgar Vitamin and Herb Company Inc. and its related affiliates ("Solgar") for approximately $425 million in cash. In February 1998, the Company sold the Sherwood-Davis & Geck medical devices business for approximately $1.770 billion. This transaction completed the Company's exit from the medical devices business. In December 1997, the Company sold the stock of Storz Instrument Company and affiliated companies ("Storz"), a global manufacturer and marketer of ophthalmic products, and certain assets related to the Storz business for approximately $380 million. In February 1997, the Company purchased the worldwide animal health business of Solvay S.A. for approximately $460 million in cash. In December 1996, the Company purchased the remaining equity interest in Genetics Institute, Inc. ("G.I."), that it did not already own for approximately $1.279 billion in cash. In November 1996, the Company sold a majority interest (80%) in the American Home Foods business for approximately $1.209 billion. During 1998 and 1997, the Company sold its remaining equity interest in International Home Foods, Inc., the successor to American Home Foods. Additional information relating to the Solgar acquisition and the Cyanamid Agricultural Products and the Sherwood-Davis & Geck medical devices business dispositions is set forth in Note 2 of the Notes to Consolidated Financial Statements in the Company's 2000 Annual Report to Stockholders and is incorporated herein by reference. Also included in Note 2 is additional information relating to the sale of a portion of the Company's investment in Immunex common stock. Operating Segments ------------------ Financial information, by operating segment, for the three years ended December 31, 2000 is set forth in Note 11 of the Notes to Consolidated Financial Statements in the Company's 2000 Annual Report to Stockholders and is incorporated herein by reference. The Company has three reportable segments: Pharmaceuticals, Consumer Health Care, and Corporate and All Other. The Company's Pharmaceuticals and Consumer Health Care reportable segments are strategic business units that offer different products and services. The reportable segments are managed separately because they manufacture, distribute and sell distinct products and provide services, which require various technologies and marketing strategies. The Company is not dependent on any single customer or major group of customers for its sales. The product designations appearing in differentiated type herein are trademarks. I-2 PHARMACEUTICALS SEGMENT The Pharmaceuticals segment manufactures, distributes, and sells branded and generic human ethical pharmaceuticals, biologicals, nutritionals, and animal biologicals and pharmaceuticals. These products are promoted and sold worldwide primarily to wholesalers, pharmacies, hospitals, physicians, retailers, veterinarians, and other human and animal health care institutions. Some of these sales are made to large buying groups representing certain of these customers. Principal product categories for human use and their respective products are: women's health care products including PREMARIN, PREMPRO, PREMPHASE, LO/OVRAL (marketed as MIN-OVRAL internationally), ALESSE and TRIPHASIL (marketed as TRINORDIOL internationally); infant nutritionals including S26 and 2ND AGE PROMIL (international markets only); cardiovascular products including CORDARONE, ZIAC and INDERAL LA; neuroscience therapies including ATIVAN, EFFEXOR (marketed as EFEXOR internationally) and EFFEXOR XR; gastroenterology drugs including ZOTON (international markets only) and PROTONIX (U.S. market only); anti-infectives including MINOCIN and ZOSYN (marketed as TAZOCIN internationally); vaccines including PREVNAR (marketed as PREVENAR internationally) and MENINGITEC (international market only); biopharmaceuticals including BENEFIX Coagulation Factor IX (Recombinant); oncology therapies; musculoskeletal therapies including ENBREL (which is co-promoted in the United States by the Company under an agreement with Immunex), SYNVISC and TRAXAM; and transplantation products. Principal animal health product categories include vaccines, pharmaceuticals, endectocides including CYDECTIN, and growth implants. The Company manufactures these products in the United States and Puerto Rico, and 20 foreign countries. Sales of women's health care products in the aggregate, and the PREMARIN family of products individually, accounted for more than 10% of consolidated net revenue in 2000, 1999 and 1998. Additionally, women's health care products in the aggregate, and the PREMARIN family of products individually, were greater than 10% of consolidated operating income (loss) before taxes in 2000, 1999 and 1998. Except for the products noted above, no other single pharmaceutical product or category of products accounted for more than 10% of consolidated net revenue in 2000, 1999 or 1998. CONSUMER HEALTH CARE SEGMENT The Consumer Health Care segment manufactures, distributes and sells over-the-counter health care products. Principal consumer health care product categories and their respective products are: analgesics including ADVIL; cough/cold/allergy remedies including ROBITUSSIN and DIMETAPP; nutritional supplements including CENTRUM products, CALTRATE and SOLGAR products; herbal products and hemorrhoidal, antacid, asthma and other relief items including CHAP STICK. These products are generally sold to wholesalers and retailers and are promoted primarily to consumers worldwide through advertising. These products are manufactured in the United States and Puerto Rico, and 14 foreign countries. No single consumer health care product or category of products accounted for more than 10% of consolidated net revenue in 2000, 1999 or 1998. I-3 CORPORATE AND ALL OTHER SEGMENT Corporate is responsible for the treasury, tax and legal operations of the Company's businesses and maintains and/or incurs certain assets, liabilities, expenses, gains and losses related to the overall management of the Company which are not allocated to the other reportable segments. These items include special charges, interest expense and interest income, gains on the sales of investments and other corporate assets, including the sale of Immunex common stock, the $1.8 billion termination fee received from the Warner-Lambert Company, certain litigation provisions, including the REDUX and PONDIMIN litigation charges, goodwill impairment, the gain on the sale of the Sherwood-Davis & Geck medical devices business, and other miscellaneous items. All Other consists of the Sherwood-Davis & Geck medical devices business which the Company divested in February 1998. Sources and Availability of Raw Materials ----------------------------------------- Generally, raw materials and packaging supplies are purchased in the open market from various outside vendors. The loss of any one source of supply would not have a material adverse effect on the Company's future results of operations. However, finished dosage forms of ENBREL (which is co-promoted in the United States by the Company under an agreement with Immunex) and PROTONIX are produced by one third-party manufacturer, and raw materials for certain oral contraceptives, EFFEXOR, EFFEXOR XR and ZOSYN are sourced from sole third-party suppliers. Patents and Trademarks ---------------------- The Company owns, has applications pending for, and is licensed under many patents relating to a wide variety of products. The Company believes that its patents and licenses are important to its business, but no one patent or license (or group of related patents or licenses) currently is of material importance in relation to its business as a whole. In the U.S. pharmaceuticals business, some of the Company's major products are not protected by patents. SYNVISC, a visco supplementation for treatment of osteoarthritis of the knee, will have patent protection until at least 2010. The anti-infective ZOSYN will have patent protection until at least 2007. The tumor necrosis factor receptor (TNFR) ENBREL (which is co-promoted in the United States by the Company under an agreement with Immunex), will have patent protection until at least 2014. The anti-depressant EFFEXOR will have patent protection until at least 2007 and EFFEXOR XR will have patent protection until at least 2017. PREMPRO, a combination estrogen and progestin product, will have patent protection until at least 2015. BENEFIX Coagulation Factor IX (Recombinant), a blood clotting factor for hemophilia B, will have patent protection until 2011. PREVNAR, the Company's seven-valent pneumococcal conjugate vaccine will have patent protection until 2004 and patent extension under the Waxman-Hatch Act has been applied for, which would extend this date until 2007. PROTONIX, the Company's product for the short- term treatment of erosive esophagitis, will have patent protection until 2007. I-4 Sales in the consumer health care business are largely supported by the Company's trademarks and brand names. These trademarks and brand names are a significant part of the Company's business and have a perpetual life as long as they remain in use. See "Competition" below for a discussion of generic and store brands competition. Seasonality ----------- Sales of consumer health care products are affected by seasonal demand for cough/cold products and, as a result, second quarter results for consumer health care products tend to be lower than results in other quarters. Competition ----------- PHARMACEUTICALS The Company operates in the highly competitive pharmaceutical industry, which includes the human ethical pharmaceutical and animal health businesses. Within these businesses, the Company has many major multinational competitors and numerous smaller domestic and foreign competitors. Based on net sales, the Company believes it ranks within the top 10 major competitors within the human ethical pharmaceutical industry and ranks within the top five major competitors within the animal health industry. The Company's competitive position is affected by several factors including resources available to develop, enhance and promote products, customer acceptance, product quality, patent protection, development of alternative therapies by competitors, scientific and technological advances, and governmental actions affecting pricing and generic substitutes. In the United States, the growth of managed care organizations, such as health maintenance organizations and pharmaceutical benefit management companies, has resulted in increased competitive pressures. The continued growth of generic substitutes is further promoted by legislation, regulation and various incentives enacted and promulgated in both the public and private sectors. PREMARIN, the Company's principal conjugated estrogens product manufactured from pregnant mare's urine, and related products PREMPRO and PREMPHASE (which are single tablet combinations of the conjugated estrogens in PREMARIN and the progestin medroxyprogesterone acetate), are the leaders in their categories and contribute significantly to net revenue and results of operations. PREMARIN's natural composition is not subject to patent protection (although PREMPRO has patent protection). The principal uses of PREMARIN, PREMPRO and PREMPHASE are to manage the symptoms of menopause and to prevent osteoporosis, a condition involving a loss of bone mass in postmenopausal women. Estrogen-containing products manufactured by other companies have been marketed for many years for the treatment of menopausal symptoms, and several of these products also have an approved indication for the prevention of osteoporosis. During the past several years, other manufacturers have introduced products for the treatment and/or prevention of osteoporosis. New products containing different estrogens than those found in PREMPRO and PREMPHASE and having many forms of the same indications have also been introduced. Some companies have attempted to obtain approval for generic versions of PREMARIN. These products, if approved, would be routinely substitutable for PREMARIN and related products under many state laws and third-party insurance payer plans. In May 1997, the U.S. Food and Drug Administration ("FDA") announced that it would not approve certain synthetic estrogen products as generic equivalents of PREMARIN given known compositional differences between the active ingredient of these products and PREMARIN. Although the FDA has not approved any generic equivalents to PREMARIN to date, PREMARIN will continue to be subject to competition from existing and new competing estrogen and other products for its approved indications and may be subject to generic competition from either synthetic or natural conjugated estrogens products in the future. At least one other company has announced that it is in the process of developing a generic version of PREMARIN from the same natural source, and the Company currently cannot predict the timing or outcome of these or any other efforts. I-5 Health care costs will continue to be the subject of attention in both the public and private sectors in the United States. Similarly, health care spending, including pharmaceutical pricing, is subject to increasing governmental review in international markets. While the Company cannot predict the impact future health care initiatives may have on the Company's worldwide results of operations, the Company believes that the pharmaceutical industry will continue to play a very positive role in helping to contain global health care costs through the development of innovative products. CONSUMER HEALTH CARE The consumer health care business has many competitors. Based on net sales, the Company believes it ranks within the top five major competitors within the consumer health care industry. The Company's competitive position is affected by several factors including resources available to develop, enhance and promote products, customer acceptance, product quality, development of alternative therapies by competitors, and scientific and technological advances. The growth of generic and store brands continued to impact some of the Company's consumer health care branded product line categories in 2000 and is expected to continue during 2001. GENERAL In all business segments, advertising and promotional expenditures are significant costs to the Company and are necessary to effectively communicate information concerning the Company's products to health professionals, the trade and consumers. Research and Development ------------------------ Worldwide research and development activities are focused on developing and bringing to market new products to treat and/or prevent some of the most serious health care problems. Research and development expenditures totaled approximately $1.688 billion in 2000, $1.588 billion in 1999, and $1.476 billion in 1998 with approximately 96%, 95% and 94% of these expenditures in the pharmaceutical area in 2000, 1999 and 1998, respectively. I-6 The Company currently has seven New Drug Applications and 15 Supplemental Drug Applications filed with the FDA for review, and 112 active Investigational New Drug Applications and one preliminary market approval application. During 2000, several major collaborative research and development arrangements were initiated or continued with other pharmaceutical and biotechnology companies. Additionally, the animal health business has 59 Veterinary Biologics License Applications awaiting approval by the U.S. Department of Agriculture ("USDA"), and one application for a new product awaiting approval by the U.S. Environmental Protection Agency ("EPA"). Certain approvals outside the United States are also pending. In 2000, FDA approval was granted for PREVNAR, the first vaccine to help prevent invasive pneumococcal disease in infants and toddlers, and PROTONIX, the newest of the gastrointestinal drug class known as proton pump inhibitors, which is indicated for the short- term (up to sixteen weeks) treatment in the healing and symptomatic relief of erosive esophagitis. Also, during 2000, the FDA approved MYLOTARG, the first targeted chemotherapy agent using monoclonal antibody technology, and a new indication for ALTACE (which is co-promoted with King Pharmaceuticals, Inc.), an angiotensin- converting-enzyme (ACE) inhibitor, to reduce the risk of stroke, heart attack and death from cardiovascular causes in patients over 55 at risk for cardiovascular disease. Existing product lines expanded for new indications were EFFEXOR XR, an antidepressant, which was approved in the United States for long-term treatment of generalized anxiety disorder, and ENBREL (which is co-promoted in the United States by the Company under an agreement with Immunex) received approval for inhibiting the progression of structural damage in the joints of early rheumatoid arthritis patients. Additionally, regulatory submissions were filed for new, lower-dose formulations of PREMARIN and PREMARIN/MPA products and a regulatory submission was filed in the United States during the year for FLUMIST, the first intranasal flu vaccine. Regulatory review of rhBMP-2, a unique recombinant protein that stimulates bone growth to facilitate the healing of long bone fractures requiring open surgical management, began early in 2001. Regulation ---------- The Company's various health care products are subject to regulation by government agencies throughout the world. The primary emphasis of these requirements is to assure the safety and effectiveness of the Company's products. In the United States, the FDA, under the Federal Food, Drug and Cosmetic Act and the Public Health Service Act, regulates many of the Company's health care products, including human and animal pharmaceuticals, vaccines, consumer health care products and dietary supplements. The Federal Trade Commission ("FTC") has the authority to regulate the promotion and advertising of consumer health care products including over-the-counter drugs and dietary supplements. The USDA regulates the Company's domestic animal vaccine products. The FDA's enforcement powers include the imposition of criminal and civil sanctions against companies, including seizures of regulated products, and criminal sanctions against individuals. The FDA's enforcement powers also include its inspection of the numerous facilities operated by the Company. To facilitate compliance, the Company from time to time may institute voluntary compliance actions such as product recalls when it believes it is appropriate to do so. In addition, many states have similar regulatory requirements. Most of the Company's pharmaceutical products, and an increasing number of its consumer health care products, are regulated under the FDA's new drug approval processes, which mandate pre-market approval of all new drugs. Such processes require extensive time, testing and documentation for approval, resulting in significant costs for new product introductions. The Company's U.S. pharmaceutical business is also affected by the Controlled Substances Act, administered by the Drug Enforcement Administration, which regulates strictly all narcotic and habit-forming drug substances. In addition, in the international countries where the Company does business, it is subject to regulatory and legislative climates that, in many instances, are similar to or more restrictive than that described above. The Company devotes significant resources to dealing with the extensive federal, state and local regulatory requirements applicable to its products in the United States and internationally. I-7 Federal law also requires drug manufacturers to pay rebates to state Medicaid programs in order for their products to be eligible for federal matching funds under the Social Security Act. Additionally, a number of states are, or may be, pursuing similar initiatives for rebates and other strategies to contain the cost of pharmaceutical products. The federal Vaccines for Children entitlement program enables states to purchase vaccines at federal vaccine prices and limits federal vaccine price increases in certain respects. Federal and state rebate programs are expected to continue. The Company's Wyeth-Ayerst Laboratories division, a related subsidiary and three employees (including an executive officer of the Company) are subject to a consent decree entered into with the FDA in October 2000 following the seizure in June 2000 from the Company's distribution centers in Tennessee and Puerto Rico of a small quantity of certain of the Company's products manufactured at the Company's Marietta, Pennsylvania facility. The seizures were based on FDA allegations that products were not manufactured in accordance with current Good Manufacturing Practices. Prior to the seizure, the Company had ceased production at portions of the Marietta facility in order to implement process and facility improvements. The consent decree, which has been approved by the U.S. District Court for the Eastern District of Tennessee, does not represent an admission by the Company or the employees of any violation of the Federal Food, Drug and Cosmetic Act or its regulations. Under the consent decree, the Company paid $30 million to the U.S. government. The consent decree allows the continued manufacture of all of the products that the Company intends to manufacture at its Marietta, Pennsylvania facility, as well as the Company's Pearl River, New York facility, subject to review by independent consultants of manufacturing records prior to distribution of individual lots. In addition, the consent decree requires a comprehensive inspection of the Marietta and Pearl River facilities by an expert consultant, actions by the Company to address any observations made by the consultant, and verification of the Company's actions by the expert consultant followed by an FDA inspection. I-8 Environmental ------------- Certain of the Company's operations are affected by a variety of federal, state and local environmental protection laws and regulations and the Company has, in a number of instances, been notified of its potential responsibility relating to the generation, storage, treatment and disposal of hazardous waste. In addition, the Company has been advised that it may be a responsible party in several sites on the National Priority List created by the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), commonly known as Superfund (See Item 3. Legal Proceedings). In connection with the spin-off in 1993 by American Cyanamid Company ("Cyanamid") of Cytec Industries Inc. ("Cytec"), Cyanamid's former chemicals business, Cytec assumed the environmental liabilities relating to the chemicals businesses, except for the former chemical business site at Bound Brook, New Jersey, and certain sites for which there is shared responsibility between Cyanamid and Cytec. This assumption is not binding on third parties, and if Cytec were unable to satisfy these liabilities, they would, in the absence of other circumstances, be enforceable against Cyanamid. The Company has no reason to believe that it has any practical exposure to any of the liabilities against which Cytec has agreed to assume and indemnify Cyanamid. Additional information on environmental matters is set forth in Notes 5 and 10 of the Notes to Consolidated Financial Statements in the Company's 2000 Annual Report to Stockholders and is incorporated herein by reference. Employees --------- At the end of 2000, the Company had 48,036 employees worldwide, with 25,490 employed in the United States including Puerto Rico. Approximately 21% of worldwide employees are represented by various collective bargaining groups. Relations with most organized labor groups remain relatively stable. Financial Information about the Company's Domestic and International -------------------------------------------------------------------- Operations ---------- Financial information about U.S. and international operations for the three years ended December 31, 2000 is set forth in Note 11 of the Notes to Consolidated Financial Statements in the Company's 2000 Annual Report to Stockholders and is incorporated herein by reference. The Company's operations outside the United States are conducted primarily through subsidiaries. International net revenue in 2000 amounted to 40% of the Company's total worldwide net revenue. The Company's international businesses are subject to risks of currency fluctuations, governmental actions and other governmental proceedings which are inherent in conducting business outside of the United States. The Company does not regard these factors as deterrents to maintaining or expanding its non-U.S. operations. Additional information about international operations is set forth under the caption "Quantitative and Qualitative Disclosures about Market Risk" in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2000 Annual Report to Stockholders and is incorporated herein by reference. I-9 ITEM 2. PROPERTIES ---------- The Company's corporate headquarters and the headquarters of its domestic and international consumer health care business are located in Madison, New Jersey. The Company's domestic and international human ethical pharmaceutical operations are headquartered in leased facilities located in Radnor and St. Davids, Pennsylvania. The Company's animal health business is headquartered in Overland Park, Kansas, a leased facility. The Company's international subsidiaries and affiliates, which generally own their properties, have manufacturing facilities in 20 countries outside the United States. The properties listed below are the principal manufacturing plants (M) and research laboratories (R) of the Company as of December 31, 2000, listed in alphabetical order by state or country. All of these properties are owned except certain facilities in Cambridge, Massachusetts, Cherry Hill, New Jersey, Radnor, Pennsylvania, Guayama, Puerto Rico and Suzhou, China which are under lease. The Company also owns or leases a number of other smaller properties worldwide which are used for manufacturing, research, warehousing and office space. Pharmaceuticals and Consumer Health Care: United States: Charles City, Iowa (M) Fort Dodge, Iowa (M, R) Andover, Massachusetts (M, R) Cambridge, Massachusetts (R) Cherry Hill, New Jersey (M, R) Princeton, New Jersey (R) Chazy, New York (R) Pearl River, New York (M, R) Rouses Point, New York (M, R) Sanford, North Carolina (M) Marietta, Pennsylvania (M, R) Radnor, Pennsylvania (R) West Chester, Pennsylvania (M) Carolina, Puerto Rico (M) Guayama, Puerto Rico (M) Richmond, Virginia (M, R) International: St. Laurent, Canada (M, R) Suzhou, China (M) Havant, England (M, R) Askeaton, Ireland (M, R) Newbridge, Ireland (M) Catania, Italy (M, R) Vallejo, Mexico (M) Weesp, Netherlands (M, R) Cabuyao, Philippines (M) Gerona, Spain (M, R) Hsin-Chu Hsien, Taiwan (M) I-10 All of the above facilities are exclusively pharmaceutical facilities except for Pearl River, New York, Rouses Point, New York, Guayama, Puerto Rico, Richmond, Virginia, St. Laurent, Canada, Suzhou, China, Havant, England, Newbridge, Ireland, Vallejo, Mexico and Hsin-Chu Hsien, Taiwan which are both pharmaceutical and consumer health care facilities. The Company has pharmaceutical manufacturing facilities under construction in Dublin, Ireland, Singapore and West Greenwich, Rhode Island. Further, the Company purchased a facility in Collegeville, Pennsylvania, which is being prepared to serve as the headquarters for the pharmaceutical business and pharmaceutical research. ITEM 3. LEGAL PROCEEDINGS ----------------- The Company and its subsidiaries are parties to numerous lawsuits and claims arising out of the conduct of its business, including product liability and other tort claims. On October 7, 1999, the Company announced that it had reached a nationwide, class action settlement (or "the settlement") to resolve litigation against the Company regarding the use of the diet drugs REDUX (dexfenfluramine hydrochloride capsules) C-IV or PONDIMIN (fenfluramine hydrochloride) C-IV tablets. The Company's Wyeth- Ayerst Laboratories Division had announced a voluntary and immediate withdrawal of these products in September 1997. The Company took this action on the basis of new, preliminary information provided to the Company on September 12, 1997 by the FDA regarding heart valve abnormalities in patients using these medications. The Company estimates that approximately 5.8 million people used these medications in the United States. The nationwide, class action settlement is open to all REDUX or PONDIMIN users in the United States, regardless of whether they have lawsuits pending, and offers a range of benefits depending on a participant's particular circumstances, including: a refund program for the cost of the drugs; medical screening; additional medical services and cash payments; and compensation in the event of serious heart valve problems. The settlement terms are reflected in a settlement agreement executed on November 19, 1999 (In Re Diet Drugs Products Liability Litigation, MDL No. 1203; Brown, et al. v. AHPC, No. 99-20593, U.S.D.C., E.D. Pa.). The settlement covers all claims arising out of the use of REDUX or PONDIMIN, except for claims of primary pulmonary hypertension ("PPH"). The settlement provides opportunities during three different time periods for claimants to opt out of the settlement. The settlement agreement states that it shall not be construed to be an admission or evidence of any liability or wrongdoing whatsoever by the Company or the truth of any of the claims alleged. I-11 Payments by AHPC into the settlement funds may continue for approximately 16 years after final judicial approval, if needed, to provide settlement benefits to members of the class. Future payments will be made only as and if needed. In addition, AHPC will receive credits for future payments to persons who opt out of the settlement under certain circumstances. A reserve in the amount of $4.75 billion was established in the 1999 third quarter to provide for expected payments to the settlement funds, other judgments and settlements (including claims for PPH and any opt outs from the settlement), and legal costs, net of insurance. In the 2000 fourth quarter, the Company recorded an additional $7.50 billion reserve. The combination of these two charges represents the estimated total amount required to resolve all diet drug litigation, including all anticipated payments in connection with the nationwide, class action settlement, payments to the approximately 40,000 opt out claimants with whom the Company has agreed to settle, and all anticipated payments to resolve the claims of the remaining approximately 10,000 opt outs and any PPH claimants, as well as all legal fees and other costs. On November 23, 1999, United States District Judge Louis C. Bechtle, the judge overseeing the federal MDL litigation in Philadelphia, granted preliminary approval of the settlement and directed that notice of the settlement terms be provided to class members. The notice program began in December 1999. On April 13, 2000, following the close of the four-month initial opt-out period on March 30, 2000, the Company announced that it would not exercise its option to withdraw from the nationwide diet drug settlement. As of March 2001, approximately 265,000 individuals had registered for the settlement The majority of those who have registered have elected the settlement's Accelerated Implementation Option, which provides for prompt benefits and resolves the claims of those class members. Approximately 50,000 individuals have opted out of the settlement. In early May 2000, the District Court held a hearing on the fairness of the terms of the settlement, with an additional one-day hearing on August 10, 2000. On August 28, 2000, the District Court issued an order approving the settlement. Several appeals have been taken from that order to the United States Court of Appeals for the Third Circuit, which is expected to hear and decide the appeals sometime during 2001. As of March 2001, the Company has reached agreements or agreements in principle to settle the claims of approximately 40,000, or 80%, of those individuals who opted out of the settlement. There are approximately 10,000 opt outs remaining. As of March 2001, the Company has been served or is aware that it has been named as a defendant in approximately 2,800 pending lawsuits brought by individuals who have opted out of the national settlement and who have not yet agreed to a settlement of their claims. These individuals allege injury as a result of their use of PONDIMIN and/or REDUX, either individually or in combination with the prescription drug phentermine (which the Company does not manufacture, distribute or market). On June 27, 2000, a jury in the Oregon Circuit Court, Coos County, hearing the cases of Juanita Batson v. Wyeth-Ayerst Laboratories Division of American Home Products Corporation, et al., No. 99CV0306, and Richard Wirt v. Wyeth-Ayerst Laboratories Division of American Home Products Corporation, et al., No. 99CV0307, returned verdicts in the combined amounts of $3.897 million in compensatory damages and $25.350 million in punitive damages. Following the verdicts, and prior to post-trial motions, the cases were settled. I-12 The Company was also named as a defendant in two shareholder lawsuits arising out of the REDUX and PONDIMIN withdrawal. Oran, et al. v. Stafford, et al. (No. 97-CV-4513 (NHP), U.S.D.C., D.N.J.), which was commenced on September 18, 1997, was a securities fraud putative class action in which plaintiffs alleged that the Company (and nine officers and directors named as controlling persons under Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act")) engaged in a plan to defraud the market and purchasers of AHPC Common Stock in violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5 by failing to disclose material facts or making material misstatements of fact regarding alleged adverse events associated with REDUX and PONDIMIN, in particular the alleged association between those two products and valvular heart disease. In February 1999, the Oran case was dismissed with prejudice by the U.S. District Court for the District of New Jersey. In September 2000, that dismissal was affirmed by the United States Court of Appeals for the Third Circuit and the case has now been closed. Grill v. Stafford, et al., (No. MRS-L-164-98, N.J. Sup. Ct., Morris Cty.), which was commenced on January 14, 1998, is a shareholder derivative action filed against the Company, certain directors, a former director and officer of the Company, and certain officers which seeks to recover any losses or damages sustained by the Company, as well as profits from the sale of stock by present and former officers and directors, as a result of alleged intentional, reckless or negligent breaches of fiduciary duty by the defendants. The complaint contains allegations that the defendants made material misstatements or omissions regarding alleged adverse events associated with REDUX and/or PONDIMIN (and in particular an alleged association between those two products and valvular heart disease), exposing the Company to liability for personal injury lawsuits and securities claims. The Grill action was stayed during the pendency of the Oran case and the Company has now moved to dismiss the Grill action. Interneuron Pharmaceuticals, Inc., the Company's licensor and marketing partner for REDUX is the plaintiff in a lawsuit against the Company (Interneuron Pharmaceuticals, Inc. v. American Home Products Corp., No. 00-294 F, Superior Ct., Middlesex Cty., MA) alleging that, beginning in February 1997, the Company withheld from Interneuron information regarding adverse events reported to the Company in connection with the use of PONDIMIN. Interneuron claims that the Company's failure to disclose the PONDIMIN information denied Interneuron the opportunity to communicate directly with the FDA on appropriate changes to the REDUX labeling, to make appropriate disclosures to Interneuron shareholders and to the financial markets, or to take any other steps to mitigate or prevent harm to Interneuron's reputation. An amended complaint includes claims for treble damages under the Massachusetts Deceptive Practices Act, as well as causes of action for fraud, negligent misrepresentation, breach of contract, and breach of the implied covenant of good faith and fair dealing. Interneuron seeks damages for lost profits and royalties from sales of REDUX, lost value to its common stock, damage to its reputation and loss of other business opportunities. I-13 In the litigation involving alleged injuries as a result of the use of the NORPLANT SYSTEM, the Company's implantable contraceptive containing levonorgestel, the Company announced in September 1999 it had reached an agreement with plaintiffs' counsel representing virtually all of the NORPLANT SYSTEM plaintiffs to settle the then-pending NORPLANT SYSTEM lawsuits for $1,500 per claimant. The settlement proposal was communicated by plaintiffs' attorneys to their clients with a recommendation that the clients accept the offer. As of December 31, 2000, releases had been received from 32,202 plaintiffs pursuant to the settlement program. At present, with the exception of the possible Louisiana class discussed below, only approximately 5,032 NORPLANT SYSTEM plaintiffs have not settled their claims. The vast majority of the unsettled claimants are believed to be individuals who have themselves or through their counsel abandoned their claims. During 2000, a Texas appeals court reversed the only NORPLANT SYSTEM judgment rendered against the Company (a $38,000 judgment in favor of plaintiff Emilia Medrano in Davis, et al. v. AHPC, et al., No. B-150,760, District Court, Jefferson Cty., Texas) and, on the record before it, rendered judgment in favor of the Company, dismissing the case. In Louisiana, a motion to certify a statewide class of NORPLANT SYSTEM users remains pending. (Davis v. American Home Products Corporation, No. CDC 94-11684, Orleans Parish). The Company intends to oppose class certification, which has been denied repeatedly in the NORPLANT SYSTEM litigation at both the federal and state level. In litigation involving DURACT, the Company's non-narcotic analgesic pain reliever which was voluntarily withdrawn from the market, three putative personal injury class actions are pending. Chimento, et al. v. Wyeth-Ayerst, et al., filed in the District Court of Louisiana for the Parish of St. Bernard, and Martin, et al. v. Wyeth-Ayerst, et al., filed in the District Court of Louisiana for Orleans Parish, each seek the certification of a class of Louisiana residents who were exposed to and who suffered injury from DURACT. Plaintiffs in both cases seek compensatory and punitive damages, the refund of all purchase costs, and the creation of a court-supervised medical monitoring program for the diagnosis and treatment of liver damage and related conditions allegedly caused by DURACT. Walent v. Wyeth-Ayerst Laboratories, a Division of American Home Products Corporation, et al., No. 00CH12660, Circ. Ct., Cook Cty., IL, seeks the certification of a nationwide class of individuals who were allegedly exposed to and suffered injury from DURACT. In addition to the foregoing, a class action seeking recovery of economic damages only has also been filed. Rivera, et al. v. Wyeth-Ayerst Laboratories Company, et al., No. G-00-345, U.S.D.C., S.D. Tex., seeks economic damages and a refund of product purchase costs only in a class of individuals who ingested DURACT or paid for its use. No personal injuries are alleged among the Rivera class members. In December 2000, the Rivera case was certified as a class action. That decision is now on appeal to the United States Court of Appeals for the Fifth Circuit. There are also a total of 17 individual lawsuits pending involving former DURACT users alleging myriad injuries, from gastrointestinal upset and distress to liver transplant and death. I-14 A statewide class action has been filed in the Pennsylvania Court of Common Pleas, Delaware County, on behalf of a proposed class consisting of all persons who have been administered and paid for, in whole or in part, the Company's ROTASHIELD vaccine. (Lennon, et al. v. Wyeth-Ayerst, et al., No. 99-13101). The complaint alleges breach of contract, breach of warranty, unjust enrichment and violation of the Pennsylvania Unfair Trade Practices Act and seeks minimum damages of $100 per class member plus treble damages and attorneys' fees. During 2000, the Lennon case was dismissed; plaintiffs are appealing the dismissal. The Company has been named as a defendant in five lawsuits in which plaintiffs purport to represent a statewide class of health care workers who have been injured by needle and syringe devices manufactured by the Company's former Sherwood-Davis & Geck subsidiary. The complaints have been filed in Alabama (Daniels v. AHPC, et al., No. 2757-G, Circ. Ct., Montgomery Cty.), New York (Benner v. Sherwood Medical Company, et al., No. 111372, Sup. Ct., New York Cty.), Oklahoma (Palmer v. AHPC, et al., No. CJ-98-685, Dist. Ct., Sequoyah Cty.), Texas (Usrey v. Becton Dickinson, et al., No. 342-173329-98, Dist. Ct., Tarrant Cty.), and South Carolina (Bates v. AHPC et al., No. 98-CP-40-4343, Circ. Ct., Richland Cty.) and all contain virtually identical allegations. Each names AHPC, Becton Dickinson and Company, Sherwood's largest competitor, and Tyco International (U.S.) Inc., Sherwood's current corporate owner, as well as several distributors of medical devices. The complaints allege that the needle and syringe devices designed and manufactured by Sherwood are defective in that they expose health care workers to the risk of accidental needle sticks and the resultant possibility of acquiring blood-borne diseases. Each named plaintiff seeks to represent a statewide class of health care workers who have sustained a "contaminated" needle stick, reported the incident to their employer and have tested negative for a blood-borne disease. The complaints seek recovery for the costs of medical testing and treatment for the needle sticks, although plaintiffs in the New York case also seek emotional distress damages allegedly arising out of the fear of contracting a disease from the incidents. Similar actions brought in California, New Jersey, Ohio, Pennsylvania and Florida have each been dismissed. The Company is being defended and indemnified in each of these cases by Tyco with respect to injuries alleged to have occurred after February 27, 1998, the date of the Company's divestiture of the business of Sherwood. The Company remains responsible for injuries occurring prior to that date and is defending and indemnifying Tyco for those injuries. In January 2000, the trial court in the Usrey matter certified a class of Texas health care workers who, during the period January 18, 1997 to January 18, 2000, sustained a contaminated needle stick while using one of the defendants' products, reported the stick and tested negative for any blood-borne disease. The class certification order has been appealed to the Texas Court of Appeals. Oral argument took place on December 5, 2000. The cases pending in Oklahoma, South Carolina and Alabama remain dormant. No discovery has been undertaken in those matters and no class certification hearing dates have been set. Class certification discovery is proceeding in the New York action. No class certification hearing date has yet been scheduled. I-15 In November 2000, the Company withdrew from the market those formulations of its DIMETAPP and ROBITUSSIN cough/cold products which contained the ingredient phenylpropanolamine ("PPA") at the request of the FDA. The FDA's request followed the reports of a study that raised a possible association between PPA-containing products and the risk of hemorrhagic stroke. Three putative class actions have subsequently been filed against the Company, and other manufacturers of cough/cold products which contained PPA, on behalf of a class of California citizens who have used and paid for any product containing PPA in the preceding four years. (Webster v. Whitehall-Robins Healthcare, et al., No. BC238953, Super. Ct., Los Angeles Cty.; Chwierut v. Whitehall-Robins Healthcare, et al., No. 225488, Sonoma Cty.; and Pruitt v. Whitehall-Robins Healthcare, et al., No. 225906, Sonoma Cty.). Plaintiffs claim that the Company's marketing and advertising of PPA-containing products was false, deceptive and misleading, in violation of the California Business & Professions Code, in not disclosing the alleged risk of hemorrhagic stroke. Plaintiffs seek disgorgement or restitution of any moneys acquired by means of the alleged violation, as well as attorneys' fees. A similar putative class action seeking certification of a nationwide class for economic damages has also been filed. (Dietschi, et al. v. American Home Products Corporation, No. C01-1306L, U.S.D.C., W.D. Wa.). A putative class action seeking certification of a nationwide class for personal injuries and medical monitoring has been filed in federal court in Louisiana. (Ricks, et al. v. American Home Products Corp., et al., No. 01-0488, U.S.D.C., E.D. La.) In addition, eight personal injury suits alleging injury as a result of ingestion of PPA-containing products have been brought against the Company, and in some cases, other manufacturers of cough/cold products which contained PPA. The Company intends to continue to defend all of the foregoing litigations vigorously. In September 2000, Duramed Pharmaceuticals, Inc., which markets a hormone replacement therapy drug called Cenestin (R), filed a complaint against the Company (Duramed Pharmaceuticals, Inc. v. Wyeth-Ayerst Laboratories, Inc., No.-C-1-00-735, U.S.D.C., W.D. Ohio), alleging that the Company violated the antitrust laws through the use of exclusive contracts and "disguised" exclusive contracts in the sale of PREMARIN to managed care organizations. Duramed also alleges that Wyeth-Ayerst misled the FDA in order to exclude competition to PREMARIN, but does not allege any violation of law with respect to such alleged practices. The Company believes that its conduct was lawful and that its pricing practices do not violate the antitrust laws. The Company intends to vigorously defend this case. The Company has entered into a consent decree with the FDA relating to the manufacturing of products by the Company at its facilities in Marietta, Pennsylvania and Pearl River, New York. This matter is discussed in greater detail under the caption "Regulation," herein and is incorporated herein by reference. I-16 On July 7, 1997, plaintiffs were awarded $44 million in compensatory damages and $1 million in punitive damages in an action, which was commenced in U.S. District Court in August 1993 (University of Colorado et al. v. American Cyanamid Company, Docket No. 93-K-1657, D.Col.). The plaintiffs had accused Cyanamid of misappropriating the invention of, and patenting as its own, the formula for the current MATERNA Multi-Vitamins. The complaint also contained allegations of conversion, fraud, misappropriation, wrongful naming of inventor, and copyright and patent infringement. The patent, whose ownership and inventorship is in dispute, was granted to Cyanamid in 1984. The Court had previously granted Cyanamid's summary judgment motions dismissing all counts for relief except for unjust enrichment and fraud, which were the issues tried before the court in a three-week bench trial in May 1996. Although the plaintiffs had earlier been granted summary judgment of their copyright infringement claim, the court declined to award plaintiffs damages on that claim. Plaintiffs' post-trial motions seeking to increase the damages to approximately $111 million (allegedly representing Cyanamid's gross profit for 1982-1985 from the sale of the reformulated MATERNA product) and to recover approximately $800,000 of attorneys' fees was denied. In November 1999, the Court of Appeals affirmed in part and vacated in part the District Court's judgment, and remanded this case to the District Court for further proceedings. Under this ruling, the $45 million judgment against the Company was vacated. Following remand, the District Court has concluded that University of Colorado employees are the sole inventors of the disputed patent, a holding which will be appealed by Cyanamid. A trial has commenced in the District Court on plaintiffs' revised claim for in excess of $200 million in compensatory damages plus punitive damages. On October 14, 1993, Rite Aid Corporation, Revco D.S. Inc., and other retail drug chains and retail pharmacies filed an action in U.S. District Court (M.D. Pa.) against the Company, other pharmaceutical manufacturers and a pharmacy benefit management company alleging that the Company and other defendants provided discriminatory price and promotional allowances to managed care organizations and others in violation of the Robinson-Patman Act. The complaint further alleged collusive conduct among the defendants related to the alleged discriminatory pricing in violation of the Sherman Antitrust Act as well as certain other violations of common law principles of unfair competition. Subsequently, numerous other cases, many of which were purported class actions brought on behalf of retail pharmacies and retail drug and grocery chains, were filed in various federal courts against the Company as well as other pharmaceutical manufacturers and wholesalers. These cases made one or more similar allegations of violations of federal or state antitrust or unfair competition laws. The various class actions were consolidated as a single class action (the "Consolidated Class Action") which alleged violations of Section 1 of the Sherman Act. All of the federal actions were coordinated and consolidated for pretrial purposes under the caption In re Brand Name Prescription Drugs Antitrust Litigation (MDL 997 N.D. Ill.). These federal actions sought treble damages in unspecified amounts and injunctive and other relief. In June 1996, the court in the federal actions approved an amended settlement among certain defendants, including the Company, and the Consolidated Class Action plaintiffs. The settlement provided, among other things, for certain payments to be made by the settling defendants, over a period of three years, to the Consolidated Class Action plaintiffs. The Company's settlement payments totaled $42.5 million. Certain provisions of the amended settlement, which became effective on January 28, 1998 and were in effect until January 2001, prohibited the settling manufacturers from refusing to grant discounts to retailers solely because of their status as retailers and require that retailers be given the opportunity to demonstrate their ability to move market share and to negotiate and earn discounts similar to any discounts offered to managed care organizations. The terms of the settlement also provide that it shall not be deemed or construed to be an admission or evidence of any violation of any statute or law or of any liability or wrongdoing by the Company or of the truth of any of the claims or allegations alleged in the Consolidated Class Action. The Company has also settled several other cases brought by retailers that opted out of the Consolidated Class Action. The terms of the settlements, which are not material to the Company, provide that they shall not be deemed to be an admission of or evidence of any violation of any statute or law or of any liability or wrongdoing by the Company. I-17 In January 1999, after a trial on the merits involving manufacturers and wholesalers that had not previously settled the Consolidated Class Action case, the federal district court granted a directed verdict to the defendants in that case. The U.S. Court of Appeals for the Seventh Circuit affirmed the directed verdict in favor of defendants on the conspiracy allegations, and remanded the case for further proceedings on one issue. After remand, the federal district court granted summary judgment to the defendant manufacturers on that issue. In 1997, the Consolidated Class Action plaintiffs also filed a complaint against the defendants that settled the Consolidated Class Action, including the Company. The class action plaintiffs allege that the settling defendants conspired to not implement the affirmative obligations in the settlement agreements which were before the Seventh Circuit Court of Appeals and not yet final at that time. The complaint seeks class action status and requests preliminary and permanent injunctions. It does not request money damages. The request for a preliminary injunction was denied. In addition to the federal actions, similar litigation on behalf of consumers or retail pharmacies has been brought in various state courts, including purported class actions in Alabama, Arizona, California, Colorado, District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, Mississippi, New Mexico, New York, North Carolina, North Dakota, South Dakota, Tennessee, Washington, West Virginia and Wisconsin. The Company and other defendants have settled the actions in Arizona, California, District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New Mexico, New York, North Carolina, North Dakota, South Dakota, Tennessee, West Virginia and Wisconsin. The Company and other defendants have also settled a purported class action with similar allegations under state antitrust, unfair competition and unitary pricing laws in Wisconsin state court on behalf of retail pharmacies located in that state. The actions in Colorado and Washington were dismissed on pre-trial motions. In Alabama, the Supreme Court held that Alabama state antitrust law did not apply to primarily interstate agreements. Subsequently, the claims filed under Alabama antitrust law were dismissed. During 2000, the Company has also settled a case brought by Mississippi retailers (Montgomery Drug Company, et al. v. Upjohn Company, et al., No. 97-0103, Ch. Ct. Miss) that opted out of the Consolidated Class Action. The terms of the settlement are not material to the Company. The Company and other defendants have also entered settlement agreements in the consumer cases in New Mexico, North Dakota, South Dakota and West Virginia. These settlements are subject to court approval in each state. The Company's payments under these settlements amounted to approximately $420,000. The Company and other defendants have also entered a settlement in a case in California state court brought on behalf of certain retailers that opted out of the federal class action case. The amount of this settlement is not material to the Company. While the Company believes that it had no liability in these cases, the settlements were made to resolve expensive and burdensome complex litigation. The settlements state that they shall not be deemed to be an admission or any evidence of any wrongdoing by the Company or the truth of any of the claims alleged. I-18 The cases currently remaining against the Company in the brand name prescription drugs litigation are the remaining individual cases in MDL 997, including a case brought by the Rite Aid Corporation and Revco D.S. Inc. and certain other cases brought by pharmacies that opted out of the class action settlement. Additionally, a new case (Paradise Drugs, Inc., et al. v. Abbott Labs., et al., CV 793852, Sup. Ct., Cty. of Santa Clara) was filed in state court in California by approximately 56 pharmacy plaintiffs that opted out of the federal class action case. The allegations in this case are similar to those in the other cases filed in this litigation. Additionally, the FTC has been investigating allegations of concerted action in the pricing of pharmaceutical products and, in February 1998, the Company provided information in response to a subpoena. In an action commenced in state court in Texas in January 1997 by Avatex Corporation (formerly FoxMeyer Health Corporation) against McKesson Corp., the Company's Wyeth-Ayerst Laboratories Division and eleven other manufacturers, which was removed to U.S. District Court of the Northern District of Texas (Civil Action No. 3:99-CV-0010-L) and referred to U.S. Bankruptcy Court in Dallas, Texas (Adv. No. 397-3052, U.S.B.C., N.D. Tex.), Avatex alleged a conspiracy to drive Avatex's subsidiary into bankruptcy, ostensibly so that McKesson could then purchase the drug distribution operations of the subsidiary at a discounted price. In order to resolve complex and burdensome litigation, this case was settled in November 2000 for an amount that is not material to the Company and without any admission of liability. Plaintiffs in a purported class action commenced in 1997 in state court in Tennessee, Fox v. American Cyanamid Company (No. 19,996, Ch. Ct. Obion Cty., Tenn.) alleged violations of state antitrust and consumer protection laws by Cyanamid concerning pricing practices relating to marketing programs for crop protection products. The action purported to be on behalf of indirect purchasers of Cyanamid's crop protection products in the states of Tennessee, Alabama, California, Florida, Kansas, Maine, Michigan, Minnesota, Mississippi, New Mexico, North Carolina, North Dakota, South Dakota, West Virginia, Wisconsin and the District of Columbia. An agreement to settle the case for $5.2 million was initially approved by the court but was subsequently set aside. Plaintiffs have filed an amended complaint on behalf of a purported class of indirect purchasers in Tennessee and Kansas only. Cyanamid filed an interlocutory appeal of the decision setting aside the settlement. At the request of the parties, the appeals court has stayed consideration of the appeal. The Company subsequently entered into agreements to settle this case and the Lowell case (described below) for a total amount of $15 million. The settlements are subject to the approval of the courts in both cases. I-19 A purported class action in federal court in Alabama, Lowell v. American Cyanamid Company (No. 97-581-BH-M, U.S.D.C., S.D. Ala.) alleges violations of federal antitrust laws involving pricing practices relating to marketing programs for crop protection products. This action was dismissed but the U.S. Court of Appeals for the 11th Circuit reversed the dismissal and plaintiffs then filed an amended complaint with similar allegations. The Company has entered into agreements to settle this case and the Fox case described above for a total amount of $15 million. The settlements are subject to the approval of the courts in both cases. The settlements in the Fox and Lowell cases were made to resolve expensive and burdensome complex litigation and are not an admission of wrongdoing by the Company or the truth of any of the claims alleged. The FTC is conducting an investigation of possible anticompetitive effects of the settlement of a patent litigation between Schering- Plough and ESI Lederle relating to ESI Lederle's generic version of Schering-Plough's long acting potassium chloride product. The Company has responded to a subpoena issued by the FTC. In 1999, the Brazilian Administrative Economic Defense Agency ("SDE") and other government bodies initiated investigations of Laboratories Wyeth-Whitehall Ltda. and other pharmaceutical companies concerning possible violation of Brazilian competition laws. SDE alleges that the companies 1) sought to establish uniform commercial policies regarding wholesalers and 2) refused to sell product to wholesalers that distribute generic products manufactured by certain Brazilian pharmaceutical companies. Additionally, administrative investigations by SDE are looking at allegations that the Company and other pharmaceutical companies violated Brazilian antitrust and consumer protection laws by raising prices unlawfully. The Company has provided information to SDE and other government bodies. In 1999, an application from certain drug wholesalers alleging that the Company and certain other pharmaceutical companies violated South Africa's competition law by using a distributor jointly owned by the companies, resulted in an investigation by the Competition Commission in South Africa regarding this matter. The Company is cooperating with the Competition Commission and has responded to the Commission's request for information. As discussed in Item I, the Company is a party to, or otherwise involved in, legal proceedings under CERCLA and similar state laws directed at the cleanup of various sites including 59 Superfund sites, including the Cyanamid-owned Bound Brook, N.J. site. The Company's potential liability varies greatly from site to site. For some sites, the potential liability is de minimis and, for others, the final costs of cleanup have not yet been determined. As assessments and cleanups proceed, these liabilities are reviewed periodically and are adjusted as additional information becomes available. Environmental liabilities are inherently unpredictable. The liabilities can change substantially due to such factors as additional information on the nature or extent of contamination, methods of remediation required and other actions by governmental agencies or private parties. The 59 Superfund sites exclude sites for which Cytec assumed full liability and agreed to indemnify Cyanamid but include certain sites for which there is shared responsibility between Cyanamid and Cytec. The Company has no reason to believe that it has any practical exposure to any of the liabilities against which Cytec has agreed to assume and indemnify Cyanamid. I-20 In the opinion of the Company, although the outcome of any litigation cannot be predicted with certainty, the ultimate liability of the Company in connection with pending litigation and other matters described above will not have a material adverse effect on the Company's financial position but could be material to the results of operations in any one accounting period. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None. I-21 EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 16, 2001 - --------------------------------------------------------- Each officer is elected to hold office until a successor is chosen or until earlier removal or resignation. None of the executive officers is related to another: Elected to Name Age Offices and Positions Office ---- --- --------------------- ------ John R. Stafford 63 Chairman of the Board and Chief December 1986 Executive Officer Chairman of Executive, Finance, Operations and Retirement Committees (Chairman of the Board as of May 1, 2001) Business Experience: 1991 to date, Chairman of the Board and Chief Executive Officer (President from 1981 to May 1990 and from February 1994 to July 2000) Robert Essner 53 President and Chief Operating July 2000 Officer Director, Member of Executive, Finance, Operations and Retirement Committees (Chief Executive Officer as of May 1, 2001) Business Experience: To March 1997, President, Wyeth-Ayerst Laboratories, U.S. Pharmaceuticals Business March 1997 to September 1997, President, Wyeth-Ayerst Global Pharmaceuticals September 1997 to July 2000, Executive Vice President July 2000 to date, President and Chief Operating Officer Louis L. Hoynes, Jr. 65 Executive Vice President and July 2000 General Counsel Member of Finance, Operations and Retirement Committees Business Experience: 1991 to July 2000, Senior Vice President and General Counsel July 2000 to date, Executive Vice President and General Counsel I-22 L. Patrick Gage, Ph.D. 58 Senior Vice President- January 2001 Science and Technology Member of Operations Committee Business Experience: To January 1997, Chief Operating Officer, Genetics Institute January 1997 to March 1998, President, Genetics Institute March 1998 to January 2001, President, Wyeth-Ayerst Research January 2001 to date, Senior Vice President, Science and Technology Kenneth J. Martin 47 Senior Vice President and February 2000 Chief Financial Officer Member of Finance, Operations and Retirement Committees Business Experience: To October 1996 President, American Home Foods November 1996 to February 1997 President, International Home Foods, Inc. February 1997 to March 1997 Executive Vice President, Wyeth-Ayerst Pharmaceuticals March 1997 to September 1998 President, Whitehall-Robins October 1998 to January 2000 Senior Vice President and Chief Financial Officer, Wyeth-Ayerst Pharmaceuticals February 2000 to date, Senior Vice President and Chief Financial Officer David M. Olivier 57 Senior Vice President January 1996 Member of Finance and Operations Committees Business Experience: To January 1996, President, Wyeth-Ayerst International, Inc. January 1996 to date, Senior Vice President I-23 Bernard J. Poussot 49 Senior Vice President January 2001 Member of Operations Committee Business Experience: To January 1996, Executive Vice President, Wyeth-Ayerst International January 1996 to September 1997, President, Wyeth-Ayerst International September 1997 to January 2001, President, Wyeth-Ayerst Pharmaceuticals January 2001 to date, Senior Vice President Paul J. Jones 55 Vice President and Comptroller April 1995 Member of Finance and Operations Committees Business Experience: To April 1995, Senior Vice President - Finance and Administration, Wyeth-Ayerst Laboratories Division April 1995 to date, Vice President and Comptroller Rene R. Lewin 54 Vice President - Human Resources May 1994 Member of Finance and Retirement Committees Business Experience: To May 1994, Executive Director Human Resources - Worldwide Pharmaceutical Division, Eli Lilly and Company May 1994 to date, Vice President - Human Resources Thomas M. Nee 61 Vice President - Taxes May 1986 Member of Finance and Retirement Committees Business Experience: 1991 to date, Vice President - Taxes I-24 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED ------------------------------------------------ STOCKHOLDER MATTERS ------------------- The New York Stock Exchange is the principal market on which the Company's Common Stock is traded. Tables showing the high and low sales price for the Common Stock, as reported in the consolidated transaction reporting system, and the dividends paid per common share for each quarterly period during the past two years, as presented in Market Prices of Common Stock and Dividends on page 51 of the Company's 2000 Annual Report to Stockholders, are incorporated herein by reference. There were 57,885 holders of record of the Company's Common Stock as of March 2, 2001. ITEM 6. SELECTED FINANCIAL DATA ----------------------- The data with respect to the last five fiscal years, appearing in the Ten-Year Selected Financial Data presented on pages 30 and 31 of the Company's 2000 Annual Report to Stockholders, are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations, appearing on pages 52 through 59 of the Company's 2000 Annual Report to Stockholders, is incorporated herein by reference. ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The Market Risk Disclosures as set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations, appearing on pages 58 and 59 of the Company's 2000 Annual Report to Stockholders, are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The Consolidated Financial Statements and Notes to Consolidated Financial Statements on pages 32 through 49 of the Company's 2000 Annual Report to Stockholders, the Report of Independent Public Accountants on page 50, and Quarterly Financial Data on page 51, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. II-1 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- (a) Information relating to the Company's directors is incorporated herein by reference to pages 2 through 4 of a definitive proxy statement that will be filed with the Securities and Exchange Commission on or about March 19, 2001 ("the 2001 Proxy Statement"). (b) Information relating to the Company's executive officers as of March 16, 2001 is furnished in Part I hereof under a separate unnumbered caption ("Executive Officers of the Registrant as of March 16, 2001"). (c) Information relating to certain filing obligations of directors and executive officers of the Company under the federal securities laws set forth on page 5 of the 2001 Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION ---------------------- Information relating to executive compensation is incorporated herein by reference to pages 8 through 15 (excluding the performance graph on page 13) of the 2001 Proxy Statement. Information with respect to compensation of directors is incorporated herein by reference to pages 4 and 5 of the 2001 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- Information relating to security ownership is incorporated herein by reference to pages 6 and 7 of the 2001 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- None. III-1 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ---------------------------------------------------------------- (a)1. Financial Statements -------------------- The following Consolidated Financial Statements, Notes to Consolidated Financial Statements and Report of Independent Public Accountants, included on pages 32 through 50 of the Company's 2000 Annual Report to Stockholders, are incorporated herein by reference. Pages ----- Consolidated Balance Sheets as of December 31, 2000 and 1999 32 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 33 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 34 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 35 Notes to Consolidated Financial Statements 36-49 Report of Independent Public Accountants 50 (a)2. Financial Statement Schedules ----------------------------- The following consolidated financial information is included in Part IV of this report: Pages ----- Report of Independent Public Accountants on Supplemental Schedule IV-8 Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2000, 1999 and 1998 IV-9 Schedules other than those listed above are omitted because they are not applicable. IV-1 (a)3. Exhibits -------- Exhibit No. Description ----------- ----------- (3.1) The Company's Restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3.1 of the Company's Form 10/A dated May 4, 1998. (3.2) The Company's By-Laws are incorporated herein by reference to Exhibit 3.2 of the Company's Form 10-Q for the quarter ended September 30, 2000. (4.1) Indenture, dated as of April 10, 1992, between the Company and The Chase Manhattan Bank (successor to Chemical Bank), as Trustee, is incorporated by reference to Exhibit 2 of the Company's Form 8-A dated August 25, 1992 (File 1-1225). (4.2) Supplemental Indenture, dated October 13, 1992, between the Company and The Chase Manhattan Bank (successor to Chemical Bank), as Trustee, is incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 1992 (File 1-1225). (4.3) Rights Agreement, dated as of October 13, 1999, by and between the Company and Mellon Investor Services LLC (formerly ChaseMellon Shareholder Services, L.L.C.), as Rights Agent, is incorporated herein by reference to Exhibit 4.1 of the Company's Form 8-A, dated October 14, 1999. (4.4) Amendment to Rights Agreement, dated as of November 3, 1999, between the Company and Mellon Investor Services LLC (formerly ChaseMellon Shareholder Services L.L.C.), as Rights Agent, is incorporated by reference to Exhibit 4.3 of the Company's Form 8-A/A dated November 18, 1999. (4.5) Certificate of Designation of Series A Junior Participating Preferred Stock of the Company is incorporated herein by reference to Exhibit 4.2 of the Company's Form 8-A, dated October 14, 1999. (10.1) Purchase Agreement, by and among American Cyanamid Company, American Home Products Corporation and BASF Aktiengesellschaft, dated as of March 20, 2000 is incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2000 (Confidential Treatment Requested - confidential portions have been omitted and filed separately with the Commission). (10.2) First Amendment to the Purchase Agreement, by and among American Cyanamid Company, American Home Products Corporation, and BASF Aktiengesellschaft dated as of June 30, 2000 is incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on July 17, 2000 (Confidential Treatment Requested - confidential portions have been omitted and filed separately with the Commission). (10.3) Second Amendment to the Purchase Agreement, by and among American Cyanamid Company, American Home Products Corporation, and BASF Aktiengesellschaft dated as of December 9, 2000 (Confidential Treatment Requested - confidential portions have been omitted and filed separately with the Commission). IV-2 (10.4) B Credit Agreement, dated as of September 9, 1994, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank (successor to Chemical Bank), as agent for the lenders thereunder, filed as Exhibit 11(b)(3) to Amendment No. 7 to the Schedule 14D-1, dated September 22, 1994 (File 1-1225), is incorporated herein by reference. (10.5) First Amendment to B Credit Agreement, dated as of August 4, 1995, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank (successor to Chemical Bank), as agent for the lenders thereunder, is incorporated by reference to Exhibit 10.4 of the Company's Form 10-K for the year ended December 31, 1995. (10.6) Second Amendment to B Credit Agreement, dated as of August 2, 1996, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank (successor to Chemical Bank), as agent for the lenders thereunder, is incorporated by reference to Exhibit 10.6 of the Company's Form 10-K for the year ended December 31, 1996. (10.7) Third Amendment to B Credit Agreement, dated as of July 31, 1997, among the Company, Sherwood Medical Company, A.H. Robins Company, Incorporated, AC Acquisition Holding Company, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank (successor to Chemical Bank), as agent for the lenders thereunder, is incorporated by reference to Exhibit 10.8 of the Company's Form 10-K for the year ended December 31, 1997. (10.8) Letter, dated March 26, 1998, amending the B Credit Agreement, among the Company, AC Acquisition Holding Company, A.H. Robins Company, Incorporated, the lender parties thereto and The Chase Manhattan Bank (successor to Chemical Bank), as Agent, dated as of September 9, 1994 and as amended is incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended March 31, 1998. (10.9) Credit Agreement, dated as of March 5, 2001 among the Company, the banks and other financial institutions from time to time parties and The Chase Manhattan, as administrative agent for the lenders thereto. (10.10) Bridge Credit Agreement, dated as of March 5, 2001 among the Company, the banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank, as administrative agent for the lenders thereto. IV-3 (10.11)* 1985 Stock Option Plan, as amended, is incorporated by reference to Exhibit 10.4 of the Company's Form 10-K for the year ended December 31, 1991 (File 1-1225). (10.12)* Amendment to the 1985 Stock Option Plan is incorporated by reference to Exhibit 10.9 of the Company's Form 10-K for the year ended December 31, 1995 (File 1-1225). (10.13)* Amendment to the 1985 Stock Option Plan is incorporated by reference to Exhibit 10.12 of the Company's Form 10-K for the year ended December 31, 1996. (10.14)* 1990 Stock Incentive Plan is incorporated by reference to Exhibit 28 of the Company's Form S-8 Registration Statement File No. 33-41434 under the Securities and Exchange Act of 1933, filed June 28, 1991 (File 1-1225). (10.15)* Amendment to the 1990 Stock Incentive Plan is incorporated by reference to Exhibit 10.13 of the Company's Form 10-K for the year ended December 31, 1995 (File 1-1225). (10.16)* Amendment to the 1990 Stock Incentive Plan is incorporated by reference to Exhibit 10.21 of the Company's Form 10-K for the year ended December 31, 1996. (10.17)* 1993 Stock Incentive Plan, as amended to date, is incorporated by reference to Appendix III of the Company's definitive Proxy Statement filed March 18, 1999. (10.18)* 1996 Stock Incentive Plan, as amended to date, is incorporated by reference to Appendix II of the Company's definitive Proxy Statement filed March 18, 1999. (10.19)* 1999 Stock Incentive Plan is incorporated by reference to Appendix I of the Company's definitive Proxy Statement filed March 18, 1999. (10.20)* Form of Stock Option Agreement (phased vesting) is incorporated by reference to Exhibit 10.17 of the Company's Form 10-K for the year ended December 31, 1999. (10.21)* Form of Special Stock Option Agreement (phased vesting) is incorporated by reference to Exhibit 10.27 of the Company's Form 10-K for the year ended December 31, 1995 (File 1-1225). (10.22)* Form of Special Stock Option Agreement (three-year vesting) is incorporated by reference to Exhibit 10.28 of the Company's Form 10-K for the year ended December 31, 1995 (File 1-1225). (10.23)* Amendment to Special Stock Option Agreement is incorporated by reference to Exhibit 10.30 of the Company's Form 10-K for the year ended December 31, 1996. (10.24)* Form of Stock Option Agreement (transferable options) is incorporated by reference to Exhibit 10.21 of the Company's Form 10-K for the year ended December 31, 1999. IV-4 (10.25)* Form of Restricted Stock Performance Award Agreement under the 1996 Stock Incentive Plan and 1999 Stock Incentive Plan (Subsequent Award). (10.26)* Restricted Stock Trust Agreement under the 1993 Stock Incentive Plan is incorporated by reference to Exhibit 10.23 of the Company's Form 10-K for the year ended December 31, 1995 (File 1-1225). (10.27)* Management Incentive Plan, as amended to date is incorporated by reference to Exhibit 10.27 of the Company's Form 10-K for the year ended December 31, 1999. (10.28)* 1994 Restricted Stock Plan for Non-Employee Directors, as amended to date, is incorporated by reference to Exhibit 10.27 of the Company's Form 10-K for the year ended December 31, 1998. (10.29)* Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.28 of the Company's Form 10-K for the year ended December 31, 1998. (10.30)* Form of Stock Option Agreement under the Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.30 of the Company's Form 10-K for the year ended December 31, 1999. (10.31)* Savings Plan, as amended, is incorporated by reference to Exhibit 99 of the Company's Form S-8 Registration Statement File No. 33-50149 under the Securities and Exchange Act of 1933, filed September 1, 1993 (File 1-1225). (10.32)* Retirement Plan for Outside Directors, as amended on January 27, 1994, is incorporated by reference to Exhibit 10.12 of the Company's Form 10-K for the year ended December 31, 1993 (File 1-2225). (10.33)* Directors' Deferral Plan is incorporated by reference to Exhibit 10.37 of the Company's Form 10-K for the year ended December 31, 1996. (10.34)* Deferred Compensation Plan as amended to date. (10.35)* Executive Retirement Plan is incorporated by reference to Exhibit 10.2 of the Company's Form 10-Q for the quarter ended September 30, 1997. (10.36)* Supplemental Employee Savings Plan is incorporated by reference to Exhibit 10.42 of the Company's Form 10-K for the year ended December 31, 1997. (10.37)* Supplemental Executive Retirement Plan is incorporated by reference to Exhibit 10.6 of the Company's Form 10-K for the year ended December 31, 1990 (File 1-1225). IV-5 (10.38)* American Cyanamid Company's Supplemental Executive Retirement Plan is incorporated by reference to Exhibit 10K of American Cyanamid Company's Form 10-K for the year ended December 31, 1988 (File 1-3426). (10.39)* American Cyanamid Company's Supplemental Employees Retirement Plan Trust Agreement, dated September 19, 1989, between American Cyanamid Company and Morgan Guaranty Trust Company of New York is incorporated by reference to Exhibit 10K of American Cyanamid Company's Form 10-K for the year ended December 31, 1989 (File 1-3426). (10.40)* American Cyanamid Company's ERISA Excess Retirement Plan is incorporated by reference to Exhibit 10N of American Cyanamid Company's Form 10-K for the year ended December 31, 1988 (File 1-3426). (10.41)* American Cyanamid Company's Excess Retirement Plan Trust Agreement, dated September 19, 1989, between American Cyanamid Company and Morgan Guaranty Trust Company of New York is incorporated by reference to Exhibit 10M of American Cyanamid Company's Form 10-K for the year ended December 31, 1989 (File 1-3426). (10.42)* Form of Severance Agreement entered into between the Company and the executive officers specified therein is incorporated by reference to Exhibit 10.43 of the Company's Form 10-K for the year ended December 31, 1997. (10.43)* Form of Severance Agreement entered into between the Company and the executive officers specified therein is incorporated by reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended June 30, 1998. (12) Computation of Ratio of Earnings to Fixed Charges. (13) 2000 Annual Report to Stockholders. Such report, except for those portions thereof which are expressly incorporated by reference herein, is furnished solely for the information of the Commission and is not to be deemed "filed" as part of this filing. (21) Subsidiaries of the Company. (23) Consent of Independent Public Accountants relating to their report dated January 25, 2001, consenting to the incorporation thereof in Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456, 333-15509 and 333-76939) by reference to the Form 10-K of the Company filed for the year ended December 31, 2000. (99) Cautionary Statements regarding "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. IV-6 (99.1) Final Nationwide Class Action Settlement Agreement, dated November 18, 1999, as amended to date is incorporated by reference to Exhibit 99.1 of the Company's Form 10-Q for the quarter ended September 30, 2000. (99.2) Consent Decree, dated October 3, 2000, is incorporated by reference to Exhibit 99.2 of the Company's Form 10-Q for the quarter ended September 30, 2000. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. (b) Reports on Form 8-K ------------------- None. IV-7 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To American Home Products Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in American Home Products Corporation's Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York January 25, 2001 IV-8 American Home Products Corporation and Subsidiaries Schedule II - Valuation and Qualifying Accounts For the Years Ended December 31, 2000, 1999 and 1998 (Dollars in thousands)
Column A Column B Column C Column C Column D Column E 1 2 Balance Balance at Additions- at Beginning Charged to Adjustments Deductions End of Period Expense (A) (B) of Period ------------ -------------- -------------- -------------- ---------------- Description Year ended 12/31/00: Allowance for doubtful accounts $ 113,640 $ 30,187 $ 94 $ 29,918 $ 114,003 Allowance for cash discounts 28,119 204,032 (1,787) 200,217 30,147 ------------ -------------- -------------- -------------- ---------------- Total accounts receivable allowances $ 141,759 $ 234,219 $ (1,693) $ 230,135 $ 144,150 ============ ============== ============== ============== ================ Allowance for deferred tax assets $ 151,409 $ 74 $ (100,330) $ - $ 51,153 ============ ============== ============== ============== ================ Year ended 12/31/99(C): Allowance for doubtful accounts $ 123,650 $ 32,779 $ - $ 42,789 $ 113,640 Allowance for cash discounts 27,927 204,533 - 204,341 28,119 ------------ -------------- -------------- --------------- ---------------- Total accounts receivable allowances $ 151,577 $ 237,312 $ - $ 247,130 $ 141,759 ============ ============== ============== ============== ================ Allowance for deferred tax assets $ 237,174 $ 13,005 $ - $ 98,770 $ 151,409 ============ ============== ============== ============== ================ Year ended 12/31/98(C): Allowance for doubtful accounts $ 122,266 $ 53,717 $ - $ 52,333 $ 123,650 Allowance for cash discounts 28,480 184,933 - 185,486 27,927 ------------ -------------- -------------- -------------- ---------------- Total accounts receivable allowances $ 150,746 $ 238,650 $ - $ 237,819 $ 151,577 ============ ============== ============== ============== ================ Allowance for deferred tax assets $ 286,612 $ 10,245 $ - $ 59,683 $ 237,174 ============ ============== ============== ============== ================ (A) Represents an increase to the beginning balance as a result of the consolidation of pharmaceutical operations in India and Japan, effective January 1, 2000, which were previously accounted for on an equity basis. Also, the beginning balance relating to Immunex, which was deconsolidated effective January 1, 2000, was excluded. (B) Represents amounts used for the purposes for which the accounts were created and reversal of amounts no longer required. (C) As a result of the sale of the Cyanamid Agricultural Products business on June 30, 2000, amounts for the years 1998 and 1999 were restated, to reflect this business as a discontinued operation.
IV-9 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN HOME PRODUCTS CORPORATION ---------------------------------- (Registrant) March 16, 2001 By /S/ Kenneth J. Martin ------------------------- Kenneth J. Martin Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- Principal Executive Officer: /S/ John R. Stafford Chairman March 16, 2001 - -------------------------------- and Chief Executive Officer John R. Stafford Principal Operating Officer: /S/ Robert Essner President March 16, 2001 - -------------------------------- and Chief Operating Officer Robert Essner Principal Financial Officer: /S/ Kenneth J. Martin Senior Vice President March 16, 2001 - -------------------------------- and Chief Financial Officer Kenneth J. Martin Principal Accounting Officer: /S/ Paul J. Jones Vice President and March 16, 2001 - -------------------------------- Comptroller Paul J. Jones Directors: /S/ Clifford L. Alexander, Jr. Director March 16, 2001 - -------------------------------- Clifford L. Alexander, Jr. /S/ Frank A. Bennack, Jr. Director March 16, 2001 - -------------------------------- Frank A. Bennack, Jr. IV-10 /S/ Richard L. Carrion Director March 16, 2001 - -------------------------------- Richard L. Carrion /S/ John D. Feerick Director March 16, 2001 - -------------------------------- John D. Feerick /S/ John P. Mascotte Director March 16, 2001 - -------------------------------- John P. Mascotte /S/ Mary Lake Polan, M.D., Ph.D. Director March 16, 2001 - -------------------------------- Mary Lake Polan, M.D., Ph.D. /S/ Ivan G. Seidenberg Director March 16, 2001 - -------------------------------- Ivan G. Seidenberg /S/ Walter V. Shipley Director March 16, 2001 - -------------------------------- Walter V. Shipley /S/ John R. Torell III Director March 16, 2001 - -------------------------------- John R. Torell III IV-11 INDEX TO EXHIBITS ----------------- Exhibit No. Description ----------- ----------- (10.3) Second Amendment to the Purchase Agreement, by and among American Cyanamid Company, American Home Products Corporation, and BASF Aktiengesellschaft dated as of December 9, 2000 (Confidential Treatment Requested - confidential portions have been omitted and filed separately with the Commission). (10.9) Credit Agreement, dated as of March 5, 2001 among the Company, the banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank, as administrative agent for the lenders thereto. (10.10) Bridge Credit Agreement, dated as of March 5, 2001 among the Company, the banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank, as administrative agent for the lenders thereto. (10.25)* Form of Restricted Stock Performance Award Agreement under the 1996 Stock Incentive Plan and 1999 Stock Incentive Plan (Subsequent Award). (10.34)* Deferred Compensation Plan as amended. (12) Computation of Ratio of Earnings to Fixed Charges. (13) 2000 Annual Report to Stockholders. Such report, except for those portions thereof which are expressly incorporated by reference herein, is furnished solely for the information of the Commission and is not to be deemed "filed" as part of this filing. (21) Subsidiaries of the Company. (23) Consent of Independent Public Accountants relating to their report dated January 25, 2001, consenting to the incorporation thereof in Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456, 333-15509 and 333-76939) by reference to the Form 10-K of the Company filed for the year ended December 31, 2000. (99) Cautionary Statements regarding "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. EX-10.3 2 0002.txt CONFIDENTIAL TREATMENT Note: Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Commission under Rule 24b-2. The omitted confidential material has been filed separately with the Commission. The location of the omitted confidential information is indicated herein by an "X". SECOND AMENDMENT TO PURCHASE AGREEMENT This SECOND AMENDMENT, dated as of December 9, 2000 (the "Second Amendment"), to the PURCHASE AGREEMENT dated as of March 20, 2000, as amended by the First Amendment dated as of June 30, 2000 (the "Agreement"), by and among AMERICAN CYANAMID COMPANY, a Maine Corporation ("Cyanamid"), AMERICAN HOME PRODUCTS CORPORATION, a Delaware corporation ("AHP" and, together with Cyanamid, "Sellers"), and BASF Aktiengesellschaft, a corporation organized under the laws of Germany ("Buyer"). All terms not otherwise defined herein shall have the meanings ascribed thereto in the Agreement. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the parties hereto have heretofore entered into the Agreement; WHEREAS, the parties hereto have entered into the First Amendment to the Purchase Agreement effective as of June 30, 2000 (the "First Amendment"); WHEREAS, the parties hereto desire to further amend the Agreement as provided in this Second Amendment; NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements herein contained, and for other good and valuable consideration, the parties hereto, intending to be legally bound, agree as follows: 1. With respect to certain Joint Venture Interests, the Agreement is hereby amended as follows: (i) by adding to Section 3.4(d) of the Agreement the words "Transferable Joint Venture Interests, and the" before the word "Other" in the second line of such Section; and (ii) by deleting from Section 3.4(d) of the Disclosure Schedule the first paragraph and substituting in lieu thereof the language set forth on Annex I to this Second Amendment. Buyer hereby agrees (i) to pay all out-of-pocket costs related to the formation of any new companies and all transfer taxes, fees, duties (excluding income and net worth taxes) and other out-of-pocket costs related to the changes and actions set forth in Annex I hereto, but only to the extent that such costs exceed the costs that would have been incurred had such changes and actions not occurred, and (ii) that any breach of any representation, warranty or covenant of Sellers contained in the Agreement occurring as a result of such actions or changes shall be deemed not to have occurred and shall not entitle Buyer to any right, remedy or recourse against Sellers or their Affiliates in respect thereto. 2. With respect to certain pension liabilities, and for purposes of clarification only, the Agreement is hereby amended as follows: (i) by adding an "(a)" before the word "Seller" in the first line of Section 7.14 (which is set forth in Section 16 of the First Amendment); and (ii) by inserting new paragraphs (b), (c),(d), (e) and (f) to Section 7.14 as follows: "(b) For purposes of this Section 7.14 only, the definitions set forth on Annex II to the Second Amendment shall apply to the defined terms used in this Section 7.14. (c) Pension liabilities with respect to Active Employees and Vested Employees are included in the Excluded Liabilities and shall remain Sellers' responsibility. Sellers shall promptly reimburse Buyer or its Affiliates for any payments made by Buyer or its Affiliates either to Active Employees or Vested Employees for pension benefits under the pension plan maintained on their behalf as in effect on the Closing Date, together with an amount for reasonable administration costs incurred with respect to such payment. (d) Pension liabilities with respect to Retirees are included in the Assumed Liabilities and shall be Buyer's responsibility. Buyer shall promptly reimburse Sellers or their Affiliates for any payments made by Sellers or their Affiliates to Retirees for pension benefits under the pension plan maintained on their behalf, together with an amount for reasonable administration costs incurred with respect to such payment. (e) Pension liabilities for those employees of XXXX who are not Transferred Employees remain with XXXX, are included in the Assumed Liabilities and shall be Buyer's responsibility. Buyer shall promptly reimburse Sellers or their Affiliates for any payments made by Sellers or their Affiliates to such employees for pension benefits under the pension plan maintained on their behalf, together with an amount for reasonable administration costs incurred with respect to such payment. (f) Sellers and Buyer shall establish reasonable and adequate procedures to keep each other regularly and in a timely manner informed about any requests for reimbursement of pension benefits as outlined in paragraphs (c), (d) and (e) above." Within thirty (30) days after the date of this Second Amendment, Sellers shall provide Buyer with a complete list of the Transferred Employees which upon such delivery shall be deemed to be Annex III to this Second Amendment. 3. The Agreement is hereby amended by inserting after the word "claim" in the ninth line of such Section 11.2(a) the following: "; provided that the failure of the Aggrieved Party to give such notice or any delay thereof shall not affect the Aggrieved Party's rights to indemnification hereunder, except to the extent such failure or delay impairs the Indemnifying Party's ability to defend or contest any such claim, action, proceeding or litigation" 4. The Agreement is hereby amended by deleting the period at the end of paragraph (viii) of Section 11.1(a) and substituting in lieu thereof "; or" and by inserting the following language following paragraph (viii) of Section 11.1(a): "(ix) any liability, other than an Assumed Liability or an Excluded Liability, of a Company to the extent arising out of the conduct of a business, other than the Business, by such Company prior to the Closing, except in the event that such liability relates to an asset held by such Company at Closing (other than assets held by a Company at Closing which are not Assets and which are subsequently transferred by Buyer or its Affiliates to Sellers or their Affiliates) and such asset or liability is reflected in the Financial Statements or the Closing Statement." 5. The Agreement is hereby amended by deleting from paragraph (b) of Exhibit A the reference to "XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX." 6. Pursuant to Section 3.5(c) of the Agreement, the parties hereby agree that the Final Net Asset Value shall be $XXXXXXXXXXXXX. In connection therewith, the Purchase Price adjustment to be paid by Buyer to Sellers pursuant to Section 3.5(c)of the Agreement shall be reduced by $XXXXXXXXXX, the amount of the pension accrual referred to in Section 27 of the First Amendment, resulting in a final Purchase Price adjustment to be paid by Buyer to Sellers of $XXXXXXXXXXX. Further in connection therewith, the parties agree that Buyer shall not be entitled to seek indemnification under Section 7.5 or Article 11 of the Agreement for (i) any matter contained in the Notice of Disagreement, (ii) any matter relating to the Notice of Disagreement presented to Sellers up to and including December 8, 2000, and (iii) any matter discussed up to and including December 8, 2000 in connection with (i) or (ii) above, and (iv) the effect of any of the foregoing on the representations, warranties, agreements and covenants contained in the Agreement. 7. The parties hereby agree that the Allocation pursuant to Section 7.5(d)(iii) of the Agreement shall be mutually agreed to by the parties. 8. The Agreement is hereby amended by inserting after the word "bonus" in the second line of each of Sections 9.4(a)(iv) and 9.6(h) the following: "(other than the 2000 Bonus Plan attached as Annex V to the Second Amendment)" 9. Exhibit A to the Agreement is amended by deleting "XXXXXXXXXXXXXX XXXXXXXXXXXX." from Section (b) of Exhibit A (Companies) and adding it to Section (a) of Exhibit A (Asset Transferor Entities). Buyer hereby agrees (i) to pay all out-of-pocket costs related to the formation of any new companies and all transfer taxes, fees, duties (excluding income and net worth taxes) and other out-of-pocket costs related to the changes and actions set forth above, but only to the extent that such costs exceed the costs that would have been incurred had such changes and actions not occurred, and (ii) that any breach of any representation, warranty or covenant of Sellers contained in the Agreement occurring as a result of such actions or changes shall be deemed not to have occurred and shall not entitle Buyer to any right, remedy or recourse against Sellers or their Affiliates in respect thereto. 10. This Second Amendment shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of New York. 11. The parties hereto agree that the U.S. District Court for the Southern District of New York shall have exclusive jurisdiction over any dispute or controversy arising out of or in relation to this Second Amendment and any judgment, determination, arbitration award, finding or conclusion reached or rendered in any other jurisdiction shall be null and void between the parties hereto. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other party with respect thereto. 12. This Second Amendment may be executed in one or more counterparts which together shall constitute a single agreement. If any provisions of this Second Amendment shall be held to be illegal, invalid or unenforceable under any applicable law, then such contravention or invalidity shall not invalidate the entire Second Amendment. Such provision shall be deemed to be modified to the extent necessary to render it legal, valid and enforceable, and if no such modification shall render it legal, valid and enforceable, then this Second Amendment shall be construed as if not containing the provision held to be invalid, and the rights and obligations of the parties shall be construed and enforced accordingly. 13. This Second Amendment constitutes an amendment to the Agreement pursuant to Section 12.4 of the Agreement. Except as expressly amended by the First Amendment and this Second Amendment, each and every provision of the Agreement remains in full force and effect in accordance with the terms thereof and, by reference, the terms and provisions of the Agreement are incorporated herein and made a part hereof. IN WITNESS WHEREOF, this Second Amendment has been signed by each of the parties hereto as of the date provided above. AMERICAN CYANAMID COMPANY By: _______________________________________ Name: Title: AMERICAN HOME PRODUCTS CORPORATION By: _______________________________________ Name: Title: BASF AKTIENGESELLSCHAFT By: _______________________________________ Name: Title: BASF AKTIENGESELLSCHAFT By: _______________________________________ Name: Title: EX-10.9 3 0003.txt [Credit Facility] [Execution Copy] CREDIT AGREEMENT among AMERICAN HOME PRODUCTS CORPORATION, THE LENDERS PARTIES HERETO JP MORGAN, as Bookrunner and Lead Arranger CITIBANK, N.A., as Syndication Agent COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as Documentation Agent and THE CHASE MANHATTAN BANK, as Administrative Agent - ------------------------------------------------------------------------------ Dated as of March 5, 2001 - ------------------------------------------------------------------------------ $3,000,000,000 CREDIT AGREEMENT, dated as of March 5, 2001, among AMERICAN HOME PRODUCTS CORPORATION, a Delaware corporation (the "Company"), the several banks and other financial institutions from time to time parties to this Agreement (collectively, the "Lenders"; individually, a "Lender"), CITIBANK, N.A., as syndication agent (in such capacity, the "Syndication Agent"), COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as documentation agent (in such capacity, the "Documentation Agent") and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, the Company has requested the Lenders to make loans to it in an amount up to $3,000,000,000 as more particularly described herein; WHEREAS, the Lenders are willing to make such loans on the terms and conditions contained herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, terms defined in the preamble to this Agreement have the meanings therein indicated, and the following terms have the following meanings: "Absolute Rate Bid Loan Request": any Bid Loan Request requesting the Bid Loan Lenders to offer to make Bid Loans at an absolute rate (as opposed to a rate composed of the Applicable Index Rate plus (or minus) a margin). "Adjusted Capitalization": at any time, the sum of Consolidated Adjusted Indebtedness plus Consolidated Net Worth. "Administrative Agent": as defined in the first paragraph of this Agreement. "Affiliate": as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, a Person shall be deemed to be "controlled by" a Person if such Person possesses, directly or indirectly, power either (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Aggregate Commitments": at any time the sum of the Commitments then in effect hereunder. "Aggregate Facilities Commitments": at any time the sum of the Aggregate Commitments then in effect hereunder and of the commitments then in effect under the Bridge Credit Agreement. "Aggregate Loans": at a particular time, the sum of the then aggregate outstanding principal amount of Committed Rate Loans and Bid Loans. "Agreement": this Credit Agreement, as amended, supplemented or modified from time to time in accordance with its terms. "Alternate Base Rate": for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base C/D Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced); "Base C/D Rate" shall mean the sum (rounded upwards, if necessary, to the next 1/16 of 1%) of (a) the product of (i) the Three-Month Secondary C/D Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; "Three-Month Secondary C/D Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the immediately preceding Business Day) by the Board of Governors of the Federal Reserve System (the "Board") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board of Governors of the Federal Reserve System, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such immediately preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the immediately preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Base C/D Rate or the Federal Funds Effective Rate, or both, for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary C/D Rate or the Federal Funds Effective Rate shall be effective on the opening of business on the date of such change. "Alternate Base Rate Loans": Committed Rate Loans that bear interest at an interest rate based on the Alternate Base Rate. "Applicable Index Rate": in respect of any Bid Loan requested pursuant to an Index Rate Bid Loan Request, the Eurodollar Rate applicable to the Interest Period for such Bid Loan. "Applicable Margin": for any day, (x) in the case of Alternate Base Rate Loans, 0% and (y) in the case of Eurodollar Loans, the rate per annum set forth below opposite the Rating Period then in effect, provided that during a Significant Usage Period, the Applicable Margin for all such Loans shall be increased by (i) .125% during a Category A Period, a Category B Period and/or a Category C Period and (ii) .250% during a Category D Period: Eurodollar Rating Rate Period Margin - ----------------------------------------- ------------------------- Category A Period .305% Category B Period .42% Category C Period .65% Category D Period .875% "Base C/D Rate": as defined in the definition of Alternate Base Rate. "Bid Loan": each Bid Loan made pursuant to subsection 2.2. "Bid Loan Confirmation": each confirmation by the Company of its acceptance of Bid Loan Offers, which Bid Loan Confirmation shall be substantially in the form of Exhibit F and shall be delivered to the Administrative Agent by facsimile transmission. "Bid Loan Date": in respect of a Bid Loan, the day on which a Bid Loan Lender makes such Bid Loan pursuant to subsection 2.2. "Bid Loan Lenders": Lenders from time to time designated as Bid Loan Lenders by the Company by written notice to the Administrative Agent (which notice the Administrative Agent shall transmit to each such Bid Loan Lender). "Bid Loan Offer": each offer by a Bid Loan Lender to make Bid Loans pursuant to a Bid Loan Request, which Bid Loan Offer shall contain the information specified in Exhibit D, in the case of an Absolute Rate Bid Loan Request, or E, in the case of an Index Rate Bid Loan Request, and shall be delivered to the Administrative Agent by facsimile transmission or by telephone immediately confirmed by facsimile transmission. "Bid Loan Request": each request by the Company for Bid Loan Lenders to submit bids to make Bid Loans, which shall contain the information in respect of such requested Bid Loans specified in Exhibit B and shall be delivered to the Administrative Agent by facsimile transmission or by telephone, immediately confirmed by facsimile transmission. "Borrowing Date": in respect of any Committed Rate Loan, the date such Committed Rate Loan is made. "Bridge Credit Agreement": the Credit Agreement, dated as of March 5, 2001 among the Company, the lenders party thereto and Chase, as administrative agent, as in effect from time to time. "Business": as defined in subsection 3.10(b). "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close; provided, however, that when used in connection with a rate determination, borrowing or payment in respect of a Eurodollar Loan or an Index Rate Bid Loan, the term "Business Day" shall also exclude any day on which commercial banks are not open for dealings in Dollar deposits in the London interbank market. "Category A Period": subject to the Category Rules, at any time that either (i) the S&P Credit Rating is A or better and the Short-Term Ratings are Tier I or (ii) the Moody's Credit Rating is A2 or better and the Short-Term Ratings are Tier I. "Category B Period": subject to the Category Rules, at any time that either (i) the S&P Credit Rating is A- or better or (ii) the Moody's Credit Rating is A3 or better and in either case a Category A Period is not then in effect. "Category C Period": subject to the Category Rules, at any time that either (i) the S&P Credit Rating is BBB+ or (ii) the Moody's Credit Rating is Baa1. "Category D Period": subject to the Category Rules, at any time that either (i) the S&P Credit Rating is BBB or lower or (ii) the Moody's Credit Rating is Baa2 or lower. "Category Rules": the Rating Period applicable at any time shall be: (a) except as provided in clause (b), (c) and (d) below, the highest Rating Period for which the Company meets either of the criteria set forth for such Rating Period, (b) except as provided in clauses (c) and (d) below, if the Credit Ratings differ by two or more Rating Period levels, the Rating Period which is one Rating Period above the Rating Period in which the lower Credit Ratings falls, (c) if one of the Credit Ratings falls in a Category D Period and the other Credit Rating falls in a higher Rating Period, a Category D Period and (d) if either S&P or Moody's fails to have outstanding at the time a Credit Rating due to the failure by the Company to provide requested information to, or otherwise to fully cooperate with, such rating agency in establishing a Credit Rating, a Category D Period. If the rating system of Moody's, S&P and/or Fitch shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, or if both Moody's and S&P shall fail to have outstanding a Credit Rating (other than by reason of the circumstances referred to in clause(d) of the preceding sentence), the Company and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the applicable Rating Period shall be determined by reference to the ratings most recently in effect prior to such change or cessation. "C/D Assessment Rate": for any day, the net annual assessment rate (rounded upward to the nearest 1/100th of 1%) determined by Chase to be payable on such day to the Federal Deposit Insurance Corporation or any successor ("FDIC") for FDIC's insuring time deposits made in Dollars at offices of Chase in the United States. "C/D Reserve Percentage": 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 one billion Dollars in respect of new non-personal time deposits in Dollars in New York City having a three month maturity and in an amount of $100,000 or more. "Chase": The Chase Manhattan Bank. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Commitment": as to any Lender, the obligation of such Lender to make Committed Rate Loans to the Company hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule I hereof, as such amount may from time to time be reduced in accordance with this Agreement; collectively, as to all the Lenders, the "Commitments". "Commitment Percentage": as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the Aggregate Commitments (or (x) at any time after the Termination Date, (y) at any time after the Commitments shall have expired or terminated and (z) for the purposes of declaring the Loans to be due and payable pursuant to Section 6, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of the Loans then outstanding). "Commitment Period": the period from and including the Effective Date to but not including the Termination Date or such earlier date on which the Commitments shall terminate as provided herein. "Commitment Transfer Supplement": a Commitment Transfer Supplement, substantially in the form of Exhibit G. "Committed Rate Loans": Loans made pursuant to subsection 2.1(a). "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "Company": as defined in the first paragraph of this Agreement. "Consolidated Adjusted Indebtedness": at any date of determination, (i) Consolidated Indebtedness at such date minus (ii) all cash, cash equivalents and marketable securities held by the Company and its Subsidiaries at such date free of liens, restrictions and other encumbrances (other than as arising by operation of law in the ordinary course of business). "Consolidated Indebtedness": at any date of determination, the principal amount of all Indebtedness of the Company and its Subsidiaries required in accordance with GAAP to be accounted for as debt, determined on a consolidated basis in accordance with GAAP, provided that there shall be excluded from Consolidated Indebtedness up to $500,000,000 in respect of Financing Leases arising as a result of sale-leaseback transactions and which would otherwise be included in the calculation of Consolidated Indebtedness. "Consolidated Net Worth": at any date of determination, the stockholders' equity of the Company and its Subsidiaries determined in accordance with GAAP and as would be reflected on a consolidated balance sheet of the Company and its Subsidiaries plus the minority interests reflected on such consolidated balance sheet; provided that there shall be excluded from determining Consolidated Net Worth of the Company and its Subsidiaries (i) any foreign currency translation adjustment which otherwise would be included therein, (ii) the non-cash effects of any accounting standards adopted or issued by the Financial Accounting Standards Board after September 9, 1994 and (iii) the non-cash effects of any unusual charges or restructuring charges. "Consolidated Tangible Assets": at the time of determination thereof, the aggregate amount of all assets (as reflected on a consolidated balance sheet of the Company and its Subsidiaries) after deducting therefrom all goodwill, trade names, trademarks, patents, unamortized debt discount and expenses (to the extent included in said aggregate amount of assets) and other like intangibles, as set forth on the most recent consolidated balance sheet of the Company and its Subsidiaries and computed in accordance with GAAP. "Continuing Director": as defined in subsection 6(h). "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Credit Ratings": at any time, the then Moody's Credit Rating and the then S&P Credit Rating. "Default": any of the events specified in Section 6, whether or not any requirement for the giving of notice or the lapse of time, or both, or any other condition, has been satisfied. "Documentation Agent": as defined in the first paragraph of this Amendment. "Dollars" and "$": dollars in lawful currency of the United States of America. "Effective Date": the date on which each of the conditions specified in subsection 4.1 are satisfied in full or waived in accordance with this Agreement. "Eligible Transferee": shall mean and include a commercial bank, financial institution or other "accredited investor" (as defined in Regulation D of the Securities Act of 1933, as amended). "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time be in effect during the term of this Agreement. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurodollar Loans": Committed Rate Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan or an Index Rate Bid Loan, the rate per annum equal to the rate of interest determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate Service (or otherwise on such service), the "Eurodollar Rate" shall be determined by reference to such other publicly available service for displaying eurodollar rates as may be agreed upon by the Administrative Agent and Company or, in the absence of such agreement, the "Eurodollar Rate" shall instead be the rate per annum equal to the average (rounded upward to the nearest 1/16 of 1%) of the respective rates notified to the Administrative Agent by each of the Reference Lenders as the rate at which such Reference Lender is offered Dollar deposits at or about 10:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Reference Lender are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount (i) in the case of Eurodollar Loans, comparable to the amount of the Eurodollar Loan of such Reference Lender to be outstanding during such Interest Period and (ii) in the case of an Index Rate Bid Loan by a Bid Loan Lender, equal to the amount of the Index Rate Bid Loan or Loans of such Bid Loan Lender to which such Interest Period applies. "Event of Default": any of the events specified in Section 6; provided, however, that any requirement for the giving of notice or the lapse of time, or both, or any other condition, has been satisfied. "Facility Fee": as defined in subsection 2.4. "Facility Fee Percentage": a percentage equal to at any time (i) during a Category A Period, .07%, (ii) during a Category B Period, .08%, (iii) during a Category C Period, .10% and (iv) during a Category D Period, .125%. "Federal Funds Effective Rate": as defined in the definition of "Alternate Base Rate". "Financing Lease": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "Fitch": Fitch, Inc. "GAAP": generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith. "Indebtedness": of any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Financing Leases, (d) all obligations of such Person in respect of acceptances issued or created for the account of such Person and (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Index Rate Bid Loan": any Bid Loan made at an interest rate based upon the Applicable Index Rate (as opposed to an absolute rate). "Index Rate Bid Loan Request": any Bid Loan Request requesting the Bid Loan Lenders to offer to make Index Rate Bid Loans at an interest rate equal to the Applicable Index Rate plus (or minus) a margin. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Interest Payment Date": (a) as to any Alternate Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding and the Maturity Date, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months after the first day of such Interest Period and the last day of such Interest Period. "Interest Period": (a) with respect to any Eurodollar Loan, (i) initially, the period commencing on the Borrowing Date or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Company in the notice of borrowing or notice of conversion given with respect thereto; and (ii) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Company by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; and (b) with respect to any Bid Loan, the period commencing on the Bid Loan Date with respect to such Bid Loan and ending on the date not less than 7 nor more than 180 days thereafter, as specified by the Company in such Bid Loan Request; provided that the foregoing provisions are subject to the following: (A) if any Interest Period pertaining to a Eurodollar Loan or an Index Rate Bid Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (B) any Interest Period pertaining to a Eurodollar Loan or an Index Rate Bid Loan that begins on the last 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 end on the last Business Day of the relevant calendar month; (C) if any Interest Period pertaining to a Bid Loan made pursuant to an Absolute Rate Bid Loan Request would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day; (D) if the Company shall fail to give notice as provided above, the Company shall be deemed to have selected an Alternate Base Rate Loan to replace the affected Eurodollar Loan; (E) any Interest Period in respect of (x) any Eurodollar Loan made at a time when a Term Out Notice has not been given or (y) any Bid Loan which, in each case, would otherwise extend beyond the Termination Date shall end on the Termination Date; and (F) any Interest Period in respect of any Loan that would otherwise extend beyond the Maturity Date shall end on the Maturity Date. "Lender": as defined in the first paragraph of this Agreement. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Financing Lease having substantially the same economic effect as any of the foregoing). "Loans": the collective reference to the Committed Rate Loans and the Bid Loans. "Majority Lenders": at any time, the Lenders whose Commitment Percentages hereunder aggregate in excess of 50%. "Material Adverse Effect": a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company to perform its obligations under this Agreement or (c) the validity or enforceability of this Agreement or the rights or remedies of the Administrative Agent or the Lenders hereunder. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Maturity Date": the Termination Date, provided that if the Company has delivered to the Administrative Agent a Term Out Notice, then the Maturity Date shall be the date which is the first anniversary of the Termination Date. "Moody's": Moody's Investors Service, Inc. "Moody's Credit Rating": at any time, the rating level (it being understood that numerical modifiers and (+) (-) modifiers shall constitute rating levels) then assigned by Moody's to the Company's senior unsecured long-term debt. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Participant": as defined in subsection 8.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Permitted Liens": 1. Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP (or, in the case of Subsidiaries with significant operations outside of the United States of America, generally accepted accounting principles in effect from time to time in their respective jurisdictions of incorporation); 2. 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 60 days or which are being contested in good faith by appropriate proceedings; 3. pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; 4. 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; and 5. any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses; provided that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement Lien shall be limited to all or a part of the property which secured the Lien so extended, renewed or replaced (plus improvements on such property). "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at any particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" as defined in the definition of Alternate Base Rate. "Properties": as defined in subsection 3.10(a). "Purchasing Lenders": as defined in subsection 8.6(c). "Rating Period": at any time, any of the Category A Period, the Category B Period, the Category C Period or the Category D Period as then in effect. "Reference Lenders": initially, Chase, Citibank, N.A. and Commerzbank Aktiengesellschaft. "Register": as defined in subsection 8.6(d). "Reorganization": with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA. "Replaced Lender" and "Replacement Lender": each as defined in subsection 2.18. "Reportable Event": any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty-day notice period is waived under subsections .22, .23, .25, .27, or .28 of PBGC Reg.ss.4043. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-laws or other organizational or governing documents of such Person, and each law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the Executive Vice President, the Senior Vice President and CFO, the Treasurer, the Comptroller, the Assistant Comptroller or the Assistant Treasurer of the Company. "S&P": Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. "S&P Credit Rating": at any time, the rating level (it being understood that numerical modifiers and (+) (-) modifiers shall constitute rating levels) then assigned by S&P to the Company's senior unsecured long-term debt. "Short-Term Ratings": at any time, the rating level then assigned by each of S&P, Moody's and Fitch to the Company's senior unsecured short-term debt. "SEC": the Securities and Exchange Commission. "Significant Subsidiary": any Subsidiary that satisfies the requirements of Rule 1-02(w) of Regulation S-X as adopted by the Securities and Exchange Commission under the provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 as in force on the date of this Agreement. "Significant Usage Period": any date (A) on which (i) the Aggregate Loans exceed 25% of the Aggregate Commitments and/or (ii) the Aggregate Loans plus the aggregate outstanding principal amount of the loans under the Bridge Credit Agreement exceed 25% of the Aggregate Facilities Commitments or (B) occurring after the Termination Date on which Loans are outstanding. "Single Employer Plan": any Plan which is subject to Title IV of ERISA, but is not a Multiemployer Plan. "Subsidiary": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. Notwithstanding the foregoing, Unrestricted Subsidiaries shall not be considered Subsidiaries of the Company for purposes of this Agreement, except that any Unrestricted Subsidiary shall be treated as a consolidated Subsidiary of the Company for purposes of calculating compliance with subsection 5.9 (and the definitions required to make such calculations) until such time as the Company certifies to the Administrative Agent that with respect to such Unrestricted Subsidiary, (x) the Company no longer desires to treat such Person as a consolidated Subsidiary for such purpose and (y) no creditor of such Person has recourse (whether pursuant to a guaranty or similar arrangement, or otherwise) to the Company or any of its Significant Subsidiaries with respect to any material obligations of such Person. "Syndication Agent": as defined in the first paragraph of this Agreement. "Taxes": as defined in subsection 2.17(a). "Termination Date": the earlier of (a) the Business Day immediately preceding the first anniversary of the Effective Date and (b) the date on which the Commitments shall terminate in accordance with the provisions of this Agreement. "Term Out Notice": a written notice given by the Company to the Administrative Agent (which will promptly transmit same to all the Lenders) given no more than 30 days and no less than one Business Day prior to the Termination Date stating that the Company has elected to extend the maturity of all Committed Rate Loans outstanding on the Termination Date to the date which is the first anniversary of the Termination Date (it being understood and agreed that the one Business Day notice requirement referred to above is not intended to limit or otherwise modify any other notice requirements provided in this Agreement). "Three-Month Secondary C/D Rate": as defined in the definition of Alternate Base Rate. "Tier I": at any time when at least two of the Short-Term Ratings are at or above the A-1, P-1 or F-1 levels. "Tranche": the collective reference to Eurodollar Loans whose Interest Periods begin and end on the same day. "Transferee": as defined in subsection 8.6(f). "Transfer Effective Date": as defined in each Commitment Transfer Supplement. "2.17 Certificate": as defined in subsection 2.17(b). "Type": as to any Loan, its nature as an Alternate Base Rate Loan or Eurodollar Loan, as the case may be. "Unrestricted Subsidiary": Any Person designated by the Company, in each case so long as (i) a majority of the equity interests are owned by the Company and its Subsidiaries and (ii) the Company and its Subsidiaries are unable to exercise control over such Person without material restriction. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. THE COMMITTED RATE LOANS; THE BID LOANS; AMOUNT AND TERMS 2.1 The Committed Rate Loans. (a) During the Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make loans (individually, a "Committed Rate Loan") to the Company from time to time in an aggregate principal amount at any one time outstanding not to exceed (after giving effect to the simultaneous use of the proceeds thereof to repay Loans) such Lender's Commitment, provided that no Committed Rate Loan shall be made hereunder which would result in the Aggregate Loans (after giving effect to the simultaneous use of the proceeds thereof to repay Loans) being in excess of the Aggregate Commitments then in effect. The Company may use the Commitments to borrow, repay and reborrow Committed Rate Loans from time to time during the Commitment Period, all in accordance with the terms and conditions hereof. (b) The Committed Rate Loans may be (i) Eurodollar Loans, (ii) Alternate Base Rate Loans or (iii) a combination thereof. (c) The Company may borrow Committed Rate Loans on any Business Day; provided, however, that the Company, shall give the Administrative Agent irrevocable notice thereof (which notice must be received by the Administrative Agent (i) prior to 12:00 Noon, New York City time, three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans and (ii) prior to 11:00 A.M., New York City time, on the requested Borrowing Date, in the case of Alternate Base Rate Loans). Each such notice shall be given by facsimile transmission substantially in the form of Exhibit A (with appropriate insertions) or shall be given by telephone (specifying the information set forth in Exhibit A) promptly confirmed by notice given by facsimile transmission substantially in the form of Exhibit A (with appropriate insertions). On the day of receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its share of each borrowing available to the Administrative Agent for the account of the Company at the office of the Administrative Agent set forth in subsection 8.2 by 11:00 A.M. (or 3:00 P.M., in the case of Alternate Base Rate Loans), New York City time, on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent as the Administrative Agent may direct. The proceeds of all such Committed Rate Loans will then be promptly made available to the Company by the Administrative Agent at the office of the Administrative Agent specified in subsection 8.2 by crediting the account of the Company on the books of such office of the Administrative Agent with the aggregate of the amount made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. (d) All Committed Rate Loans shall be due and payable upon the Maturity Date. 2.2 The Bid Loans. (a) The Company may borrow Bid Loans from time to time on any Business Day during the Commitment Period in the manner set forth in this subsection and in amounts such that the Aggregate Loans at any time outstanding shall not exceed (after giving effect to the simultaneous use of the proceeds thereof to repay Loans) the Aggregate Commitments at such time, provided, however, that the aggregate principal amount of the outstanding Bid Loans of a Bid Loan Lender may (but shall not be required to) exceed its Commitment. (b) (i) The Company, shall request Bid Loans by delivering a Bid Loan Request to the Administrative Agent, not later than 12:00 Noon (New York City time) four Business Days prior to the proposed Bid Loan Date (in the case of an Index Rate Bid Loan Request), and not later than 10:00 A.M. (New York City time) one Business Day prior to the proposed Bid Loan Date (in the case of an Absolute Rate Bid Loan Request). Each Bid Loan Request may solicit bids for Bid Loans in an aggregate principal amount of $50,000,000 or an integral multiple of $5,000,000 in excess thereof and for not more than three alternative Interest Periods for such Bid Loans. The Interest Period for each Bid Loan shall end not less than 7 days (one month in the case of Index Rate Bid Loans) nor more than 180 days (six months in the case of Index Rate Bid Loans) after the Bid Loan Date therefor (and in any event subject to the proviso to the definition of "Interest Period" in subsection 1.1). The Administrative Agent shall promptly notify each Bid Loan Lender by facsimile transmission of the contents of each Bid Loan Request received by it. (ii) In the case of an Index Rate Bid Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Bid Loan Request, any Bid Loan Lender that elects, in its sole discretion, to do so, shall irrevocably offer to make one or more Bid Loans to the Company at the Applicable Index Rate plus or minus a margin for each such Bid Loan determined by such Bid Loan Lender, in its sole discretion. Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the Administrative Agent before 10:30 A.M. (New York City time) three Business Days before the proposed Bid Loan Date, setting forth the maximum amount of Bid Loans for each Interest Period, and the aggregate maximum amount for all Interest Periods, which such Lender would be willing to make (which amount may, subject to subsection 2.2(a), exceed such Lender's Commitment) and the margin above or below the Applicable Index Rate at which such Bid Loan Lender is willing to make each such Bid Loan; the Administrative Agent shall advise the Company before 11:15 A.M. (New York City time) three Business Days before the proposed Bid Loan Date of the contents of each such Bid Loan Offer received by it. If the Administrative Agent in its capacity as a Bid Loan Lender shall, in its sole discretion, elect to make any such offer, it shall advise the Company of the contents of its Bid Loan Offer before 10:15 A.M. (New York City time) three Business Days before the proposed Bid Loan Date. (iii) In the case of an Absolute Rate Bid Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Bid Loan Request, any Bid Loan Lender that elects, in its sole discretion, to do so, shall irrevocably offer to make one or more Bid Loans to the Company at a rate or rates of interest for each such Bid Loan determined by such Bid Loan Lender in its sole discretion. Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the Administrative Agent before 9:30 A.M. (New York City time) on the proposed Bid Loan Date, setting forth the maximum amount of Bid Loans for each Interest Period, and the aggregate maximum amount for all Interest Periods, which such Bid Loan Lender would be willing to make (which amount may, subject to subsection 2.2(a), exceed such Bid Loan Lender's Commitment) and the rate or rates of interest at which such Bid Loan Lender is willing to make each such Bid Loan; the Administrative Agent shall advise the Company before 10:15 A.M. (New York City time) on the proposed Bid Loan Date of the contents of each such Bid Loan Offer received by it. If the Administrative Agent in its capacity as a Bid Loan Lender shall, in its sole discretion, elect to make any such offer, it shall advise the Company of the contents of its Bid Loan Offer before 9:15 A.M. (New York City time) on the proposed Bid Loan Date. (iv) The Company shall before 11:45 A.M. (New York City time) three Business Days before the proposed Bid Loan Date (in the case of Bid Loans requested by an Index Rate Bid Loan Request) and before 10:45 A.M. (New York City time) on the proposed Bid Loan Date (in the case of Bid Loans requested by an Absolute Rate Bid Loan Request) either, in its absolute discretion: (A) cancel such Bid Loan Request by giving the Administrative Agent telephone notice to that effect, or (B) accept one or more of the offers made by any Bid Loan Lender or Bid Loan Lenders pursuant to clause (ii) or clause (iii) above, as the case may be, by giving telephone notice to the Administrative Agent (immediately confirmed by delivery to the Administrative Agent of a Bid Loan Confirmation) of the amount of Bid Loans for each relevant Interest Period to be made by each Bid Loan Lender (which amount shall be equal to or less than the maximum amount for such Interest Period specified in the Bid Loan Offer of such Bid Loan Lender, and for all Interest Periods included in such Bid Loan Offer shall be equal to or less than the aggregate maximum amount specified in such Bid Loan Offer for all such Interest Periods) and reject any remaining offers made by Bid Loan Lenders pursuant to clause (ii) or clause (iii) above, as the case may be; provided, however, that (x) the Company may not accept offers for Bid Loans for any Interest Period in an aggregate principal amount in excess of the maximum principal amount requested for such Interest Period in the related Bid Loan Request, (y) if the Company accepts any of such offers, it must accept offers strictly based upon pricing for such relevant Interest Period and no other criteria whatsoever and (z) if two or more Bid Loan Lenders submit offers for any Interest Period at identical pricing and the Company accepts any of such offers but does not wish to borrow the total amount offered by such Bid Loan Lenders with such identical pricing, the Company shall accept offers from all of such Bid Loan Lenders in amounts allocated among them pro rata according to the amounts offered by such Bid Loan Lenders (or as nearly pro rata as shall be practicable, after giving effect to the requirement that Bid Loans made by a Bid Loan Lender on a Bid Loan Date for each relevant Interest Period shall be in a principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof). (v) If the Company notifies the Administrative Agent that a Bid Loan Request is cancelled pursuant to clause (iv)(A) above, the Administrative Agent shall give prompt telephone notice thereof to the Bid Loan Lenders, and the Bid Loans requested thereby shall not be made. (vi) If the Company accepts pursuant to clause (iv)(B) above one or more of the offers made by any Bid Loan Lender or Bid Loan Lenders, the Administrative Agent shall promptly notify by telephone each Bid Loan Lender which has made such an offer of the aggregate amount of such Bid Loans to be made on such Bid Loan Date for each Interest Period and of the acceptance or rejection of any offers to make such Bid Loans made by such Bid Loan Lender. Each Bid Loan Lender which is to make a Bid Loan shall, before 12:00 Noon (New York City time) on the Bid Loan Date specified in the Bid Loan Request applicable thereto, make available to the Administrative Agent at its office set forth in subsection 8.2 the amount of Bid Loans to be made by such Bid Loan Lender, in immediately available funds. The Administrative Agent will make such funds available to the Company promptly on such date at the Administrative Agent's aforesaid address. As soon as practicable after each Bid Loan Date, the Administrative Agent shall notify each Lender of the aggregate amount of Bid Loans advanced on such Bid Loan Date and the respective Interest Periods therefor. (c) Within the limits and on the conditions set forth in this subsection, the Company may from time to time borrow under this subsection, repay pursuant to paragraph (d) below, and reborrow under this subsection. (d) The Company shall repay to the Administrative Agent for the account of each Bid Loan Lender which has made a Bid Loan to it on the last day of the Interest Period for such Bid Loan (such Interest Period being that specified by the Company for repayment of such Bid Loan in the related Bid Loan Request) the then unpaid principal amount of such Bid Loan. The Company shall not have the right to prepay any principal amount of any Bid Loan without the prior consent of the Bid Loan Lender with respect thereto. (e) The Company shall pay interest on the unpaid principal amount of each Bid Loan made to it from the applicable Bid Loan Date to the stated maturity date thereof, at the rate of interest determined pursuant to paragraph (b) above (calculated on the basis of a 360 day year for actual days elapsed), payable on the interest payment date or dates specified by the Company for such Bid Loan in the related Bid Loan Request. If all or a portion of the principal amount of any Bid Loan or any interest payable thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall, without limiting any rights of any Lender under this Agreement, bear interest at a rate per annum which is (x) in the case of overdue principal, 2% above the rate which would otherwise be applicable to such Bid Loan until the scheduled maturity date with respect thereto and for each day thereafter at a rate per annum which is 2% above the Alternate Base Rate or (y) in the case of overdue interest, 2% above the Alternate Base Rate plus the Applicable Margin, in each case from the date of such non-payment until such amount is paid in full (as well after as before judgment). 2.3 Denomination of Committed Rate Loans. Each borrowing of Committed Rate Loans shall be in an aggregate principal amount of $50,000,000 or a whole multiple of $5,000,000 in excess thereof. 2.4 Fees. The Company agrees to pay to the Administrative Agent, for the ratable benefit of the Lenders, a facility fee (the "Facility Fee") in an amount equal to the Facility Fee Percentage, of (x) the Aggregate Commitments from and including the Effective Date to but excluding the Termination Date and (y) if an Extension Notice has been given by the Company, the Aggregate Loans from and including the Termination Date to but excluding the Maturity Date, in each case payable quarterly in arrears on the last day of each March, June, September and December, on the Termination Date and on the Maturity Date (or such earlier date after the Termination Date on which all Loans have been repaid). Such quarterly payment made hereunder shall be a payment in consideration for holding open the availability of the Commitments or making the Loans for the quarterly period completed on the date payment is due. 2.5 Changes of Commitments. (a) The Company shall have the right to terminate or reduce the unused portion of the Commitments at any time or from time to time upon not less than three Business Days' prior notice to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall be in a minimum amount of $50,000,000 or a whole multiple of $5,000,000 in excess thereof) and shall be irrevocable and effective only upon receipt by the Administrative Agent, provided that no such reduction or termination shall be permitted if after giving effect thereto, and to any prepayments of the Committed Rate Loans made on the effective date thereof, the then outstanding principal amount of the Aggregate Loans would exceed the Aggregate Commitments then in effect. (b) The Commitments once terminated or reduced pursuant to this subsection may not be reinstated. 2.6 Optional Prepayments. The Company may prepay Committed Rate Loans or (with the consent of the Bid Loan Lender in respect thereof) Bid Loans upon receipt by the Administrative Agent (which shall notify the Lenders thereof as soon as practicable) of irrevocable notice from the Company prior to 11:30 A.M. (New York City time) on the date of such prepayment. If any Eurodollar Loan shall be prepaid on any day other than the last day of the Interest Period applicable thereto, or prior to the conversion thereof if a notice of conversion has been delivered with respect thereto pursuant to Section 2.9, the Company shall, on the date of such payment, also pay all interest accrued on such Eurodollar Loan to the date of such payment and all amounts payable pursuant to subsection 2.16 in connection therewith. 2.7 Minimum Principal Amount of Tranches. All borrowings, payments and prepayments in respect of Committed Rate Loans shall be in such amounts and be made pursuant to such elections so that after giving effect thereto the aggregate principal amount of the Committed Rate Loans comprising any Tranche shall not be less than $50,000,000 or a whole multiple of $5,000,000 in excess thereof. 2.8 Committed Rate Loan Interest Rates and Payment Dates. (a) Each Committed Rate Loan comprising each Eurodollar Tranche shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) The Alternate Base Rate Loans shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin. (c) If all or a portion of the principal amount of any Committed Rate Loan which is a Eurodollar Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue principal amount of such Committed Rate Loan shall be converted to an Alternate Base Rate Loan at the end of the Interest Period applicable thereto. (d) If all or a portion of (i) the principal amount of any Committed Rate Loan, (ii) any interest payable thereon or (iii) any fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) in the case of overdue interest, fees or other amounts, the rate described in paragraph (b) of this subsection plus 2%, in each case from the date of such non-payment until such amount is paid in full (after as well as before judgment). (e) Interest on each Committed Rate Loan shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (d) of this subsection shall be payable from time to time on demand. 2.9 Conversion Options. (a) The Company may elect from time to time to convert Alternate Base Rate Loans to Eurodollar Loans by giving the Administrative Agent prior irrevocable written notice of such election received by the Administrative Agent prior to 12:00 Noon, New York City time, three Business Days prior to the proposed conversion date. The Company may elect from time to time to convert Eurodollar Loans to Alternate Base Rate Loans by giving the Administrative Agent prior irrevocable notice of such election received by the Administrative Agent prior to 12:00 Noon, New York City time, one Business Day prior to the proposed conversion date. If the date upon which an Alternative Base Rate Loan is to be converted to a Eurodollar Loan is not a Business Day in London, then such conversion shall be made on the next succeeding Business Day in London and during the period from such last day of an Interest Period to such succeeding Business Day such Loan shall bear interest as if it were an Alternate Base Rate Loan. All or any part of outstanding Eurodollar Loans and Alternate Base Rate Loans may be converted as provided herein, provided that (i) no Loan may be converted into a Eurodollar Loan when any Default or Event of Default has occurred and is continuing and the Administrative Agent or the Majority Lenders have determined that such conversion is not appropriate and (ii) partial conversions shall be in an aggregate principal amount of $50,000,000 or a whole multiple of $5,000,000 in excess thereof. (b) Any Eurodollar Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Company with the notice provisions contained in subsection 2.9(a); provided, that no Eurodollar Loan may be continued as such when any Default or Event of Default has occurred and is continuing, and the Administrative Agent or the Majority Lenders have determined that such a continuation is not appropriate, in which case such Loan shall be automatically converted to an Alternate Base Rate Loan on the last day of the then current Interest Period with respect thereto. 2.10 Computation of Interest and Fees. (a) Interest payable hereunder with respect to Alternate Base Rate Loans shall be calculated on the basis of a year of 365/6 days for the actual days elapsed. All other fees, interest and all other amounts payable hereunder shall be calculated on the basis of a 360 day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of each determination of a Eurodollar Rate on the Business Day of the determination thereof. Any change in the interest rate on a Committed Rate Loan resulting from a change in the Alternate Base Rate shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate shall become effective. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Company and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Company, deliver to the Company a statement showing the quotations and the computations used by the Administrative Agent in determining any interest rate. (c) If any Reference Lender's Commitment shall terminate for any reason whatsoever (otherwise than with termination of all the Commitments), such Reference Lender shall thereupon cease to be a Reference Lender, and if for any reason there shall cease to be at least three Reference Lenders, then the Administrative Agent (after consultation with the Company and the Lenders) shall, by notice to the Company and the Lenders, designate another Lender as a Reference Lender (who shall be reasonably acceptable to the Company) so that there shall at all times be at least three Reference Lenders. (d) Each Reference Lender shall use its best efforts to furnish quotations of rates to the Administrative Agent when and as contemplated hereby. If any of the Reference Lenders shall be unable or otherwise fails to supply such rates to the Administrative Agent upon its request, the rate of interest shall, subject to the provisions of subsection 2.13, be determined on the basis of the quotations of the remaining Reference Lenders or Reference Lender. 2.11 Pro Rata Treatment, Payments and Evidence of Debt. (a) Each borrowing of Committed Rate Loans and any reduction of the Commitments shall be made pro rata according to the respective Commitment Percentages of the Lenders. Each payment by the Company under this Agreement shall be applied, first, to any fees then due and owing by the Company pursuant to subsection 2.4, second, to interest then due and owing in respect of the Loans and, third, to principal then due and owing in respect of the Loans. Each payment by the Company on account of any fees pursuant to subsection 2.4 shall be made pro rata in accordance with the respective amounts due and owing. Each payment (other than prepayments) by the Company on account of principal of and interest on the Committed Rate Loans shall be made pro rata according to the respective amounts due and owing. Each prepayment on account of principal of the Loans (except to the extent designated to be applied to Bid Loans) shall be applied, first, to such of the Committed Rate Loans as the Company may designate (to be applied pro rata among the Lenders), and, second, after all Committed Rate Loans shall have been paid in full, to Bid Loans, pro rata according to the respective amounts outstanding; provided, that prepayments made pursuant to subsection 2.14 shall be applied in accordance with such subsection; and provided further that nothing herein shall be deemed to permit optional prepayments on account of Bid Loans without the prior consent of the Bid Loan Lender with respect thereto. (b) All payments (including prepayments) to be made by the Company on account of principal, interest and fees shall be made without defense, set-off or counterclaim (except as provided in subsection 2.17(b)) and shall be made to the Administrative Agent for the account of the Lenders at the Administrative Agent's office specified in subsection 8.2 in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders entitled thereto promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans or Index Rate Bid Loans payable on the next preceding Business Day as a result of the following sentence) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan or an Index Rate Bid Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (c) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. The entries made in the accounts maintained pursuant to the two preceding sentences shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Loans in accordance with the terms of this Agreement. (d) Any Lender (including any Replacement Lender) may request that Loans made by it be evidenced by a promissory note. In such event, the Company shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form reasonably satisfactory to the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 8.6) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 2.12 Non-Receipt of Funds by the Administrative Agent. (a) Unless the Administrative Agent shall have been notified by a Lender prior to the time a Committed Rate Loan is to be made by such Lender (which notice shall be effective upon receipt) that such Lender does not intend to make the proceeds of such Committed Rate Loan available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such proceeds available to the Administrative Agent at such time, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to the Company a corresponding amount. If such amount is made available to the Administrative Agent on a date after such Borrowing Date, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate during such period, times (ii) the amount of such Lender's Commitment Percentage of such borrowing, times (iii) a fraction, the numerator of which is the number of days that elapse from and including such Borrowing Date to the date on which such Lender's Commitment Percentage of such borrowing shall have become immediately available to the Administrative Agent and the denominator of which is 360. If such Lender's Commitment Percentage is not in fact made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall be entitled to recover such amount with interest thereon at the rate per annum applicable to Alternate Base Rate Loans hereunder, on demand, from the Company. (b) Unless the Administrative Agent shall have been notified by the Company prior to the date on which any payment is due from it hereunder (which notice shall be effective upon receipt) that the Company does not intend to make such payment, the Administrative Agent may assume that the Company has made such payment when due, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to each Lender on such payment date an amount equal to the portion of such assumed payment to which such Lender is entitled hereunder, and if the Company has not in fact made such payment to the Administrative Agent, such Lender shall, on demand, repay to the Administrative Agent the amount made available to such Lender. If such amount is repaid to the Administrative Agent on a date after the date such amount was made available to such Lender, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate during such period, times (ii) the amount made available to such Lender by the Administrative Agent pursuant to this paragraph (b), times (iii) a fraction, the numerator of which is the number of days that elapse from and including the date on which such amount was made available to such Lender to the date on which such amount shall have been repaid to the Administrative Agent by such Lender and become immediately available to the Administrative Agent and the denominator of which is 360. (c) A certificate of the Administrative Agent submitted to the Company or any Lender with respect to any amount owing under this subsection shall be conclusive in the absence of manifest error. 2.13 Inability to Determine Interest Rate. (a) Notwithstanding any other provision of this Agreement, if (i) the Administrative Agent reasonably determines that, for any reason whatsoever, a rate for Eurodollar Loans cannot be determined as provided in the definition of Eurodollar Rate for any Interest Period or (ii) the Majority Lenders shall determine (which determination shall be conclusive) that the rates for the purpose of computing the Eurodollar Rate do not adequately and fairly reflect the cost to such Lenders of funding Eurodollar Loans that the Company has requested be outstanding as a Eurodollar Tranche during such Interest Period, the Administrative Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Company and the Lenders at least two Business Days prior to the first day of such Interest Period. Unless the Company shall have notified the Administrative Agent upon receipt of such telephone notice that it wishes to rescind or modify its request regarding such Eurodollar Loans, any Loans that were requested to be made as Eurodollar Loans shall be made as Alternate Base Rate Loans and any Loans that were requested to be converted into or continued as Eurodollar Loans shall be converted into Alternate Base Rate Loans. Until any such notice has been withdrawn by the Administrative Agent, no further Loans shall be made as, continued as, or converted into, Eurodollar Loans. (b) In the event that the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Company) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any Interest Period with respect to a proposed Bid Loan to be made pursuant to an Index Rate Bid Loan Request, the Administrative Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Company and the Bid Loan Lenders at least two Business Days prior to the proposed Bid Loan Date, and such Bid Loans shall not be made on such Bid Loan Date. Until any such notice has been withdrawn by the Administrative Agent, no further Index Rate Bid Loan Requests shall be submitted by the Company. 2.14 Illegality. Notwithstanding any other provision of this Agreement, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof by any relevant Governmental Authority to any Lender shall make it unlawful for such Lender to make or maintain Eurodollar Loans as contemplated by this Agreement or to obtain in the interbank eurodollar market the funds with which to make such Loans, (a) such Lender shall promptly notify the Administrative Agent and the Company thereof, (b) the commitment of such Lender hereunder to make Eurodollar Loans or continue Eurodollar Loans as such shall forthwith be cancelled and (c) such Lender's Committed Rate Loans then outstanding as Eurodollar Loans, if any, shall be converted on the last day of the Interest Period for such Loans or within such earlier period as required by law into Alternate Base Rate Loans. The Company hereby agrees promptly to pay any Lender, upon its demand, any additional amounts necessary to compensate such Lender for actual and direct costs reasonably incurred by such Lender in making any repayment in accordance with this subsection including, but not limited to, any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its Eurodollar Loans hereunder. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Administrative Agent, to the Company shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts to avoid or to minimize any amounts which may otherwise be payable pursuant to this subsection; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender to be material. 2.15 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) does or shall subject such Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender of principal, facility fee, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of such Lender); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise covered by subsection 2.15(b); (iii) does or shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender of making or maintaining Loans or to reduce any amount receivable hereunder, then, in any such case, the Company shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable which such Lender reasonably deems to be material as determined by such Lender with respect to its Eurodollar Loans. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Administrative Agent, to the Company shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts to avoid or to minimize any amounts which might otherwise be payable pursuant to this paragraph of this subsection; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender to be material. (b) In addition to amounts which may become payable from time to time pursuant to paragraph (a) of this subsection, the Company agrees to pay to each Lender which requests compensation under this paragraph (b) (by notice to the Company), on the last day of each Interest Period with respect to any Eurodollar Loan made by such Lender, so long as such Lender shall be required to maintain reserves against "Eurocurrency liabilities" under Regulation D of the Board of Governors of the Federal Reserve System (or, so long as such Lender may be required by such Board of Governors or by any other Governmental Authority to maintain reserves against any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or against any category of extensions of credit or other assets of such Lender which includes any Eurodollar Loans), an additional amount (determined by such Lender and notified to the Company) representing such Lender's calculation or, if an accurate calculation is impracticable, reasonable estimate (using such reasonable means of allocation as such Lender shall determine) of the actual costs, if any, incurred by such Lender during such Interest Period as a result of the applicability of the foregoing reserves to such Eurodollar Loans, which amount in any event shall not exceed the product of the following for each day of such Interest Period: (i) the principal amount of the Eurodollar Loans made by such Lender to which such Interest Period relates outstanding on such day; and (ii) the difference between (x) a fraction (expressed as a decimal) the numerator of which is the Eurodollar Rate (expressed as a decimal) applicable to such Eurodollar Loan and the denominator of which is one minus the maximum rate (expressed as a decimal) at which such reserve requirements are imposed by such Board of Governors or other Governmental Authority on such date minus (y) such numerator; and (iii) a fraction the numerator of which is one and the denominator of which is 360. (c) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, within 15 days after demand by such Lender, the Company shall pay to such Lender such additional amount as shall be certified by such Lender as being required to compensate it for such reduction. (d) Notwithstanding anything to the contrary contained herein, the Company shall not have any obligation to pay to any Lender amounts owing under this subsection 2.15 for any period which is more than 60 days prior to the date upon which the request for payment therefor is delivered to the Company; provided that in no event shall the Company have any obligation to pay to any Lender amounts owing under subsection 2.15(b) for any period which is prior to the commencement of the Interest Period in effect at the time a demand for payment is made by such Lender. (e) The agreements in this subsection shall survive the termination of this Agreement and payment of the Loans and all other amounts payable hereunder. 2.16 Indemnity. The Company hereby agrees to indemnify each Lender and to hold such Lender harmless from any funding loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Company in payment of the principal amount of or interest on any Loan by such Lender in accordance with the terms of subsections 2.1(d), 2.2(d), 2.2(e) and 2.8(e), as the case may be, (b) default by the Company in making a borrowing after the Company has given a notice in accordance with subsection 2.1 or 2.2, (c) default by the Company in making any prepayment after the Company has given a notice in accordance with subsection 2.6 and/or (d) the making by the Company of a prepayment of a Committed Rate Loan (including without limitation, any prepayment of an Alternate Base Rate Loan after notice of conversion to a Eurodollar Loan has been delivered with respect thereto pursuant to Section 2.9), or the conversion thereof, on a day which is not the last day of the Interest Period with respect thereto, in each case including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain its Loans hereunder. A certificate as to any additional amounts payable pursuant to this subsection submitted by any Lender, through the Administrative Agent, to the Company (which certificate must be delivered to the Administrative Agent within thirty days following such default, prepayment or conversion) shall be conclusive in the absence of manifest error. The agreements in this subsection shall survive termination of this Agreement and payment of the Loans and all other amounts payable hereunder. 2.17 Taxes. (a) All payments made by the Company hereunder will be, except as provided in subsection 2.17(b), made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any Governmental Authority or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding any tax imposed on or measured by the net income or profits of a Lender pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Company agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein. The Company will furnish to the Administrative Agent as soon as practicable after the date the payment of any Taxes is due pursuant to applicable law certified copies (to the extent reasonably available and required by law) of tax receipts evidencing such payment by the Company. The Company agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. (b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for United States income tax purposes agrees to deliver to the Company and the Administrative Agent on or prior to the Effective Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to subsection 8.6(c) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or W-8BEN with respect to the benefit of any income tax treaty (or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, either Internal Revenue Service Form W-8ECI or W-8BEN with respect to the benefit of any income tax treaty pursuant to clause (i) above, or (x) a certificate substantially in the form of Exhibit C (any such certificate, a "2.17 Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (with respect to the portfolio interest exception) (or successor form) certifying to such Lender's entitlement to an exemption from United States withholding tax with respect to payments of interest to be made under this Agreement. In addition, each Lender agrees that it will deliver upon the Company's request updated versions of the foregoing, as applicable, whenever the previous certification has become obsolete or inaccurate in any material respect, together with such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement, or it shall immediately notify the Company and the Administrative Agent of its inability to deliver any such Form or Certificate, in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this subsection 2.17(b). Notwithstanding anything to the contrary contained in subsection 2.17(a), but subject to the immediately succeeding sentence, (x) the Company shall be entitled, to the extent it is required to do so by law, to deduct or withhold Taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Company U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Company shall not be obligated pursuant to subsection 2.17(a) hereof to gross-up payments to be made to a Lender in respect of Taxes imposed by the United States if (I) such Lender has not provided to the Company the Internal Revenue Service Forms required to be provided to the Company pursuant to this subsection 2.17(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such Taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this subsection 2.17, the Company agrees to pay additional amounts and to indemnify each Lender in the manner set forth in subsection 2.17(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of Taxes. (c) Each Lender agrees to use reasonable efforts (including reasonable efforts to change its lending office) to avoid or to minimize any amounts which might otherwise be payable pursuant to this subsection; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender to be material. (d) If the Company pays any additional amount pursuant to this subsection 2.17 with respect to a Lender, such Lender shall use reasonable efforts to obtain a refund of tax or credit against its tax liabilities on account of such payment; provided that such Lender shall have no obligation to use such reasonable efforts if either (i) it is in an excess foreign tax credit position or (ii) it believes in good faith, in its sole discretion, that claiming a refund or credit would cause adverse tax consequences to it. In the event that such Lender receives such a refund or credit, such Lender shall pay to the Company an amount that such Lender reasonably determines is equal to the net tax benefit obtained by such Lender as a result of such payment by the Company. In the event that no refund or credit is obtained with respect to the Company's payments to such Lender pursuant to this subsection 2.17, then such Lender shall provide a certification that such Lender has not received a refund or credit for such payments. Nothing contained in this subsection 2.17 shall require a Lender to disclose or detail the basis of its calculation of the amount of any tax benefit or any other amount or the basis of its determination referred to in the proviso to the first sentence of this subsection 2.17 to the Company or any other party. (e) The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.18 Replacement of Lenders. In the event that any Lender shall submit a request for additional reimbursement under subsection 2.15(a),(b) or (c) or subsection 2.17, the Company shall have the right to replace such Lender (the "Replaced Lender") with one or more other Eligible Transferee or Transferees, (collectively, the "Replacement Lender") reasonably acceptable to the Administrative Agent, provided that: (i) at the time of any replacement pursuant to this subsection 2.18, the Replacement Lender shall enter into one or more Commitment Transfer Supplements pursuant to subsection 8.6(c) (and with all fees payable pursuant to subsection 8.6(e) to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Committed Rate Loans of the Replaced Lender hereunder and (if the Company so requests) under the Bridge Credit Agreement and, in connection therewith, shall pay to the Replaced Lender in respect thereof an amount equal to the sum of (x) an amount equal to the principal of, and all accrued but unpaid interest on, all outstanding Committed Rate Loans of the Replaced Lender hereunder and thereunder, and (y) an amount equal to all accrued but unpaid Facility Fees (if any) owing to the Replaced Lender pursuant to subsection 2.4 hereof and thereof; and (ii) all obligations of the Company owing to the Replaced Lender hereunder and (if the Company so requests) under the Bridge Credit Agreement (including the aforesaid increased fees but other than (x) those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid and (y) accrued but not due interest on, and the principal of, all Bid Loans of the Replaced Bank then outstanding (which will be paid when and as due by the Company)) shall be paid in full to such Replaced Lender by the Company concurrently with such replacement; provided, that, no such payment shall be required in respect of periods commencing (x) prior to the commencement of the Interest Period in respect of which such payment is sought, in the case of any payment pursuant to subsection 2.15(b), or (y) prior to the date which is 60 days prior to the date of such payment request, in all other cases. The Company will also be required to provide reimbursement to such Replaced Lender for any additional amounts owing pursuant to subsection 2.15(a), (b) or (c) or subsection 2.17 for the period subsequent to such request through the date of such replacement. Upon the execution of the respective Commitment Transfer Supplements and the payment of amounts referred to in clauses (i) and (ii) above, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement (and the obligation, if any, owed it in respect of any outstanding Bid Loan), which shall survive as to such Replaced Lender. The Administrative Agent agrees with the Company to use diligent efforts to assist the Company in locating any necessary Replacement Lender. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make the Loans herein provided for, the Company hereby represents and warrants to the Administrative Agent and to each Lender that: 3.1 Financial Condition. The consolidated balance sheet of the Company and its consolidated Subsidiaries as at December 31, 1999 and as at September 30, 2000 and the related consolidated statements of income and of cash flows for the fiscal year or nine-month period ended on such date, reported on (in the case of such annual statements) by Arthur Andersen LLP, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year or nine-month period then ended, subject in the case of the September 30, 2000 statements to normal year end adjustments. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as disclosed therein). Neither the Company nor any of its consolidated Subsidiaries had, at the date of the balance sheets referred to above, any material Guarantee Obligation, contingent liabilities or liability for taxes, long-term lease or unusual forward or long-term commitment, including, without limitation, any material interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto or in the Confidential Information Memorandum dated February 2001. 3.2 No Change. Since December 31, 1999 there has been no development or event which has had a Material Adverse Effect. 3.3 Corporate Existence; Compliance with Law. Each of the Company and its Significant Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate or partnership power and authority and the legal right to own and operate all its material property, to lease the material property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation or partnership and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to so qualify or be in good standing would not, in the aggregate, have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.4 Corporate Power; Authorization; Enforceable Obligations. The Company has full power and authority and the legal right to make, deliver and perform this Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery or performance of this Agreement by the Company or with the validity or enforceability of this Agreement against the Company. This Agreement has been duly executed and delivered on behalf of the Company. This Agreement constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.5 No Legal Bar; No Default. The execution, delivery and performance of this Agreement, the borrowings thereunder and the use of the proceeds of the Loans will not violate any Requirement of Law or any Contractual Obligation of the Company or its Significant Subsidiaries, and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation. Neither the Company nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which would reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 3.6 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Company, threatened by or against the Company or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to this Agreement or any Loan or any of the transactions contemplated hereby or (b) which would reasonably be expected to have a Material Adverse Effect. 3.7 Investment Company Act. The Company is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 3.8 Federal Regulations. No part of the proceeds of any Loan hereunder will be used directly or indirectly for any purpose which violates, or which would be inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. No part of any such proceeds shall be used to purchase or carry any "Margin Stock", as that term is defined in said Regulation U. 3.9 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code, except to the extent that any such occurrence or failure to comply would not reasonably be expected to have a Material Adverse Effect. No termination of a Single Employer Plan has occurred resulting in any liability that has remained underfunded, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period which would reasonably be expected to have a Material Adverse Effect. Except for the Company's Supplemental Executive Retirement Plan, the present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount which would reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Commonly Controlled Entity is currently subject to any liability for a complete or partial withdrawal from a Multiemployer Plan which would reasonably be expected to have a Material Adverse Effect. 3.10 Environmental Matters. Except to the extent that all of the following, in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) To the best knowledge of the Company, the facilities and properties owned, leased or operated by the Company or any of its Subsidiaries (the "Properties") do not contain any Materials of Environmental Concern in amounts or concentrations which (i) constitute a violation of, or (ii) could give rise to liability under, any Environmental Law. (b) To the best knowledge of the Company, the Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the Company or any of its Subsidiaries (the "Business"). (c) Neither the Company nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Company have knowledge or reason to believe that any such notice will be received or is being threatened. (d) To the best knowledge of the Company, Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which could give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Company, threatened, under any Environmental Law to which the Company or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business. (f) To the best knowledge of the Company, there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Company or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. 3.11 Purpose of Loans. The proceeds of the Loans will be used (i) to back-up commercial paper, (ii) to finance payments to plaintiffs with tort claims relating to the Company's previously marketed diet drug products and (iii) for the Company's general corporate and working capital purposes. 3.12 Restrictions on Subsidiaries. There are no restrictions on the Company or any of its Subsidiaries which prohibit or otherwise restrict the transfer of cash or other assets (x) between the Company and any of its Subsidiaries or (y) between any Subsidiaries of the Company, other than (i) applicable restrictions of law imposed on Subsidiaries by the jurisdictions in which such Subsidiaries are incorporated or do business or (ii) other restrictions which, in the aggregate, do not encumber a material amount of cash or other assets. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Effective Date. This Agreement shall become effective upon the satisfaction of the following conditions precedent: (a) Execution of Agreement. The Administrative Agent shall have received one or more counterparts of this Agreement, executed by a duly authorized officer of each party hereto. (b) Officer's Certificate. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of a duly authorized officer of the Company dated the Effective Date, substantially in the form of Exhibit H with appropriate insertions and attachments. (c) Legal Opinion of Counsel. The Administrative Agent shall have received, with a copy for each Lender, an opinion of Louis L. Hoynes, Jr., Executive Vice President and General Counsel of the Company, dated the Effective Date and addressed to the Administrative Agent and the Lenders, substantially in the form of Exhibit I. Such opinion shall also cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent shall reasonably require. (d) Fees. The Administrative Agent shall have received all fees due and payable on or prior to the Effective Date, and, to the extent invoiced at least two Business Days prior to the Effective Date, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder. (e) Bridge Credit Agreement. The Effective Date under and as defined in the Bridge Credit Agreement shall have occurred or shall concurrently occur. (f) Subsection 4.2 Conditions. The conditions specified in subsections 4.2(a) and (b) shall be satisfied on the Effective Date as if Loans were to be made on such date. (g) Additional Matters. All other documents and legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel. 4.2 Conditions to All Loans. The obligation of each Lender to make any Loan to be made by it hereunder (including the initial Loan to be made by it hereunder) is subject to the satisfaction of the following conditions precedent on the date of making such Loan: (a) Representations and Warranties. The representations and warranties made by the Company herein or which are contained in any certificate furnished at any time under or in connection herewith shall be true and correct in all material respects on and as of the date of such Loan as if made on and as of such date. (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loan to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Agreement. (c) Additional Conditions to Bid Loans. If such Loan is made pursuant to subsection 2.2 all conditions set forth in such subsection shall have been satisfied. (d) Additional Conditions to Committed Rate Loans. If such Loan is made pursuant to subsection 2.1, all conditions set forth in such subsection shall have been satisfied. Each acceptance by the Company of a Loan shall be deemed to constitute a representation and warranty by the Company as of the date of such Loan that the applicable conditions in paragraphs (a), (b), (c) and/or (d) of this subsection have been satisfied. SECTION 5. COVENANTS The Company hereby covenants and agrees that on the Effective Date, and thereafter for so long as this Agreement is in effect and until the Commitments have terminated and the Loans, together with interest, Facility Fees and all other amounts owing to the Administrative Agent or any Lender hereunder, are paid in full, the Company shall and, in the case of subsections 5.3, 5.4, 5.5 and 5.6, shall cause each of its Significant Subsidiaries to, and in the case of subsections 5.7, 5.8 and 5.10 shall cause each of its Subsidiaries to: 5.1 Financial Statements. Furnish to the Administrative Agent (with a sufficient number of copies for each Lender, which the Administrative Agent shall promptly furnish to each Lender): (a) as soon as available, but in any event within 120 days after the end of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income and retained earnings and of cash flows of the Company and its consolidated Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification indicating that the scope of the audit was inadequate to permit such independent certified public accountants to certify such financial statements without such qualification, by Arthur Andersen LLP or another firm of independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of the Company, a copy of the Company's Report on Form 10-Q for such quarter, as filed with the Securities Exchange Commission; all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by such accountants or a Responsible Officer, as the case may be, and disclosed therein). 5.2 Certificates; Other Information. Furnish to the Administrative Agent (with a sufficient number of copies for each Lender, which the Administrative Agent shall promptly furnish to each Lender): (a) concurrently with the delivery of the financial statements referred to in subsection 5.1(a) above, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsection 5.1(a) above and the Report on Form 10-Q for the Company's fiscal quarters referred to in subsection 5.1(b) above, a certificate of a Responsible Officer of the Company stating that, to the best of such Responsible Officer's knowledge, the Company during such period observed or performed all of its covenants and other agreements, and satisfied every material condition, contained in this Agreement to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and such certificate shall include the calculation required to indicate compliance with subsection 5.9; (c) within thirty days after the same are sent, copies of all reports (other than those otherwise provided pursuant to subsection 5.1 and those which are of a promotional nature) and other financial information which the Company sends to its stockholders, and within thirty days after the same are filed, copies of all financial statements and non-confidential reports which the Company may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; and (d) promptly, such additional financial and other information as the Administrative Agent, on behalf of any Lender, may from time to time reasonably request. 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature and any additional costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such obligations, except when the amount or validity of such obligations and costs is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 5.4 Conduct of Business and Maintenance of Existence. Preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its businesses; comply with all Contractual Obligations and Requirements of Law applicable to it except to the extent that failure to comply therewith would not, in the aggregate, have a Material Adverse Effect; not enter into any business which is material to the Company and its Subsidiaries taken as a whole, other than business in which the Company and its Subsidiaries are engaged on the date hereof and businesses directly related to such existing businesses. 5.5 Maintenance of Property; Insurance. Keep all material property useful and necessary in its business in good working order and condition; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Administrative Agent, upon written request, full information as to the insurance carried; provided, however, that the Company and its Subsidiaries may maintain self insurance plans to the extent companies of similar size and in similar businesses do so. 5.6 Inspection of Property; Books and Records; Discussions. Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities; and permit, during regular business hours and upon reasonable notice by the Administrative Agent, the Administrative Agent to visit and inspect any of its properties and examine and make abstracts from any of its books and records (other than materials protected by the attorney-client privilege and materials which the Company may not disclose without violation of a confidentiality obligation binding upon it) at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Company and its Significant Subsidiaries with officers and employees of the Company and its Significant Subsidiaries and with its independent certified public accountants. 5.7 Notices. Give notice to the Administrative Agent (which shall promptly transmit such notice to each Lender) of: (a) within five Business Days after the Company knows or has reason to know thereof, the occurrence of any material Default or Event of Default; (b) promptly, any default or event of default under any Contractual Obligation of the Company or any of its Significant Subsidiaries which would reasonably be expected to have a Material Adverse Effect; (c) promptly, any litigation, or any investigation or proceeding known to the Company, affecting the Company or any of its Significant Subsidiaries which would reasonably be expected to have a Material Adverse Effect; (d) as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Company or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; and (e) promptly, any other development or event which would reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer of the Company setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 5.8 Environmental Laws. (a) Comply with, and ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings would not reasonably be expected to have a Material Adverse Effect; and (c) Defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Company, any of its Significant Subsidiaries or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this paragraph shall survive repayment of the Loans and all other amounts payable hereunder. 5.9 Consolidated Adjusted Indebtedness to Adjusted Capitalization. Not permit the ratio of (i) Consolidated Adjusted Indebtedness to (ii) Adjusted Capitalization at any time to exceed .65 to 1:00. 5.10 Liens, Etc. Not create or suffer to exist any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or assign any right to receive income, in each case to secure or provide for the payment of any Indebtedness of any Person, other than (i) purchase money Liens or purchase money security interests upon or in any property acquired or held by it or any Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure indebtedness incurred solely for the purpose of financing the acquisition of such property, (ii) Liens or security interests existing on such property at the time of its acquisition (other than any such Lien or security interest created in contemplation of such acquisition), (iii) Liens or security interests existing on the Effective Date hereof, (iv) Liens or security interests on property financed through the issuance of industrial revenue bonds in favor of the holders of such bonds or any agent or trustee therefor, (v) Liens or security interests securing Indebtedness in an aggregate amount not in excess of 15% of the Company's Consolidated Tangible Assets or (vi) Permitted Liens. SECTION 6. EVENTS OF DEFAULT Upon the occurrence of any of the following events: (a) The Company shall fail to pay any principal on any Loan when due in accordance with the terms thereof or hereof on the maturity date thereof; or the Company shall fail to pay any interest on any Loan or any fee or other amount payable hereunder when due in accordance with the terms thereof or hereof and such failure shall continue unremedied for five Business Days (or in the case of any other amount that is not interest or a fee, three Business Days after the Company has received from the Administrative Agent notice of said default); or (b) Any representation or warranty made or deemed made by the Company herein or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect, false or misleading in any material respect on or as of the date made or deemed made; or (c) The Company shall (i) default in the due performance or observance of subsection 5.9 (provided that no Default or Event of Default shall arise or exist under this subsection 6(c)(i) in respect of such a breach if prior to the time the Company is required to give notice to the Lenders under subsection 5.7(a) of such breach, such breach has been cured (determined on a pro forma basis)), or (ii) default in any material respect in the observance or performance of any other term, covenant or agreement contained in this Agreement (other than as described in subsections 6(a) or 6(c)(i) above), and such default shall continue unremedied for a period of 30 days or more; or (d) (A) The Company or any of its Significant Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Loans) in a principal amount outstanding of at least $100,000,000 in the aggregate for the Company and its Significant Subsidiaries or in the payment of any matured Guarantee Obligation in a principal amount outstanding of at least $100,000,000 in the aggregate for the Company and its Significant Subsidiaries beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness in a principal amount outstanding of at least $100,000,000 in the aggregate for the Company and its Significant Subsidiaries or Guarantee Obligation in a principal amount outstanding of at least $100,000,000 in the aggregate for the Company and its Significant Subsidiaries or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable or (B) an Event of Default under and as defined in the Bridge Credit Agreement shall have occurred and be continuing; (e) (i) The Company or any of its Significant Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Company or any such Significant Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any such Significant Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any such Significant Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any such Significant Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any such Significant Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (f) One or more judgments or decrees shall be entered against the Company or any of its Significant Subsidiaries involving in the aggregate a liability (not paid when due or covered by insurance) of $100,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Company or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company, any of its Significant Subsidiaries or any Commonly Controlled Entity shall, or in the reasonable opinion of the Majority Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, any Multiemployer Plan or (vi) any other similar event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could have a Material Adverse Effect; or (h) Either (i) a "person" or a "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of more than 25% of the then outstanding voting stock of the Company or (ii) a majority of the Board of Directors of the Company shall consist of individuals who are not Continuing Directors; "Continuing Director" means, as of any date of determination, (i) an individual who on the date two years prior to such determination date was a member of the Company's Board of Directors and (ii) any new Director whose nomination for election by the Company's shareholders was approved by a vote of at least 75% of the Directors then still in office who either were Directors on the date two years prior to such determination date or whose nomination for election was previously so approved; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (e) above in respect of the Company, automatically the Commitments shall immediately terminate and the Loans (with accrued interest thereon), and all other amounts owing under this Agreement shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to the Company declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice of default to the Company, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section 6, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 7. THE ADMINISTRATIVE AGENT 7.1 Appointment. Each Lender hereby irrevocably designates and appoints Chase as the Administrative Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Chase, as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. Neither the Syndication Agent nor the Documentation Agent shall have any duties under this Agreement. 7.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 7.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or for any failure of the Company to perform its obligations hereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance by the Company of any of the agreements contained in, or conditions of, this Agreement (other than the receipt by the Administrative Agent of the documents specified in subsection 4.1), or to inspect the properties, books or records of the Company. 7.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Loan as the owner thereof for all purposes unless (a) a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent and (b) the Administrative Agent shall have received the written agreement of such assignee to be bound hereby as fully and to the same extent as if such assignee were an original Lender party hereto, in each case in form satisfactory to the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 7.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders; provided, however, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 7.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representation or warranty to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Company shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Company which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 7.7 Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this subsection, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the termination of this Agreement and payment of the Loans and all other amounts payable hereunder. 7.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company as though the Administrative Agent were not the Administrative Agent hereunder. With respect to its Loans made or renewed by it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 7.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 15 days' notice to the Company and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Majority Lenders shall appoint from among the Lenders a successor Administrative Agent for the Lenders, which successor shall be approved by the Company, whereupon such successor shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this subsection shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. SECTION 8. MISCELLANEOUS 8.1 Amendments and Waivers. Neither this Agreement nor any terms hereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. The Majority Lenders may, or, with the written consent of the Majority Lenders, the Administrative Agent may, from time to time, (a) enter into with the Company written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or changing in any manner the rights of the Lenders or of the Company hereunder or (b) waive, on such terms and conditions as the Majority Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) reduce the amount or extend the scheduled date of maturity of any Loan, or reduce the stated rate of any interest or fee payable hereunder (other than interest at the increased post-default rate) or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitment, in each case without the consent of each Lender directly affected thereby, or (ii) amend, modify or waive any provision of this subsection or reduce the percentage specified in the definition of Majority Lenders, or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement, in each case without the written consent of all the Lenders, or (iii) amend, modify or waive any provision of Section 7 without the written consent of the then Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Company, the Lenders and the Administrative Agent. In the case of any waiver, the Company, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Loans, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 8.2 Notices. Except as otherwise provided in Section 2, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when received by the respective party to whom sent, addressed as follows in the case of the Company and the Administrative Agent, and as set forth on Schedule II hereof in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Loans: The Company: American Home Products Corporation Five Giralda Farms Madison, New Jersey 07940 Attention: Vice President and Treasurer Telecopier: (973) 660-7174 Telephone: (973) 660-5402 with a copy to: Executive Vice President and General Counsel Telecopier: (973) 660-7156 Telephone: (973) 660-6040 The Administrative Agent: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: Dawn LeeLum Telecopier: (212) 270-3279 Telephone: (212) 270-2472 and The Chase Manhattan Bank One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Attention: Janet Belden Telecopier: (212) 270-5658 Telephone: (212) 552-7277 8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 8.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Loans and the making of the Loans, provided that all such representations and warranties shall terminate on the date upon which the Commitments have been terminated and all amounts owing hereunder and under any Loans have been paid in full. 8.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation, printing and execution of, and any amendment, supplement or modification to, this Agreement and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, together with the reasonable fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement and any such other documents, including, without limitation, the fees and disbursements of a single counsel to the Administrative Agent and to the several Lenders (or, to the extent that such counsel determines that the interests of the Administrative Agent and the Lenders materially differ, or that such representation would reasonably be expected to be unadvisable from any party's point of view, a single counsel to the Administrative Agent and a single counsel to the several Lenders), and (c) on demand, to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent (each an "indemnified party") harmless from and against, any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any such other documents and the use, or proposed use, of proceeds of the Loans (all the foregoing, collectively, the "indemnified liabilities"); provided, however, that the Company shall have no obligation hereunder to any indemnified party with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of such indemnified party, (ii) legal proceedings commenced against such indemnified party by any security holder or creditor thereof arising out of and based upon rights afforded such security holder or creditor solely in its capacity as such or (iii) legal proceedings commenced against any Lender by any other Lender or the Administrative Agent. The agreements in this subsection shall survive repayment of the Loans and all other amounts payable hereunder. 8.6 Successors and Assigns; Participations; Purchasing Lenders. (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Lenders, the Administrative Agent and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Commitment of such Lender, or any other interest of such Lender hereunder. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. No Lender shall transfer or grant any participation under which the Participant shall have rights to approve any amendment to or waiver of this Agreement except to the extent such amendment or waiver would (i) extend the scheduled maturity of any Loan in which such Participant is participating, or reduce the stated rate or extend the time of payment of interest or Facility Fees thereon (except in connection with a waiver of interest at the increased post-default rate) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without consent of any Participant if the Participant's participation is not increased as a result thereof) or (ii) consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement. In the case of any such participation, the Participant shall not have any rights under this Agreement (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the Participant relating thereto) and all amounts payable by the Company hereunder shall be determined as if such Lender had not sold such participation, provided that each Participant shall be entitled to the benefits of subsections 2.15, 2.16, 2.17 and 8.5 with respect to its participation in the Commitments and the Loans outstanding from time to time; provided that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell, pursuant to a Commitment Transfer Supplement, to (i) any Lender or any affiliate thereof all or any part of its rights and obligations under this Agreement, and (ii) with the consent of the Company and the Administrative Agent (in each case, which consent shall not be unreasonably withheld), to one or more additional banks or financial institutions ("Purchasing Lenders"), all or any part of its rights and obligations under this Agreement, in the case of the aforementioned clause (ii), in minimum amounts (when added to the amount of the assignment of such Lender's obligations under the Bridge Credit Agreement) of $25,000,000 (or, if less, the entire amount of such Lender's obligations) so long as, in the case of each of the aforementioned clauses (i) and (ii) hereof, after giving effect thereto, the remaining Commitment of such selling Lender (when added to the commitment of such Lender under the Bridge Credit Agreement), shall not be less than $25,000,000, unless such selling Lender has not retained any Commitment hereunder, and a Commitment Transfer Supplement has been executed by such Purchasing Lender, such transferor Lender (and, in the case of a Purchasing Lender that is not then a Lender or an affiliate thereof, by the Company and the Administrative Agent), and delivered to the Administrative Agent for its acceptance and recording in the Register. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date specified in such Commitment Transfer Supplement, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement. (d) The Administrative Agent shall maintain at its address referred to in subsection 8.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a Commitment Transfer Supplement executed by a transferor Lender and a Purchasing Lender (and, in the case of a Purchasing Lender that is not then a Lender or an affiliate thereof, by the Company and the Administrative Agent) together with payment to the Administrative Agent (by the transferor Lender or the Purchasing Lender, as agreed between them) of a registration and processing fee of $3,500 for each Purchasing Lender listed in such Commitment Transfer Supplement, the Administrative Agent shall (i) accept such Commitment Transfer Supplement, (ii) record the information contained therein in the Register and (iii) give prompt notice of such acceptance and recordation to the Lenders and the Company. (f) The Company authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Company and its Affiliates which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Company in connection with such Lender's credit evaluation of the Company and its Affiliates prior to becoming a party to this Agreement; in each case subject to subsection 8.14. (g) At the time of each assignment pursuant to this subsection 8.6 to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Company and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable, a 2.17 Certificate) described in subsection 2.17. (h) Nothing herein shall prohibit any Lender from pledging or assigning any of its rights under this Agreement (including, without limitation, any right to payment of principal and interest under any Loan) to any Federal Reserve Bank in accordance with applicable laws. 8.7 Adjustments; Set-off. (a) Each Lender agrees that if any Lender (a "benefited Lender") shall at any time receive any payment of all or part of its Committed Rate Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (e) of Section 6, or otherwise) in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Committed Rate Loans, or interest thereon (except as expressly provided in subsection 2.18), such benefited Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Committed Rate Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Lender so purchasing a portion of another Lender's Committed Rate Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law (including, without limitation, other rights of set-off), each Lender shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, upon the occurrence of any Event of Default, to setoff and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Company, or any part thereof in such amounts as such Lender may elect, against and on account of the obligations and liabilities of the Company to such Lender hereunder and claims of every nature and description of such Lender against the Company, in any currency, whether arising hereunder, under the Loans or under any documents contemplated by or referred to herein or therein, as such Lender may elect, whether or not such Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The aforesaid right of set-off may be exercised by such Lender against the Company or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of the Company, or against anyone else claiming through or against the Company or any such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the occurrence of any Event of Default. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 8.8 Table of Contents and Section Headings. The table of contents and the Section and subsection headings herein are intended for convenience only and shall be ignored in construing this Agreement. 8.9 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. 8.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.11 Integration. This Agreement represents the agreement of the Company, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Company or any Lender relative to the subject matter hereof not expressly set forth or referred to herein. 8.12 Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. 8.13 Consent to Jurisdiction and Service of Process. All judicial proceedings brought against the Company with respect to this Agreement may be brought in any state or federal court of competent jurisdiction in the State of New York, and, by execution and delivery of this Agreement, the Company accepts, for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any final judgment rendered thereby in connection with this Agreement from which no appeal has been taken or is available. The Company irrevocably agrees that all process in any such proceedings in any such court may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address set forth in subsection 8.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto, such service being hereby acknowledged by the Company to be effective and binding service in every respect. Each of the Company, the Administrative Agent and the Lenders irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens which it may now or hereafter have to the bringing of any such action or proceeding in any such jurisdiction. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of any Lender to bring proceedings against the Company in the court of any other jurisdiction. 8.14 Confidentiality. Each of the Lenders agrees that it will use its best efforts not to disclose without the prior consent of the Company (other than to its employees, auditors or counsel or to another Lender or to any affiliate of a Lender which is a prospective or actual Transferee) any information with respect to the Company and its Subsidiaries which is furnished pursuant to this Agreement or any documents contemplated by or referred to herein or therein and which is designated by the Company to the Lenders in writing as confidential, except that any Lender may disclose any such information (a) as has become generally available to the public other than by a breach of this subsection 8.14, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in response to any summons or subpoena or any law, order, regulation or ruling applicable to such Lender, or (d) to any prospective Participant or assignee in connection with any contemplated transfer pursuant to subsection 8.6, provided that such prospective transferee shall have been made aware of this subsection 8.14 and shall have agreed to be bound by its provisions as if it were a party to this Agreement. 8.15 Acknowledgments. The Company hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of the Agreement; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Company arising out of or in connection with this Agreement and the relationship between the Administrative Agent and the Lenders, on one hand, and the Company, on the other hand, in connection herewith is solely that of debtor and creditor; and (c) no joint venture exists among the Lenders with respect to this Agreement or among the Company and the Lenders. 8.16 Waivers Of Jury Trial. The Company, the Administrative Agent and the Lenders hereby irrevocably and unconditionally waive trial by jury in any legal action or proceeding relating to this Agreement and for any counterclaim therein. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by its proper and duly authorized officers as of the day and year first above written. AMERICAN HOME PRODUCTS CORPORATION By Title: THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender By Title: SCHEDULES Schedule I Commitments Schedule II Bank Addresses and Lending Offices EXHIBITS Exhibit A Form of Borrowing Notice Exhibit B Form of Bid Loan Request Exhibit C Form of 2.17 Certificate Exhibit D Form of Bid Loan Offer - Absolute Rate Bid Loans Exhibit E Form of Bid Loan Offer - Index Rate Bid Loans Exhibit F Form of Bid Loan Confirmation Exhibit G Form of Commitment Transfer Supplement Exhibit H Form of Certificate of Secretary of the Company Exhibit I Form of Opinion of Counsel to the Company EX-10.10 4 0004.txt [Bridge Facility] [Execution Copy] CREDIT AGREEMENT among AMERICAN HOME PRODUCTS CORPORATION, THE LENDERS PARTIES HERETO JP MORGAN, as Bookrunner and Lead Arranger CITIBANK, N.A., as Syndication Agent COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as Documentation Agent and THE CHASE MANHATTAN BANK, as Administrative Agent - ------------------------------------------------------------------------------ Dated as of March 5, 2001 - ------------------------------------------------------------------------------ $3,000,000,000 CREDIT AGREEMENT, dated as of March 5, 2001, among AMERICAN HOME PRODUCTS CORPORATION, a Delaware corporation (the "Company"), the several banks and other financial institutions from time to time parties to this Agreement (collectively, the "Lenders"; individually, a "Lender"), CITIBANK, N.A., as syndication agent (in such capacity, the "Syndication Agent"), COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as documentation agent (in such capacity, the "Documentation Agent") and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, the Company has requested the Lenders to make loans to it in an amount up to $3,000,000,000 as more particularly described herein; WHEREAS, the Lenders are willing to make such loans on the terms and conditions contained herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, terms defined in the preamble to this Agreement have the meanings therein indicated, and the following terms have the following meanings: "Absolute Rate Bid Loan Request": any Bid Loan Request requesting the Bid Loan Lenders to offer to make Bid Loans at an absolute rate (as opposed to a rate composed of the Applicable Index Rate plus (or minus) a margin). "Adjusted Capitalization": at any time, the sum of Consolidated Adjusted Indebtedness plus Consolidated Net Worth. "Administrative Agent": as defined in the first paragraph of this Agreement. "Affiliate": as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, a Person shall be deemed to be "controlled by" a Person if such Person possesses, directly or indirectly, power either (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Aggregate Commitments": at any time the sum of the Commitments then in effect hereunder. "Aggregate Facilities Commitments": at any time the sum of the Aggregate Commitments then in effect hereunder and of the commitments then in effect under the Other Credit Agreement. "Aggregate Loans": at a particular time, the sum of the then aggregate outstanding principal amount of Committed Rate Loans and Bid Loans. "Agreement": this Credit Agreement, as amended, supplemented or modified from time to time in accordance with its terms. "Alternate Base Rate": for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base C/D Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced); "Base C/D Rate" shall mean the sum (rounded upwards, if necessary, to the next 1/16 of 1%) of (a) the product of (i) the Three-Month Secondary C/D Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; "Three-Month Secondary C/D Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the immediately preceding Business Day) by the Board of Governors of the Federal Reserve System (the "Board") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board of Governors of the Federal Reserve System, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such immediately preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the immediately preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Base C/D Rate or the Federal Funds Effective Rate, or both, for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary C/D Rate or the Federal Funds Effective Rate shall be effective on the opening of business on the date of such change. "Alternate Base Rate Loans": Committed Rate Loans that bear interest at an interest rate based on the Alternate Base Rate. "Applicable Index Rate": in respect of any Bid Loan requested pursuant to an Index Rate Bid Loan Request, the Eurodollar Rate applicable to the Interest Period for such Bid Loan. "Applicable Margin": for any day, (x) in the case of Alternate Base Rate Loans, 0% and (y) in the case of Eurodollar Loans, the rate per annum set forth below opposite the Rating Period then in effect, provided that during a Significant Usage Period, the Applicable Margin for all such Loans shall be increased by (i) .125% during a Category A Period, a Category B Period and/or a Category C Period and (ii) .250% during a Category D Period: Eurodollar Rating Rate Period Margin - ----------------------------------------- ------------------------- Category A Period .305% Category B Period .42% Category C Period .65% Category D Period .875% "Base C/D Rate": as defined in the definition of Alternate Base Rate. "Bid Loan": each Bid Loan made pursuant to subsection 2.2. "Bid Loan Confirmation": each confirmation by the Company of its acceptance of Bid Loan Offers, which Bid Loan Confirmation shall be substantially in the form of Exhibit F and shall be delivered to the Administrative Agent by facsimile transmission. "Bid Loan Date": in respect of a Bid Loan, the day on which a Bid Loan Lender makes such Bid Loan pursuant to subsection 2.2. "Bid Loan Lenders": Lenders from time to time designated as Bid Loan Lenders by the Company by written notice to the Administrative Agent (which notice the Administrative Agent shall transmit to each such Bid Loan Lender). "Bid Loan Offer": each offer by a Bid Loan Lender to make Bid Loans pursuant to a Bid Loan Request, which Bid Loan Offer shall contain the information specified in Exhibit D, in the case of an Absolute Rate Bid Loan Request, or E, in the case of an Index Rate Bid Loan Request, and shall be delivered to the Administrative Agent by facsimile transmission or by telephone immediately confirmed by facsimile transmission. "Bid Loan Request": each request by the Company for Bid Loan Lenders to submit bids to make Bid Loans, which shall contain the information in respect of such requested Bid Loans specified in Exhibit B and shall be delivered to the Administrative Agent by facsimile transmission or by telephone, immediately confirmed by facsimile transmission. "Borrowing Date": in respect of any Committed Rate Loan, the date such Committed Rate Loan is made. "Business": as defined in subsection 3.10(b). "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close; provided, however, that when used in connection with a rate determination, borrowing or payment in respect of a Eurodollar Loan or an Index Rate Bid Loan, the term "Business Day" shall also exclude any day on which commercial banks are not open for dealings in Dollar deposits in the London interbank market. "Category A Period": subject to the Category Rules, at any time that either (i) the S&P Credit Rating is A or better and the Short-Term Ratings are Tier I or (ii) the Moody's Credit Rating is A2 or better and the Short-Term Ratings are Tier I. "Category B Period": subject to the Category Rules, at any time that either (i) the S&P Credit Rating is A- or better or (ii) the Moody's Credit Rating is A3 or better and in either case a Category A Period is not then in effect. "Category C Period": subject to the Category Rules, at any time that either (i) the S&P Credit Rating is BBB+ or (ii) the Moody's Credit Rating is Baa1. "Category D Period": subject to the Category Rules, at any time that either (i) the S&P Credit Rating is BBB or lower or (ii) the Moody's Credit Rating is Baa2 or lower. "Category Rules": the Rating Period applicable at any time shall be: (a) except as provided in clause (b), (c) and (d) below, the highest Rating Period for which the Company meets either of the criteria set forth for such Rating Period, (b) except as provided in clauses (c) and (d) below, if the Credit Ratings differ by two or more Rating Period levels, the Rating Period which is one Rating Period above the Rating Period in which the lower Credit Ratings falls, (c) if one of the Credit Ratings falls in a Category D Period and the other Credit Rating falls in a higher Rating Period, a Category D Period and (d) if either S&P or Moody's fails to have outstanding at the time a Credit Rating due to the failure by the Company to provide requested information to, or otherwise to fully cooperate with, such rating agency in establishing a Credit Rating, a Category D Period. If the rating system of Moody's, S&P and/or Fitch shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, or if both Moody's and S&P shall fail to have outstanding a Credit Rating (other than by reason of the circumstances referred to in clause(d) of the preceding sentence), the Company and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the applicable Rating Period shall be determined by reference to the ratings most recently in effect prior to such change or cessation. "C/D Assessment Rate": for any day, the net annual assessment rate (rounded upward to the nearest 1/100th of 1%) determined by Chase to be payable on such day to the Federal Deposit Insurance Corporation or any successor ("FDIC") for FDIC's insuring time deposits made in Dollars at offices of Chase in the United States. "C/D Reserve Percentage": 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 one billion Dollars in respect of new non-personal time deposits in Dollars in New York City having a three month maturity and in an amount of $100,000 or more. "Chase": The Chase Manhattan Bank. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Commitment": as to any Lender, the obligation of such Lender to make Committed Rate Loans to the Company hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule I hereof, as such amount may from time to time be reduced in accordance with this Agreement; collectively, as to all the Lenders, the "Commitments". "Commitment Percentage": as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the Aggregate Commitments (or (x) at any time after the Termination Date, (y) at any time after the Commitments shall have expired or terminated or (z) for the purposes of declaring the Loans to be due and payable pursuant to Section 6, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of the Loans then outstanding). "Commitment Period": the period from and including the Effective Date to but not including the Termination Date or such earlier date on which the Commitments shall terminate as provided herein. "Commitment Transfer Supplement": a Commitment Transfer Supplement, substantially in the form of Exhibit G. "Committed Rate Loans": Loans made pursuant to subsection 2.1(a). "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "Company": as defined in the first paragraph of this Agreement. "Consolidated Adjusted Indebtedness": at any date of determination, (i) Consolidated Indebtedness at such date minus (ii) all cash, cash equivalents and marketable securities held by the Company and its Subsidiaries at such date free of liens, restrictions and other encumbrances (other than as arising by operation of law in the ordinary course of business). "Consolidated Indebtedness": at any date of determination, the principal amount of all Indebtedness of the Company and its Subsidiaries required in accordance with GAAP to be accounted for as debt, determined on a consolidated basis in accordance with GAAP, provided that there shall be excluded from Consolidated Indebtedness up to $500,000,000 in respect of Financing Leases arising as a result of sale-leaseback transactions and which would otherwise be included in the calculation of Consolidated Indebtedness. "Consolidated Net Worth": at any date of determination, the stockholders' equity of the Company and its Subsidiaries determined in accordance with GAAP and as would be reflected on a consolidated balance sheet of the Company and its Subsidiaries plus the minority interests reflected on such consolidated balance sheet; provided that there shall be excluded from determining Consolidated Net Worth of the Company and its Subsidiaries (i) any foreign currency translation adjustment which otherwise would be included therein, (ii) the non-cash effects of any accounting standards adopted or issued by the Financial Accounting Standards Board after September 9, 1994 and (iii) the non-cash effects of any unusual charges or restructuring charges. "Consolidated Tangible Assets": at the time of determination thereof, the aggregate amount of all assets (as reflected on a consolidated balance sheet of the Company and its Subsidiaries) after deducting therefrom all goodwill, trade names, trademarks, patents, unamortized debt discount and expenses (to the extent included in said aggregate amount of assets) and other like intangibles, as set forth on the most recent consolidated balance sheet of the Company and its Subsidiaries and computed in accordance with GAAP. "Continuing Director": as defined in subsection 6(h). "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Credit Ratings": at any time, the then Moody's Credit Rating and the then S&P Credit Rating. "Default": any of the events specified in Section 6, whether or not any requirement for the giving of notice or the lapse of time, or both, or any other condition, has been satisfied. "Documentation Agent": as defined in the first paragraph of this Agreement. "Designated Asset Sale": the sale, transfer or other disposition (collectively, a "Disposition") in one transaction, or in a series of related transactions, by the Company and/or any of its Subsidiaries to any Person other than the Company or any of its Subsidiaries of any properties or assets (including sales or issuances of any capital stock of a Subsidiary and excluding (a) any Disposition of Inventory and (b) any Disposition in connection with a sale/leaseback transaction) resulting in Net Cash Proceeds of at least $500,000,000 being received by the Company and its Subsidiaries. "Designated Equity": the issuance by the Company of capital stock of the Company other than pursuant to or in connection with any restricted stock, management and/or employee stock option, savings and/or incentive plans or related agreements. "Designated Indebtedness": the issuance or incurrence by the Company in one transaction, or in a series of related transactions, of Indebtedness for borrowed money that would be treated as Consolidated Indebtedness hereunder for Net Cash Proceeds of at least $400,000,000 other than (a) Indebtedness borrowed under the Other Credit Agreement, (b) Indebtedness borrowed under the Credit Agreement dated as of September 9, 1994 and (c) Indebtedness that is required to be repaid within 390 days of the date of borrowing. "Dollars" and "$": dollars in lawful currency of the United States of America. "Effective Date": the date on which each of the conditions specified in subsection 4.1 are satisfied in full or waived in accordance with this Agreement. "Eligible Transferee": shall mean and include a commercial bank, financial institution or other "accredited investor" (as defined in Regulation D of the Securities Act of 1933, as amended). "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time be in effect during the term of this Agreement. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurodollar Loans": Committed Rate Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan or an Index Rate Bid Loan, the rate per annum equal to the rate of interest determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate Service (or otherwise on such service), the "Eurodollar Rate" shall be determined by reference to such other publicly available service for displaying eurodollar rates as may be agreed upon by the Administrative Agent and Company or, in the absence of such agreement, the "Eurodollar Rate" shall instead be the rate per annum equal to the average (rounded upward to the nearest 1/16 of 1%) of the respective rates notified to the Administrative Agent by each of the Reference Lenders as the rate at which such Reference Lender is offered Dollar deposits at or about 10:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of such Reference Lender are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount (i) in the case of Eurodollar Loans, comparable to the amount of the Eurodollar Loan of such Reference Lender to be outstanding during such Interest Period and (ii) in the case of an Index Rate Bid Loan by a Bid Loan Lender, equal to the amount of the Index Rate Bid Loan or Loans of such Bid Loan Lender to which such Interest Period applies. "Event of Default": any of the events specified in Section 6; provided, however, that any requirement for the giving of notice or the lapse of time, or both, or any other condition, has been satisfied. "Facility Fee": as defined in subsection 2.4. "Facility Fee Percentage": a percentage equal to at any time (i) during a Category A Period, .07%, (ii) during a Category B Period, .08%, (iii) during a Category C Period, .10% and (iv) during a Category D Period, .125%. "Federal Funds Effective Rate": as defined in the definition of "Alternate Base Rate". "Financing Lease": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "Fitch": Fitch, Inc. "GAAP": generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith. "Indebtedness": of any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Financing Leases, (d) all obligations of such Person in respect of acceptances issued or created for the account of such Person and (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Index Rate Bid Loan": any Bid Loan made at an interest rate based upon the Applicable Index Rate (as opposed to an absolute rate). "Index Rate Bid Loan Request": any Bid Loan Request requesting the Bid Loan Lenders to offer to make Index Rate Bid Loans at an interest rate equal to the Applicable Index Rate plus (or minus) a margin. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Interest Payment Date": (a) as to any Alternate Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding and the Termination Date, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months after the first day of such Interest Period and the last day of such Interest Period. "Interest Period": (a) with respect to any Eurodollar Loan, (i) initially, the period commencing on the Borrowing Date or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Company in the notice of borrowing or notice of conversion given with respect thereto; and (ii) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Company by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; and (b) with respect to any Bid Loan, the period commencing on the Bid Loan Date with respect to such Bid Loan and ending on the date not less than 7 nor more than 180 days thereafter, as specified by the Company in such Bid Loan Request; provided that the foregoing provisions are subject to the following: (A) if any Interest Period pertaining to a Eurodollar Loan or an Index Rate Bid Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (B) any Interest Period pertaining to a Eurodollar Loan or an Index Rate Bid Loan that begins on the last 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 end on the last Business Day of the relevant calendar month; (C) if any Interest Period pertaining to a Bid Loan made pursuant to an Absolute Rate Bid Loan Request would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day; (D) if the Company shall fail to give notice as provided above, the Company shall be deemed to have selected an Alternate Base Rate Loan to replace the affected Eurodollar Loan; and (E) any Interest Period which would otherwise extend beyond the Termination Date shall end on the Termination Date. "Lender": as defined in the first paragraph of this Agreement. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Financing Lease having substantially the same economic effect as any of the foregoing). "Loans": the collective reference to the Committed Rate Loans and the Bid Loans. "Majority Lenders": at any time, the Lenders whose Commitment Percentages hereunder aggregate in excess of 50%. "Material Adverse Effect": a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company to perform its obligations under this Agreement or (c) the validity or enforceability of this Agreement or the rights or remedies of the Administrative Agent or the Lenders hereunder. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Moody's": Moody's Investors Service, Inc. "Moody's Credit Rating": at any time, the rating level (it being understood that numerical modifiers and (+) (-) modifiers shall constitute rating levels) then assigned by Moody's to the Company's senior unsecured long-term debt. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": (a) with respect to any Designated Asset Sale, the proceeds in cash and cash equivalents (including cash or cash equivalents paid in respect of notes or other debt securities constituting proceeds but only when and as paid and excluding therefrom any interest component thereof) resulting therefrom net of (i) expenses (including legal, investment banking and accounting fees) incurred in connection therewith (including payment of principal of, and premium and interest on, Indebtedness (other than the Loans) which is repaid under the terms thereof as a result of such Designated Asset Sale), (ii) taxes paid or reasonably estimated to be payable solely as a result thereof and (iii) amounts which the Company determines in good faith should be reserved for post-closing adjustments; and (b) in connection with any issuance or sale of Designated Equity or any issuance or incurrence of Designated Indebtedness, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other reasonable fees and expenses associated therewith. "Other Credit Agreement": the Credit Agreement, dated as of March 5, 2001, among the Company, the lenders party thereto and Chase, as administrative agent, as in effect from time to time. "Participant": as defined in subsection 8.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Permitted Liens": 1. Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP (or, in the case of Subsidiaries with significant operations outside of the United States of America, generally accepted accounting principles in effect from time to time in their respective jurisdictions of incorporation); 2. 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 60 days or which are being contested in good faith by appropriate proceedings; 3. pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; 4. 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; and 5. any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses; provided that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement Lien shall be limited to all or a part of the property which secured the Lien so extended, renewed or replaced (plus improvements on such property). "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at any particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" as defined in the definition of Alternate Base Rate. "Properties": as defined in subsection 3.10(a). "Purchasing Lenders": as defined in subsection 8.6(c). "Rating Period": at any time, any of the Category A Period, the Category B Period, the Category C Period or the Category D Period as then in effect. "Reference Lenders": initially, Chase, Citibank, N.A. and Commerzbank Aktiengellschaft. "Register": as defined in subsection 8.6(d). "Reorganization": with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA. "Replaced Lender" and "Replacement Lender": each as defined in subsection 2.18. "Reportable Event": any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty-day notice period is waived under subsections .22, .23, .25, .27, or .28 of PBGC Reg.ss.4043. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-laws or other organizational or governing documents of such Person, and each law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the Executive Vice President, the Senior Vice President and CFO, the Treasurer, the Comptroller, the Assistant Comptroller or the Assistant Treasurer of the Company. "S&P": Standard & Poor's Ratings Services, a division of McGraw-Hill, Inc. "S&P Credit Rating": at any time, the rating level (it being understood that numerical modifiers and (+) (-) modifiers shall constitute rating levels) then assigned by S&P to the Company's senior unsecured long-term debt. "Short-Term Ratings": at any time, the rating level then assigned by each of S&P, Moody's and Fitch to the Company's senior unsecured short-term debt. "SEC": the Securities and Exchange Commission. "Significant Subsidiary": any Subsidiary that satisfies the requirements of Rule 1-02(w) of Regulation S-X as adopted by the Securities and Exchange Commission under the provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 as in force on the date of this Agreement. "Significant Usage Period": any date on which (i) the Aggregate Loans exceed 25% of the Aggregate Commitments and/or (ii) the Aggregate Loans plus the aggregate outstanding principal amount of the loans under the Other Credit Agreement exceed 25% of the Aggregate Facilities Commitments. "Single Employer Plan": any Plan which is subject to Title IV of ERISA, but is not a Multiemployer Plan. "Subsidiary": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. Notwithstanding the foregoing, Unrestricted Subsidiaries shall not be considered Subsidiaries of the Company for purposes of this Agreement, except that any Unrestricted Subsidiary shall be treated as a consolidated Subsidiary of the Company for purposes of calculating compliance with subsection 5.9 (and the definitions required to make such calculations) until such time as the Company certifies to the Administrative Agent that with respect to such Unrestricted Subsidiary, (x) the Company no longer desires to treat such Person as a consolidated Subsidiary for such purpose and (y) no creditor of such Person has recourse (whether pursuant to a guaranty or similar arrangement, or otherwise) to the Company or any of its Significant Subsidiaries with respect to any material obligations of such Person. "Syndication Agent": as defined in the first paragraph of this Agreement. "Taxes": as defined in subsection 2.17(a). "Termination Date": the earlier of (a) the Business Day immediately preceding the first anniversary of the Effective Date and (b) the date on which the Commitments shall terminate in accordance with the provisions of this Agreement. "Three-Month Secondary C/D Rate": as defined in the definition of Alternate Base Rate. "Tier I": at any time when at least two of the Short-Term Ratings are at or above the A-1, P-1 or F-1 levels. "Tranche": the collective reference to Eurodollar Loans whose Interest Periods begin and end on the same day. "Transferee": as defined in subsection 8.6(f). "Transfer Effective Date": as defined in each Commitment Transfer Supplement. "2.17 Certificate": as defined in subsection 2.17(b). "Type": as to any Loan, its nature as an Alternate Base Rate Loan or Eurodollar Loan, as the case may be. "Unrestricted Subsidiary": Any Person designated by the Company, in each case so long as (i) a majority of the equity interests are owned by the Company and its Subsidiaries and (ii) the Company and its Subsidiaries are unable to exercise control over such Person without material restriction. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. THE COMMITTED RATE LOANS; THE BID LOANS; AMOUNT AND TERMS 2.1 The Committed Rate Loans. (a) During the Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make loans (individually, a "Committed Rate Loan") to the Company from time to time in an aggregate principal amount at any one time outstanding not to exceed (after giving effect to the simultaneous use of the proceeds thereof to repay Loans) such Lender's Commitment, provided that no Committed Rate Loan shall be made hereunder which would result in the Aggregate Loans (after giving effect to the simultaneous use of the proceeds thereof to repay Loans) being in excess of the Aggregate Commitments then in effect. The Company may use the Commitments to borrow, repay and reborrow Committed Rate Loans from time to time during the Commitment Period, all in accordance with the terms and conditions hereof. (b) The Committed Rate Loans may be (i) Eurodollar Loans, (ii) Alternate Base Rate Loans or (iii) a combination thereof. (c) The Company may borrow Committed Rate Loans on any Business Day; provided, however, that the Company, shall give the Administrative Agent irrevocable notice thereof (which notice must be received by the Administrative Agent (i) prior to 12:00 Noon, New York City time, three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans and (ii) prior to 11:00 A.M., New York City time, on the requested Borrowing Date, in the case of Alternate Base Rate Loans). Each such notice shall be given by facsimile transmission substantially in the form of Exhibit A (with appropriate insertions) or shall be given by telephone (specifying the information set forth in Exhibit A) promptly confirmed by notice given by facsimile transmission substantially in the form of Exhibit A (with appropriate insertions). On the day of receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its share of each borrowing available to the Administrative Agent for the account of the Company at the office of the Administrative Agent set forth in subsection 8.2 by 11:00 A.M. (or 3:00 P.M., in the case of Alternate Base Rate Loans), New York City time, on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent as the Administrative Agent may direct. The proceeds of all such Committed Rate Loans will then be promptly made available to the Company by the Administrative Agent at the office of the Administrative Agent specified in subsection 8.2 by crediting the account of the Company on the books of such office of the Administrative Agent with the aggregate of the amount made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. (d) All Committed Rate Loans shall be due and payable upon the Termination Date. 2.2 The Bid Loans. (a) The Company may borrow Bid Loans from time to time on any Business Day during the Commitment Period in the manner set forth in this subsection and in amounts such that the Aggregate Loans at any time outstanding shall not exceed (after giving effect to the simultaneous use of the proceeds thereof to repay Loans) the Aggregate Commitments at such time, provided, however, that the aggregate principal amount of the outstanding Bid Loans of a Bid Loan Lender may (but shall not be required to) exceed its Commitment. (b) (i) The Company, shall request Bid Loans by delivering a Bid Loan Request to the Administrative Agent, not later than 12:00 Noon (New York City time) four Business Days prior to the proposed Bid Loan Date (in the case of an Index Rate Bid Loan Request), and not later than 10:00 A.M. (New York City time) one Business Day prior to the proposed Bid Loan Date (in the case of an Absolute Rate Bid Loan Request). Each Bid Loan Request may solicit bids for Bid Loans in an aggregate principal amount of $50,000,000 or an integral multiple of $5,000,000 in excess thereof and for not more than three alternative Interest Periods for such Bid Loans. The Interest Period for each Bid Loan shall end not less than 7 days (one month in the case of Index Rate Bid Loans) nor more than 180 days (six months in the case of Index Rate Bid Loans) after the Bid Loan Date therefor (and in any event subject to the proviso to the definition of "Interest Period" in subsection 1.1). The Administrative Agent shall promptly notify each Bid Loan Lender by facsimile transmission of the contents of each Bid Loan Request received by it. (ii) In the case of an Index Rate Bid Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Bid Loan Request, any Bid Loan Lender that elects, in its sole discretion, to do so, shall irrevocably offer to make one or more Bid Loans to the Company at the Applicable Index Rate plus or minus a margin for each such Bid Loan determined by such Bid Loan Lender, in its sole discretion. Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the Administrative Agent before 10:30 A.M. (New York City time) three Business Days before the proposed Bid Loan Date, setting forth the maximum amount of Bid Loans for each Interest Period, and the aggregate maximum amount for all Interest Periods, which such Lender would be willing to make (which amount may, subject to subsection 2.2(a), exceed such Lender's Commitment) and the margin above or below the Applicable Index Rate at which such Bid Loan Lender is willing to make each such Bid Loan; the Administrative Agent shall advise the Company before 11:15 A.M. (New York City time) three Business Days before the proposed Bid Loan Date of the contents of each such Bid Loan Offer received by it. If the Administrative Agent in its capacity as a Bid Loan Lender shall, in its sole discretion, elect to make any such offer, it shall advise the Company of the contents of its Bid Loan Offer before 10:15 A.M. (New York City time) three Business Days before the proposed Bid Loan Date. (iii) In the case of an Absolute Rate Bid Loan Request, upon receipt of notice from the Administrative Agent of the contents of such Bid Loan Request, any Bid Loan Lender that elects, in its sole discretion, to do so, shall irrevocably offer to make one or more Bid Loans to the Company at a rate or rates of interest for each such Bid Loan determined by such Bid Loan Lender in its sole discretion. Any such irrevocable offer shall be made by delivering a Bid Loan Offer to the Administrative Agent before 9:30 A.M. (New York City time) on the proposed Bid Loan Date, setting forth the maximum amount of Bid Loans for each Interest Period, and the aggregate maximum amount for all Interest Periods, which such Bid Loan Lender would be willing to make (which amount may, subject to subsection 2.2(a), exceed such Bid Loan Lender's Commitment) and the rate or rates of interest at which such Bid Loan Lender is willing to make each such Bid Loan; the Administrative Agent shall advise the Company before 10:15 A.M. (New York City time) on the proposed Bid Loan Date of the contents of each such Bid Loan Offer received by it. If the Administrative Agent in its capacity as a Bid Loan Lender shall, in its sole discretion, elect to make any such offer, it shall advise the Company of the contents of its Bid Loan Offer before 9:15 A.M. (New York City time) on the proposed Bid Loan Date. (iv) The Company shall before 11:45 A.M. (New York City time) three Business Days before the proposed Bid Loan Date (in the case of Bid Loans requested by an Index Rate Bid Loan Request) and before 10:45 A.M. (New York City time) on the proposed Bid Loan Date (in the case of Bid Loans requested by an Absolute Rate Bid Loan Request) either, in its absolute discretion: (A) cancel such Bid Loan Request by giving the Administrative Agent telephone notice to that effect, or (B) accept one or more of the offers made by any Bid Loan Lender or Bid Loan Lenders pursuant to clause (ii) or clause (iii) above, as the case may be, by giving telephone notice to the Administrative Agent (immediately confirmed by delivery to the Administrative Agent of a Bid Loan Confirmation) of the amount of Bid Loans for each relevant Interest Period to be made by each Bid Loan Lender (which amount shall be equal to or less than the maximum amount for such Interest Period specified in the Bid Loan Offer of such Bid Loan Lender, and for all Interest Periods included in such Bid Loan Offer shall be equal to or less than the aggregate maximum amount specified in such Bid Loan Offer for all such Interest Periods) and reject any remaining offers made by Bid Loan Lenders pursuant to clause (ii) or clause (iii) above, as the case may be; provided, however, that (x) the Company may not accept offers for Bid Loans for any Interest Period in an aggregate principal amount in excess of the maximum principal amount requested for such Interest Period in the related Bid Loan Request, (y) if the Company accepts any of such offers, it must accept offers strictly based upon pricing for such relevant Interest Period and no other criteria whatsoever and (z) if two or more Bid Loan Lenders submit offers for any Interest Period at identical pricing and the Company accepts any of such offers but does not wish to borrow the total amount offered by such Bid Loan Lenders with such identical pricing, the Company shall accept offers from all of such Bid Loan Lenders in amounts allocated among them pro rata according to the amounts offered by such Bid Loan Lenders (or as nearly pro rata as shall be practicable, after giving effect to the requirement that Bid Loans made by a Bid Loan Lender on a Bid Loan Date for each relevant Interest Period shall be in a principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof). (v) If the Company notifies the Administrative Agent that a Bid Loan Request is cancelled pursuant to clause (iv)(A) above, the Administrative Agent shall give prompt telephone notice thereof to the Bid Loan Lenders, and the Bid Loans requested thereby shall not be made. (vi) If the Company accepts pursuant to clause (iv)(B) above one or more of the offers made by any Bid Loan Lender or Bid Loan Lenders, the Administrative Agent shall promptly notify by telephone each Bid Loan Lender which has made such an offer of the aggregate amount of such Bid Loans to be made on such Bid Loan Date for each Interest Period and of the acceptance or rejection of any offers to make such Bid Loans made by such Bid Loan Lender. Each Bid Loan Lender which is to make a Bid Loan shall, before 12:00 Noon (New York City time) on the Bid Loan Date specified in the Bid Loan Request applicable thereto, make available to the Administrative Agent at its office set forth in subsection 8.2 the amount of Bid Loans to be made by such Bid Loan Lender, in immediately available funds. The Administrative Agent will make such funds available to the Company promptly on such date at the Administrative Agent's aforesaid address. As soon as practicable after each Bid Loan Date, the Administrative Agent shall notify each Lender of the aggregate amount of Bid Loans advanced on such Bid Loan Date and the respective Interest Periods therefor. (c) Within the limits and on the conditions set forth in this subsection, the Company may from time to time borrow under this subsection, repay pursuant to paragraph (d) below, and reborrow under this subsection. (d) The Company shall repay to the Administrative Agent for the account of each Bid Loan Lender which has made a Bid Loan to it on the last day of the Interest Period for such Bid Loan (such Interest Period being that specified by the Company for repayment of such Bid Loan in the related Bid Loan Request) the then unpaid principal amount of such Bid Loan. The Company shall not have the right to prepay any principal amount of any Bid Loan without the prior consent of the Bid Loan Lender with respect thereto. (e) The Company shall pay interest on the unpaid principal amount of each Bid Loan made to it from the applicable Bid Loan Date to the stated maturity date thereof, at the rate of interest determined pursuant to paragraph (b) above (calculated on the basis of a 360 day year for actual days elapsed), payable on the interest payment date or dates specified by the Company for such Bid Loan in the related Bid Loan Request. If all or a portion of the principal amount of any Bid Loan or any interest payable thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall, without limiting any rights of any Lender under this Agreement, bear interest at a rate per annum which is (x) in the case of overdue principal, 2% above the rate which would otherwise be applicable to such Bid Loan until the scheduled maturity date with respect thereto and for each day thereafter at a rate per annum which is 2% above the Alternate Base Rate or (y) in the case of overdue interest, 2% above the Alternate Base Rate plus the Applicable Margin, in each case from the date of such non-payment until such amount is paid in full (as well after as before judgment). 2.3 Denomination of Committed Rate Loans. Each borrowing of Committed Rate Loans shall be in an aggregate principal amount of $50,000,000 or a whole multiple of $5,000,000 in excess thereof. 2.4 Fees. The Company agrees to pay to the Administrative Agent, for the ratable benefit of the Lenders, a facility fee (the "Facility Fee") in an amount equal to the Facility Fee Percentage, of the Aggregate Commitments from and including the Effective Date to but excluding the Termination Date, payable quarterly in arrears on the last day of each March, June, September and December, and on the Termination Date. Such quarterly payment made hereunder shall be a payment in consideration for holding open the availability of the Commitments or making the Loans for the quarterly period completed on the date payment is due. 2.5 Changes of Commitments. (a) The Company shall have the right to terminate or reduce the unused portion of the Commitments at any time or from time to time upon not less than three Business Days' prior notice to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall be in a minimum amount of $50,000,000 or a whole multiple of $5,000,000 in excess thereof) and shall be irrevocable and effective only upon receipt by the Administrative Agent, provided that no such reduction or termination shall be permitted if after giving effect thereto, and to any prepayments of the Committed Rate Loans made on the effective date thereof, the then outstanding principal amount of the Aggregate Loans would exceed the Aggregate Commitments then in effect. (b) The Aggregate Commitments shall be reduced (x) on the Business Day following the date of receipt by the Company or any Subsidiary of any Net Cash Proceeds from any Designated Asset Sale, in an amount equal to 100% of such Net Cash Proceeds, and (y) on the Business Day following the date of receipt by the Company or any Subsidiary of the Net Cash Proceeds of any sale, issuance or incurrence of Designated Equity or Designated Indebtedness, in an amount equal to 100% of such Net Cash Proceeds. (c) The Commitments once terminated or reduced pursuant to this subsection may not be reinstated. 2.6 Prepayments. (a) The Company may prepay Committed Rate Loans or (with the consent of the Bid Loan Lender in respect thereof) Bid Loans upon receipt by the Administrative Agent (which shall notify the Lenders thereof as soon as practicable) of irrevocable notice from the Company prior to 11:30 A.M. (New York City time) on the date of such prepayment. (b) On each day on which the Aggregate Commitments are reduced pursuant to Section 2.5(b), the Company shall prepay the Committed Rate Loans in an amount equal to the lesser of (x) the amount, if any, by which the then outstanding principal amount of Loans exceeds the Aggregate Commitments as so reduced and (y) the aggregate outstanding principal amount of Committed Rate Loans. (c) If any Eurodollar Loan shall be prepaid on any day under this Section 2.6 other than the last day of the Interest Period applicable thereto, or prior to the conversion thereof if a notice of conversion has been delivered with respect thereto pursuant to Section 2.9, the Company shall, on the date of such payment, also pay all interest accrued on such Eurodollar Loan to the date of such payment and all amounts payable pursuant to subsection 2.16 in connection therewith. 2.7 Minimum Principal Amount of Tranches. All borrowings, payments and prepayments in respect of Committed Rate Loans shall be in such amounts and be made pursuant to such elections so that after giving effect thereto the aggregate principal amount of the Committed Rate Loans comprising any Tranche shall not be less than $50,000,000 or a whole multiple of $5,000,000 in excess thereof. 2.8 Committed Rate Loan Interest Rates and Payment Dates. (a) Each Committed Rate Loan comprising each Eurodollar Tranche shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) The Alternate Base Rate Loans shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin. (c) If all or a portion of the principal amount of any Committed Rate Loan which is a Eurodollar Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue principal amount of such Committed Rate Loan shall be converted to an Alternate Base Rate Loan at the end of the Interest Period applicable thereto. (d) If all or a portion of (i) the principal amount of any Committed Rate Loan, (ii) any interest payable thereon or (iii) any fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) in the case of overdue interest, fees or other amounts, the rate described in paragraph (b) of this subsection plus 2%, in each case from the date of such non-payment until such amount is paid in full (after as well as before judgment). (e) Interest on each Committed Rate Loan shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (d) of this subsection shall be payable from time to time on demand. 2.9 Conversion Options. (a) The Company may elect from time to time to convert Alternate Base Rate Loans to Eurodollar Loans by giving the Administrative Agent prior irrevocable written notice of such election received by the Administrative Agent prior to 12:00 Noon, New York City time, three Business Days prior to the proposed conversion date. The Company may elect from time to time to convert Eurodollar Loans to Alternate Base Rate Loans by giving the Administrative Agent prior irrevocable notice of such election received by the Administrative Agent prior to 12:00 Noon, New York City time, one Business Day prior to the proposed conversion date. If the date upon which an Alternative Base Rate Loan is to be converted to a Eurodollar Loan is not a Business Day in London, then such conversion shall be made on the next succeeding Business Day in London and during the period from such last day of an Interest Period to such succeeding Business Day such Loan shall bear interest as if it were an Alternate Base Rate Loan. All or any part of outstanding Eurodollar Loans and Alternate Base Rate Loans may be converted as provided herein, provided that (i) no Loan may be converted into a Eurodollar Loan when any Default or Event of Default has occurred and is continuing and the Administrative Agent or the Majority Lenders have determined that such conversion is not appropriate and (ii) partial conversions shall be in an aggregate principal amount of $50,000,000 or a whole multiple of $5,000,000 in excess thereof. (b) Any Eurodollar Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Company with the notice provisions contained in subsection 2.9(a); provided, that no Eurodollar Loan may be continued as such when any Default or Event of Default has occurred and is continuing, and the Administrative Agent or the Majority Lenders have determined that such a continuation is not appropriate, in which case such Loan shall be automatically converted to an Alternate Base Rate Loan on the last day of the then current Interest Period with respect thereto. 2.10 Computation of Interest and Fees. (a) Interest payable hereunder with respect to Alternate Base Rate Loans shall be calculated on the basis of a year of 365/6 days for the actual days elapsed. All other fees, interest and all other amounts payable hereunder shall be calculated on the basis of a 360 day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of each determination of a Eurodollar Rate on the Business Day of the determination thereof. Any change in the interest rate on a Committed Rate Loan resulting from a change in the Alternate Base Rate shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate shall become effective. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Company and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Company, deliver to the Company a statement showing the quotations and the computations used by the Administrative Agent in determining any interest rate. (c) If any Reference Lender's Commitment shall terminate for any reason whatsoever (otherwise than with termination of all the Commitments), such Reference Lender shall thereupon cease to be a Reference Lender, and if for any reason there shall cease to be at least three Reference Lenders, then the Administrative Agent (after consultation with the Company and the Lenders) shall, by notice to the Company and the Lenders, designate another Lender as a Reference Lender (who shall be reasonably acceptable to the Company) so that there shall at all times be at least three Reference Lenders. (d) Each Reference Lender shall use its best efforts to furnish quotations of rates to the Administrative Agent when and as contemplated hereby. If any of the Reference Lenders shall be unable or otherwise fails to supply such rates to the Administrative Agent upon its request, the rate of interest shall, subject to the provisions of subsection 2.13, be determined on the basis of the quotations of the remaining Reference Lenders or Reference Lender. 2.11 Pro Rata Treatment, Payments and Evidence of Debt. (a) Each borrowing of Committed Rate Loans and any reduction of the Commitments shall be made pro rata according to the respective Commitment Percentages of the Lenders. Each payment by the Company under this Agreement shall be applied, first, to any fees then due and owing by the Company pursuant to subsection 2.4, second, to interest then due and owing in respect of the Loans and, third, to principal then due and owing in respect of the Loans. Each payment by the Company on account of any fees pursuant to subsection 2.4 shall be made pro rata in accordance with the respective amounts due and owing. Each payment (other than prepayments) by the Company on account of principal of and interest on the Committed Rate Loans shall be made pro rata according to the respective amounts due and owing. Each prepayment on account of principal of the Loans (except to the extent designated to be applied to Bid Loans) shall be applied, first, to such of the Committed Rate Loans as the Company may designate (to be applied pro rata among the Lenders), and, second, after all Committed Rate Loans shall have been paid in full, to Bid Loans, pro rata according to the respective amounts outstanding; provided, that prepayments made pursuant to subsection 2.14 shall be applied in accordance with such subsection; and provided further that nothing herein shall be deemed to permit optional prepayments on account of Bid Loans without the prior consent of the Bid Loan Lender with respect thereto. (b) All payments (including prepayments) to be made by the Company on account of principal, interest and fees shall be made without defense, set-off or counterclaim (except as provided in subsection 2.17(b)) and shall be made to the Administrative Agent for the account of the Lenders at the Administrative Agent's office specified in subsection 8.2 in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders entitled thereto promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans or Index Rate Bid Loans payable on the next preceding Business Day as a result of the following sentence) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan or an Index Rate Bid Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (c) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. The entries made in the accounts maintained pursuant to the two preceding sentences shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Loans in accordance with the terms of this Agreement. (d) Any Lender (including any Replacement Lender) may request that Loans made by it be evidenced by a promissory note. In such event, the Company shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form reasonably satisfactory to the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 8.6) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 2.12 Non-Receipt of Funds by the Administrative Agent. (a) Unless the Administrative Agent shall have been notified by a Lender prior to the time a Committed Rate Loan is to be made by such Lender (which notice shall be effective upon receipt) that such Lender does not intend to make the proceeds of such Committed Rate Loan available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such proceeds available to the Administrative Agent at such time, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to the Company a corresponding amount. If such amount is made available to the Administrative Agent on a date after such Borrowing Date, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate during such period, times (ii) the amount of such Lender's Commitment Percentage of such borrowing, times (iii) a fraction, the numerator of which is the number of days that elapse from and including such Borrowing Date to the date on which such Lender's Commitment Percentage of such borrowing shall have become immediately available to the Administrative Agent and the denominator of which is 360. If such Lender's Commitment Percentage is not in fact made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall be entitled to recover such amount with interest thereon at the rate per annum applicable to Alternate Base Rate Loans hereunder, on demand, from the Company. (b) Unless the Administrative Agent shall have been notified by the Company prior to the date on which any payment is due from it hereunder (which notice shall be effective upon receipt) that the Company does not intend to make such payment, the Administrative Agent may assume that the Company has made such payment when due, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to each Lender on such payment date an amount equal to the portion of such assumed payment to which such Lender is entitled hereunder, and if the Company has not in fact made such payment to the Administrative Agent, such Lender shall, on demand, repay to the Administrative Agent the amount made available to such Lender. If such amount is repaid to the Administrative Agent on a date after the date such amount was made available to such Lender, such Lender shall pay to the Administrative Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate during such period, times (ii) the amount made available to such Lender by the Administrative Agent pursuant to this paragraph (b), times (iii) a fraction, the numerator of which is the number of days that elapse from and including the date on which such amount was made available to such Lender to the date on which such amount shall have been repaid to the Administrative Agent by such Lender and become immediately available to the Administrative Agent and the denominator of which is 360. (c) A certificate of the Administrative Agent submitted to the Company or any Lender with respect to any amount owing under this subsection shall be conclusive in the absence of manifest error. 2.13 Inability to Determine Interest Rate. (a) Notwithstanding any other provision of this Agreement, if (i) the Administrative Agent reasonably determines that, for any reason whatsoever, a rate for Eurodollar Loans cannot be determined as provided in the definition of Eurodollar Rate for any Interest Period or (ii) the Majority Lenders shall determine (which determination shall be conclusive) that the rates for the purpose of computing the Eurodollar Rate do not adequately and fairly reflect the cost to such Lenders of funding Eurodollar Loans that the Company has requested be outstanding as a Eurodollar Tranche during such Interest Period, the Administrative Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Company and the Lenders at least two Business Days prior to the first day of such Interest Period. Unless the Company shall have notified the Administrative Agent upon receipt of such telephone notice that it wishes to rescind or modify its request regarding such Eurodollar Loans, any Loans that were requested to be made as Eurodollar Loans shall be made as Alternate Base Rate Loans and any Loans that were requested to be converted into or continued as Eurodollar Loans shall be converted into Alternate Base Rate Loans. Until any such notice has been withdrawn by the Administrative Agent, no further Loans shall be made as, continued as, or converted into, Eurodollar Loans. (b) In the event that the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Company) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any Interest Period with respect to a proposed Bid Loan to be made pursuant to an Index Rate Bid Loan Request, the Administrative Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Company and the Bid Loan Lenders at least two Business Days prior to the proposed Bid Loan Date, and such Bid Loans shall not be made on such Bid Loan Date. Until any such notice has been withdrawn by the Administrative Agent, no further Index Rate Bid Loan Requests shall be submitted by the Company. 2.14 Illegality. Notwithstanding any other provision of this Agreement, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof by any relevant Governmental Authority to any Lender shall make it unlawful for such Lender to make or maintain Eurodollar Loans as contemplated by this Agreement or to obtain in the interbank eurodollar market the funds with which to make such Loans, (a) such Lender shall promptly notify the Administrative Agent and the Company thereof, (b) the commitment of such Lender hereunder to make Eurodollar Loans or continue Eurodollar Loans as such shall forthwith be cancelled and (c) such Lender's Committed Rate Loans then outstanding as Eurodollar Loans, if any, shall be converted on the last day of the Interest Period for such Loans or within such earlier period as required by law into Alternate Base Rate Loans. The Company hereby agrees promptly to pay any Lender, upon its demand, any additional amounts necessary to compensate such Lender for actual and direct costs reasonably incurred by such Lender in making any repayment in accordance with this subsection including, but not limited to, any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its Eurodollar Loans hereunder. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Administrative Agent, to the Company shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts to avoid or to minimize any amounts which may otherwise be payable pursuant to this subsection; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender to be material. 2.15 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) does or shall subject such Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender of principal, facility fee, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of such Lender); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise covered by subsection 2.15(b); (iii) does or shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender of making or maintaining Loans or to reduce any amount receivable hereunder, then, in any such case, the Company shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable which such Lender reasonably deems to be material as determined by such Lender with respect to its Eurodollar Loans. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Administrative Agent, to the Company shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts to avoid or to minimize any amounts which might otherwise be payable pursuant to this paragraph of this subsection; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender to be material. (b) In addition to amounts which may become payable from time to time pursuant to paragraph (a) of this subsection, the Company agrees to pay to each Lender which requests compensation under this paragraph (b) (by notice to the Company), on the last day of each Interest Period with respect to any Eurodollar Loan made by such Lender, so long as such Lender shall be required to maintain reserves against "Eurocurrency liabilities" under Regulation D of the Board of Governors of the Federal Reserve System (or, so long as such Lender may be required by such Board of Governors or by any other Governmental Authority to maintain reserves against any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or against any category of extensions of credit or other assets of such Lender which includes any Eurodollar Loans), an additional amount (determined by such Lender and notified to the Company) representing such Lender's calculation or, if an accurate calculation is impracticable, reasonable estimate (using such reasonable means of allocation as such Lender shall determine) of the actual costs, if any, incurred by such Lender during such Interest Period as a result of the applicability of the foregoing reserves to such Eurodollar Loans, which amount in any event shall not exceed the product of the following for each day of such Interest Period: (i) the principal amount of the Eurodollar Loans made by such Lender to which such Interest Period relates outstanding on such day; and (ii) the difference between (x) a fraction (expressed as a decimal) the numerator of which is the Eurodollar Rate (expressed as a decimal) applicable to such Eurodollar Loan and the denominator of which is one minus the maximum rate (expressed as a decimal) at which such reserve requirements are imposed by such Board of Governors or other Governmental Authority on such date minus (y) such numerator; and (iii) a fraction the numerator of which is one and the denominator of which is 360. (c) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, within 15 days after demand by such Lender, the Company shall pay to such Lender such additional amount as shall be certified by such Lender as being required to compensate it for such reduction. (d) Notwithstanding anything to the contrary contained herein, the Company shall not have any obligation to pay to any Lender amounts owing under this subsection 2.15 for any period which is more than 60 days prior to the date upon which the request for payment therefor is delivered to the Company; provided that in no event shall the Company have any obligation to pay to any Lender amounts owing under subsection 2.15(b) for any period which is prior to the commencement of the Interest Period in effect at the time a demand for payment is made by such Lender. (e) The agreements in this subsection shall survive the termination of this Agreement and payment of the Loans and all other amounts payable hereunder. 2.16 Indemnity. The Company hereby agrees to indemnify each Lender and to hold such Lender harmless from any funding loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Company in payment of the principal amount of or interest on any Loan by such Lender in accordance with the terms of subsections 2.1(d), 2.2(d), 2.2(e) and 2.8(e), as the case may be, (b) default by the Company in making a borrowing after the Company has given a notice in accordance with subsection 2.1 or 2.2, (c) default by the Company in making any prepayment after the Company has given a notice in accordance with subsection 2.6 and/or (d) the making by the Company of a prepayment of a Committed Rate Loan (including without limitation, any prepayment of an Alternate Base Rate Loan after notice of conversion to a Eurodollar Loan has been delivered with respect thereto pursuant to Section 2.9), or the conversion thereof, on a day which is not the last day of the Interest Period with respect thereto, in each case including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain its Loans hereunder. A certificate as to any additional amounts payable pursuant to this subsection submitted by any Lender, through the Administrative Agent, to the Company (which certificate must be delivered to the Administrative Agent within thirty days following such default, prepayment or conversion) shall be conclusive in the absence of manifest error. The agreements in this subsection shall survive termination of this Agreement and payment of the Loans and all other amounts payable hereunder. 2.17 Taxes. (a) All payments made by the Company hereunder will be, except as provided in subsection 2.17(b), made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any Governmental Authority or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding any tax imposed on or measured by the net income or profits of a Lender pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Company agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein. The Company will furnish to the Administrative Agent as soon as practicable after the date the payment of any Taxes is due pursuant to applicable law certified copies (to the extent reasonably available and required by law) of tax receipts evidencing such payment by the Company. The Company agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. (b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for United States income tax purposes agrees to deliver to the Company and the Administrative Agent on or prior to the Effective Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to subsection 8.6(c) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or W-8BEN with respect to the benefit of any income tax treaty (or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, either Internal Revenue Service Form W-8ECI or W-8BEN with respect to the benefit of any income tax treaty pursuant to clause (i) above, or (x) a certificate substantially in the form of Exhibit C (any such certificate, a "2.17 Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (with respect to the portfolio interest exception) (or successor form) certifying to such Lender's entitlement to an exemption from United States withholding tax with respect to payments of interest to be made under this Agreement. In addition, each Lender agrees that it will deliver upon the Company's request updated versions of the foregoing, as applicable, whenever the previous certification has become obsolete or inaccurate in any material respect, together with such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement, or it shall immediately notify the Company and the Administrative Agent of its inability to deliver any such Form or Certificate, in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this subsection 2.17(b). Notwithstanding anything to the contrary contained in subsection 2.17(a), but subject to the immediately succeeding sentence, (x) the Company shall be entitled, to the extent it is required to do so by law, to deduct or withhold Taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Company U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Company shall not be obligated pursuant to subsection 2.17(a) hereof to gross-up payments to be made to a Lender in respect of Taxes imposed by the United States if (I) such Lender has not provided to the Company the Internal Revenue Service Forms required to be provided to the Company pursuant to this subsection 2.17(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such Taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this subsection 2.17, the Company agrees to pay additional amounts and to indemnify each Lender in the manner set forth in subsection 2.17(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of Taxes. (c) Each Lender agrees to use reasonable efforts (including reasonable efforts to change its lending office) to avoid or to minimize any amounts which might otherwise be payable pursuant to this subsection; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender to be material. (d) If the Company pays any additional amount pursuant to this subsection 2.17 with respect to a Lender, such Lender shall use reasonable efforts to obtain a refund of tax or credit against its tax liabilities on account of such payment; provided that such Lender shall have no obligation to use such reasonable efforts if either (i) it is in an excess foreign tax credit position or (ii) it believes in good faith, in its sole discretion, that claiming a refund or credit would cause adverse tax consequences to it. In the event that such Lender receives such a refund or credit, such Lender shall pay to the Company an amount that such Lender reasonably determines is equal to the net tax benefit obtained by such Lender as a result of such payment by the Company. In the event that no refund or credit is obtained with respect to the Company's payments to such Lender pursuant to this subsection 2.17, then such Lender shall provide a certification that such Lender has not received a refund or credit for such payments. Nothing contained in this subsection 2.17 shall require a Lender to disclose or detail the basis of its calculation of the amount of any tax benefit or any other amount or the basis of its determination referred to in the proviso to the first sentence of this subsection 2.17 to the Company or any other party. (e) The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.18 Replacement of Lenders. In the event that any Lender shall submit a request for additional reimbursement under subsection 2.15(a),(b) or (c) or subsection 2.17, the Company shall have the right to replace such Lender (the "Replaced Lender") with one or more other Eligible Transferee or Transferees, (collectively, the "Replacement Lender") reasonably acceptable to the Administrative Agent, provided that: (i) at the time of any replacement pursuant to this subsection 2.18, the Replacement Lender shall enter into one or more Commitment Transfer Supplements pursuant to subsection 8.6(c) (and with all fees payable pursuant to subsection 8.6(e) to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Committed Rate Loans of the Replaced Lender hereunder and (if the Company so requests) under the Other Credit Agreement and, in connection therewith, shall pay to the Replaced Lender in respect thereof an amount equal to the sum of (x) an amount equal to the principal of, and all accrued but unpaid interest on, all outstanding Committed Rate Loans of the Replaced Lender hereunder and thereunder, and (y) an amount equal to all accrued but unpaid Facility Fees (if any) owing to the Replaced Lender pursuant to subsection 2.4 hereof and thereof; and (ii) all obligations of the Company owing to the Replaced Lender hereunder and (if the Company so requests) under the Other Credit Agreement (including the aforesaid increased fees but other than (x) those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid and (y) accrued but not due interest on, and the principal of, all Bid Loans of the Replaced Bank then outstanding (which will be paid when and as due by the Company)) shall be paid in full to such Replaced Lender by the Company concurrently with such replacement; provided, that, no such payment shall be required in respect of periods commencing (x) prior to the commencement of the Interest Period in respect of which such payment is sought, in the case of any payment pursuant to subsection 2.15(b), or (y) prior to the date which is 60 days prior to the date of such payment request, in all other cases. The Company will also be required to provide reimbursement to such Replaced Lender for any additional amounts owing pursuant to subsection 2.15(a), (b) or (c) or subsection 2.17 for the period subsequent to such request through the date of such replacement. Upon the execution of the respective Commitment Transfer Supplements and the payment of amounts referred to in clauses (i) and (ii) above, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions under this Agreement (and the obligation, if any, owed it in respect of any outstanding Bid Loan), which shall survive as to such Replaced Lender. The Administrative Agent agrees with the Company to use diligent efforts to assist the Company in locating any necessary Replacement Lender. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make the Loans herein provided for, the Company hereby represents and warrants to the Administrative Agent and to each Lender that: 3.1 Financial Condition. The consolidated balance sheet of the Company and its consolidated Subsidiaries as at December 31, 1999 and as at September 30, 2000 and the related consolidated statements of income and of cash flows for the fiscal year or nine-month period ended on such date, reported on (in the case of such annual statements) by Arthur Andersen LLP, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year or nine-month period then ended, subject in the case of the September 30, 2000 statements to normal year end adjustments. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as disclosed therein). Neither the Company nor any of its consolidated Subsidiaries had, at the date of the balance sheets referred to above, any material Guarantee Obligation, contingent liabilities or liability for taxes, long-term lease or unusual forward or long-term commitment, including, without limitation, any material interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto or in the Confidential Information Memorandum dated February 2001. 3.2 No Change. Since December 31, 1999 there has been no development or event which has had a Material Adverse Effect. 3.3 Corporate Existence; Compliance with Law. Each of the Company and its Significant Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate or partnership power and authority and the legal right to own and operate all its material property, to lease the material property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation or partnership and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to so qualify or be in good standing would not, in the aggregate, have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.4 Corporate Power; Authorization; Enforceable Obligations. The Company has full power and authority and the legal right to make, deliver and perform this Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery or performance of this Agreement by the Company or with the validity or enforceability of this Agreement against the Company. This Agreement has been duly executed and delivered on behalf of the Company. This Agreement constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.5 No Legal Bar; No Default. The execution, delivery and performance of this Agreement, the borrowings thereunder and the use of the proceeds of the Loans will not violate any Requirement of Law or any Contractual Obligation of the Company or its Significant Subsidiaries, and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation. Neither the Company nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which would reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 3.6 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Company, threatened by or against the Company or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to this Agreement or any Loan or any of the transactions contemplated hereby or (b) which would reasonably be expected to have a Material Adverse Effect. 3.7 Investment Company Act. The Company is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 3.8 Federal Regulations. No part of the proceeds of any Loan hereunder will be used directly or indirectly for any purpose which violates, or which would be inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. No part of any such proceeds shall be used to purchase or carry any "Margin Stock", as that term is defined in said Regulation U. 3.9 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code, except to the extent that any such occurrence or failure to comply would not reasonably be expected to have a Material Adverse Effect. No termination of a Single Employer Plan has occurred resulting in any liability that has remained underfunded, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period which would reasonably be expected to have a Material Adverse Effect. Except for the Company's Supplemental Executive Retirement Plan, the present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount which would reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Commonly Controlled Entity is currently subject to any liability for a complete or partial withdrawal from a Multiemployer Plan which would reasonably be expected to have a Material Adverse Effect. 3.10 Environmental Matters. Except to the extent that all of the following, in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) To the best knowledge of the Company, the facilities and properties owned, leased or operated by the Company or any of its Subsidiaries (the "Properties") do not contain any Materials of Environmental Concern in amounts or concentrations which (i) constitute a violation of, or (ii) could give rise to liability under, any Environmental Law. (b) To the best knowledge of the Company, the Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the Company or any of its Subsidiaries (the "Business"). (c) Neither the Company nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Company have knowledge or reason to believe that any such notice will be received or is being threatened. (d) To the best knowledge of the Company, Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which could give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Company, threatened, under any Environmental Law to which the Company or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business. (f) To the best knowledge of the Company, there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Company or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. 3.11 Purpose of Loans. The proceeds of the Loans will be used (i) to back-up commercial paper, (ii) to finance payments to plaintiffs with tort claims relating to the Company's previously marketed diet drug products and (iii) for the Company's general corporate and working capital purposes. 3.12 Restrictions on Subsidiaries. There are no restrictions on the Company or any of its Subsidiaries which prohibit or otherwise restrict the transfer of cash or other assets (x) between the Company and any of its Subsidiaries or (y) between any Subsidiaries of the Company, other than (i) applicable restrictions of law imposed on Subsidiaries by the jurisdictions in which such Subsidiaries are incorporated or do business or (ii) other restrictions which, in the aggregate, do not encumber a material amount of cash or other assets. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Effective Date. This Agreement shall become effective upon the satisfaction of the following conditions precedent: (a) Execution of Agreement. The Administrative Agent shall have received one or more counterparts of this Agreement, executed by a duly authorized officer of each party hereto. (b) Officer's Certificate. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of a duly authorized officer of the Company dated the Effective Date, substantially in the form of Exhibit H with appropriate insertions and attachments. (c) Legal Opinion of Counsel. The Administrative Agent shall have received, with a copy for each Lender, an opinion of Louis L. Hoynes, Jr., Executive Vice President and General Counsel of the Company, dated the Effective Date and addressed to the Administrative Agent and the Lenders, substantially in the form of Exhibit I. Such opinion shall also cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent shall reasonably require. (d) Fees. The Administrative Agent shall have received all fees due and payable on or prior to the Effective Date, and, to the extent invoiced at least two Business Days prior to the Effective Date, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder. (e) Other Credit Agreement. The Effective Date under and as defined in the Other Credit Agreement shall have occurred or shall concurrently occur. (f) Subsection 4.2 Conditions. The conditions specified in subsections 4.2(a) and (b) shall be satisfied on the Effective Date as if Loans were to be made on such date. (g) Additional Matters. All other documents and legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel. 4.2 Conditions to All Loans. The obligation of each Lender to make any Loan to be made by it hereunder (including the initial Loan to be made by it hereunder) is subject to the satisfaction of the following conditions precedent on the date of making such Loan: (a) Representations and Warranties. The representations and warranties made by the Company herein or which are contained in any certificate furnished at any time under or in connection herewith shall be true and correct in all material respects on and as of the date of such Loan as if made on and as of such date. (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loan to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Agreement. (c) Additional Conditions to Bid Loans. If such Loan is made pursuant to subsection 2.2 all conditions set forth in such subsection shall have been satisfied. (d) Additional Conditions to Committed Rate Loans. If such Loan is made pursuant to subsection 2.1, all conditions set forth in such subsection shall have been satisfied. Each acceptance by the Company of a Loan shall be deemed to constitute a representation and warranty by the Company as of the date of such Loan that the applicable conditions in paragraphs (a), (b), (c) and/or (d) of this subsection have been satisfied. SECTION 5. COVENANTS The Company hereby covenants and agrees that on the Effective Date, and thereafter for so long as this Agreement is in effect and until the Commitments have terminated and the Loans, together with interest, Facility Fees and all other amounts owing to the Administrative Agent or any Lender hereunder, are paid in full, the Company shall and, in the case of subsections 5.3, 5.4, 5.5 and 5.6, shall cause each of its Significant Subsidiaries to, and in the case of subsections 5.7, 5.8 and 5.10 shall cause each of its Subsidiaries to: 5.1 Financial Statements. Furnish to the Administrative Agent (with a sufficient number of copies for each Lender, which the Administrative Agent shall promptly furnish to each Lender): (a) as soon as available, but in any event within 120 days after the end of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income and retained earnings and of cash flows of the Company and its consolidated Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification indicating that the scope of the audit was inadequate to permit such independent certified public accountants to certify such financial statements without such qualification, by Arthur Andersen LLP or another firm of independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of the Company, a copy of the Company's Report on Form 10-Q for such quarter, as filed with the Securities Exchange Commission; all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by such accountants or a Responsible Officer, as the case may be, and disclosed therein). 5.2 Certificates; Other Information. Furnish to the Administrative Agent (with a sufficient number of copies for each Lender, which the Administrative Agent shall promptly furnish to each Lender): (a) concurrently with the delivery of the financial statements referred to in subsection 5.1(a) above, a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsection 5.1(a) above and the Report on Form 10-Q for the Company's fiscal quarters referred to in subsection 5.1(b) above, a certificate of a Responsible Officer of the Company stating that, to the best of such Responsible Officer's knowledge, the Company during such period observed or performed all of its covenants and other agreements, and satisfied every material condition, contained in this Agreement to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and such certificate shall include the calculation required to indicate compliance with subsection 5.9; (c) within thirty days after the same are sent, copies of all reports (other than those otherwise provided pursuant to subsection 5.1 and those which are of a promotional nature) and other financial information which the Company sends to its stockholders, and within thirty days after the same are filed, copies of all financial statements and non-confidential reports which the Company may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; and (d) promptly, such additional financial and other information as the Administrative Agent, on behalf of any Lender, may from time to time reasonably request. 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature and any additional costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such obligations, except when the amount or validity of such obligations and costs is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 5.4 Conduct of Business and Maintenance of Existence. Preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its businesses; comply with all Contractual Obligations and Requirements of Law applicable to it except to the extent that failure to comply therewith would not, in the aggregate, have a Material Adverse Effect; not enter into any business which is material to the Company and its Subsidiaries taken as a whole, other than business in which the Company and its Subsidiaries are engaged on the date hereof and businesses directly related to such existing businesses. 5.5 Maintenance of Property; Insurance. Keep all material property useful and necessary in its business in good working order and condition; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Administrative Agent, upon written request, full information as to the insurance carried; provided, however, that the Company and its Subsidiaries may maintain self insurance plans to the extent companies of similar size and in similar businesses do so. 5.6 Inspection of Property; Books and Records; Discussions. Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities; and permit, during regular business hours and upon reasonable notice by the Administrative Agent, the Administrative Agent to visit and inspect any of its properties and examine and make abstracts from any of its books and records (other than materials protected by the attorney-client privilege and materials which the Company may not disclose without violation of a confidentiality obligation binding upon it) at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of the Company and its Significant Subsidiaries with officers and employees of the Company and its Significant Subsidiaries and with its independent certified public accountants. 5.7 Notices. Give notice to the Administrative Agent (which shall promptly transmit such notice to each Lender) of: (a) within five Business Days after the Company knows or has reason to know thereof, the occurrence of any material Default or Event of Default; (b) promptly, any default or event of default under any Contractual Obligation of the Company or any of its Significant Subsidiaries which would reasonably be expected to have a Material Adverse Effect; (c) promptly, any litigation, or any investigation or proceeding known to the Company, affecting the Company or any of its Significant Subsidiaries which would reasonably be expected to have a Material Adverse Effect; (d) as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Company or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; and (e) promptly, any other development or event which would reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer of the Company setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 5.8 Environmental Laws. (a) Comply with, and ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings would not reasonably be expected to have a Material Adverse Effect; and (c) Defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Company, any of its Significant Subsidiaries or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in this paragraph shall survive repayment of the Loans and all other amounts payable hereunder. 5.9 Consolidated Adjusted Indebtedness to Adjusted Capitalization. Not permit the ratio of (i) Consolidated Adjusted Indebtedness to (ii) Adjusted Capitalization at any time to exceed .65 to 1:00. 5.10 Liens, Etc. Not create or suffer to exist any Lien upon or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or assign any right to receive income, in each case to secure or provide for the payment of any Indebtedness of any Person, other than (i) purchase money Liens or purchase money security interests upon or in any property acquired or held by it or any Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure indebtedness incurred solely for the purpose of financing the acquisition of such property, (ii) Liens or security interests existing on such property at the time of its acquisition (other than any such Lien or security interest created in contemplation of such acquisition), (iii) Liens or security interests existing on the Effective Date hereof, (iv) Liens or security interests on property financed through the issuance of industrial revenue bonds in favor of the holders of such bonds or any agent or trustee therefor, (v) Liens or security interests securing Indebtedness in an aggregate amount not in excess of 15% of the Company's Consolidated Tangible Assets or (vi) Permitted Liens. SECTION 6. EVENTS OF DEFAULT Upon the occurrence of any of the following events: (a) The Company shall fail to pay any principal on any Loan when due in accordance with the terms thereof or hereof on the maturity date thereof; or the Company shall fail to pay any interest on any Loan or any fee or other amount payable hereunder when due in accordance with the terms thereof or hereof and such failure shall continue unremedied for five Business Days (or in the case of any other amount that is not interest or a fee, three Business Days after the Company has received from the Administrative Agent notice of said default); or (b) Any representation or warranty made or deemed made by the Company herein or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect, false or misleading in any material respect on or as of the date made or deemed made; or (c) The Company shall (i) default in the due performance or observance of subsection 5.9 (provided that no Default or Event of Default shall arise or exist under this subsection 6(c)(i) in respect of such a breach if prior to the time the Company is required to give notice to the Lenders under subsection 5.7(a) of such breach, such breach has been cured (determined on a pro forma basis)), or (ii) default in any material respect in the observance or performance of any other term, covenant or agreement contained in this Agreement (other than as described in subsections 6(a) or 6(c)(i) above), and such default shall continue unremedied for a period of 30 days or more; or (d) (A) The Company or any of its Significant Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Loans) in a principal amount outstanding of at least $100,000,000 in the aggregate for the Company and its Significant Subsidiaries or in the payment of any matured Guarantee Obligation in a principal amount outstanding of at least $100,000,000 in the aggregate for the Company and its Significant Subsidiaries beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness in a principal amount outstanding of at least $100,000,000 in the aggregate for the Company and its Significant Subsidiaries or Guarantee Obligation in a principal amount outstanding of at least $100,000,000 in the aggregate for the Company and its Significant Subsidiaries or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable or (B) an Event of Default under and as defined in the Other Credit Agreement shall have occurred and be continuing; (e) (i) The Company or any of its Significant Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Company or any such Significant Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any such Significant Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any such Significant Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any such Significant Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any such Significant Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (f) One or more judgments or decrees shall be entered against the Company or any of its Significant Subsidiaries involving in the aggregate a liability (not paid when due or covered by insurance) of $100,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Company or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company, any of its Significant Subsidiaries or any Commonly Controlled Entity shall, or in the reasonable opinion of the Majority Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, any Multiemployer Plan or (vi) any other similar event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could have a Material Adverse Effect; or (h) Either (i) a "person" or a "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of more than 25% of the then outstanding voting stock of the Company or (ii) a majority of the Board of Directors of the Company shall consist of individuals who are not Continuing Directors; "Continuing Director" means, as of any date of determination, (i) an individual who on the date two years prior to such determination date was a member of the Company's Board of Directors and (ii) any new Director whose nomination for election by the Company's shareholders was approved by a vote of at least 75% of the Directors then still in office who either were Directors on the date two years prior to such determination date or whose nomination for election was previously so approved; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (e) above in respect of the Company, automatically the Commitments shall immediately terminate and the Loans (with accrued interest thereon), and all other amounts owing under this Agreement shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to the Company declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice of default to the Company, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section 6, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 7. THE ADMINISTRATIVE AGENT 7.1 Appointment. Each Lender hereby irrevocably designates and appoints Chase as the Administrative Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Chase, as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. Neither the Syndication Agent nor the Documentation Agent shall have any duties under this Agreement. 7.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 7.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or for any failure of the Company to perform its obligations hereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance by the Company of any of the agreements contained in, or conditions of, this Agreement (other than the receipt by the Administrative Agent of the documents specified in subsection 4.1), or to inspect the properties, books or records of the Company. 7.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Loan as the owner thereof for all purposes unless (a) a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent and (b) the Administrative Agent shall have received the written agreement of such assignee to be bound hereby as fully and to the same extent as if such assignee were an original Lender party hereto, in each case in form satisfactory to the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 7.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders; provided, however, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 7.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representation or warranty to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Company shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Company which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 7.7 Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this subsection, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the termination of this Agreement and payment of the Loans and all other amounts payable hereunder. 7.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company as though the Administrative Agent were not the Administrative Agent hereunder. With respect to its Loans made or renewed by it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 7.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 15 days' notice to the Company and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Majority Lenders shall appoint from among the Lenders a successor Administrative Agent for the Lenders, which successor shall be approved by the Company, whereupon such successor shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this subsection shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. SECTION 8. MISCELLANEOUS 8.1 Amendments and Waivers. Neither this Agreement nor any terms hereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. The Majority Lenders may, or, with the written consent of the Majority Lenders, the Administrative Agent may, from time to time, (a) enter into with the Company written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or changing in any manner the rights of the Lenders or of the Company hereunder or (b) waive, on such terms and conditions as the Majority Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) reduce the amount or extend the scheduled date of maturity of any Loan, or reduce the stated rate of any interest or fee payable hereunder (other than interest at the increased post-default rate) or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitment, in each case without the consent of each Lender directly affected thereby, or (ii) amend, modify or waive any provision of this subsection or reduce the percentage specified in the definition of Majority Lenders, or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement, in each case without the written consent of all the Lenders, or (iii) amend, modify or waive any provision of Section 7 without the written consent of the then Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Company, the Lenders and the Administrative Agent. In the case of any waiver, the Company, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Loans, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 8.2 Notices. Except as otherwise provided in Section 2, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when received by the respective party to whom sent, addressed as follows in the case of the Company and the Administrative Agent, and as set forth on Schedule II hereof in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Loans: The Company: American Home Products Corporation Five Giralda Farms Madison, New Jersey 07940 Attention: Vice President and Treasurer Telecopier: (973) 660-7174 Telephone: (973) 660-5402 with a copy to: Executive Vice President and General Counsel Telecopier: (973) 660-7156 Telephone: (973) 660-6040 The Administrative Agent: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: Dawn LeeLum Telecopier: (212) 270-3279 Telephone: (212) 270-2472 and The Chase Manhattan Bank One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Attention: Janet Belden Telecopier: (212) 270-5658 Telephone: (212) 552-7277 8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 8.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Loans and the making of the Loans, provided that all such representations and warranties shall terminate on the date upon which the Commitments have been terminated and all amounts owing hereunder and under any Loans have been paid in full. 8.5 Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation, printing and execution of, and any amendment, supplement or modification to, this Agreement and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, together with the reasonable fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement and any such other documents, including, without limitation, the fees and disbursements of a single counsel to the Administrative Agent and to the several Lenders (or, to the extent that such counsel determines that the interests of the Administrative Agent and the Lenders materially differ, or that such representation would reasonably be expected to be unadvisable from any party's point of view, a single counsel to the Administrative Agent and a single counsel to the several Lenders), and (c) on demand, to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent (each an "indemnified party") harmless from and against, any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any such other documents and the use, or proposed use, of proceeds of the Loans (all the foregoing, collectively, the "indemnified liabilities"); provided, however, that the Company shall have no obligation hereunder to any indemnified party with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of such indemnified party, (ii) legal proceedings commenced against such indemnified party by any security holder or creditor thereof arising out of and based upon rights afforded such security holder or creditor solely in its capacity as such or (iii) legal proceedings commenced against any Lender by any other Lender or the Administrative Agent. The agreements in this subsection shall survive repayment of the Loans and all other amounts payable hereunder. 8.6 Successors and Assigns; Participations; Purchasing Lenders. (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Lenders, the Administrative Agent and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Commitment of such Lender, or any other interest of such Lender hereunder. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. No Lender shall transfer or grant any participation under which the Participant shall have rights to approve any amendment to or waiver of this Agreement except to the extent such amendment or waiver would (i) extend the scheduled maturity of any Loan in which such Participant is participating, or reduce the stated rate or extend the time of payment of interest or Facility Fees thereon (except in connection with a waiver of interest at the increased post-default rate) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without consent of any Participant if the Participant's participation is not increased as a result thereof) or (ii) consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement. In the case of any such participation, the Participant shall not have any rights under this Agreement (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the Participant relating thereto) and all amounts payable by the Company hereunder shall be determined as if such Lender had not sold such participation, provided that each Participant shall be entitled to the benefits of subsections 2.15, 2.16, 2.17 and 8.5 with respect to its participation in the Commitments and the Loans outstanding from time to time; provided that no Participant shall be entitled to receive any greater amount pursuant to such subsections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell, pursuant to a Commitment Transfer Supplement, to (i) any Lender or any affiliate thereof all or any part of its rights and obligations under this Agreement, and (ii) with the consent of the Company and the Administrative Agent (in each case, which consent shall not be unreasonably withheld), to one or more additional banks or financial institutions ("Purchasing Lenders"), all or any part of its rights and obligations under this Agreement, in the case of the aforementioned clause (ii), in minimum amounts (when added to the amount of the assignment of such Lender's obligations under the Other Credit Agreement) of $25,000,000 (or, if less, the entire amount of such Lender's obligations) so long as, in the case of each of the aforementioned clauses (i) and (ii) hereof, after giving effect thereto, the remaining Commitment of such selling Lender (when added to the commitment of such Lender under the Other Credit Agreement), shall not be less than $25,000,000, unless such selling Lender has not retained any Commitment hereunder, and a Commitment Transfer Supplement has been executed by such Purchasing Lender, such transferor Lender (and, in the case of a Purchasing Lender that is not then a Lender or an affiliate thereof, by the Company and the Administrative Agent), and delivered to the Administrative Agent for its acceptance and recording in the Register. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date specified in such Commitment Transfer Supplement, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement. (d) The Administrative Agent shall maintain at its address referred to in subsection 8.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a Commitment Transfer Supplement executed by a transferor Lender and a Purchasing Lender (and, in the case of a Purchasing Lender that is not then a Lender or an affiliate thereof, by the Company and the Administrative Agent) together with payment to the Administrative Agent (by the transferor Lender or the Purchasing Lender, as agreed between them) of a registration and processing fee of $3,500 for each Purchasing Lender listed in such Commitment Transfer Supplement, the Administrative Agent shall (i) accept such Commitment Transfer Supplement, (ii) record the information contained therein in the Register and (iii) give prompt notice of such acceptance and recordation to the Lenders and the Company. (f) The Company authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Company and its Affiliates which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Company in connection with such Lender's credit evaluation of the Company and its Affiliates prior to becoming a party to this Agreement; in each case subject to subsection 8.14. (g) At the time of each assignment pursuant to this subsection 8.6 to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Company and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable, a 2.17 Certificate) described in subsection 2.17. (h) Nothing herein shall prohibit any Lender from pledging or assigning any of its rights under this Agreement (including, without limitation, any right to payment of principal and interest under any Loan) to any Federal Reserve Bank in accordance with applicable laws. 8.7 Adjustments; Set-off. (a) Each Lender agrees that if any Lender (a "benefited Lender") shall at any time receive any payment of all or part of its Committed Rate Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (e) of Section 6, or otherwise) in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Committed Rate Loans, or interest thereon (except as expressly provided in subsection 2.18), such benefited Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Committed Rate Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Lender so purchasing a portion of another Lender's Committed Rate Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law (including, without limitation, other rights of set-off), each Lender shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, upon the occurrence of any Event of Default, to setoff and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Company, or any part thereof in such amounts as such Lender may elect, against and on account of the obligations and liabilities of the Company to such Lender hereunder and claims of every nature and description of such Lender against the Company, in any currency, whether arising hereunder, under the Loans or under any documents contemplated by or referred to herein or therein, as such Lender may elect, whether or not such Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The aforesaid right of set-off may be exercised by such Lender against the Company or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of the Company, or against anyone else claiming through or against the Company or any such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the occurrence of any Event of Default. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 8.8 Table of Contents and Section Headings. The table of contents and the Section and subsection headings herein are intended for convenience only and shall be ignored in construing this Agreement. 8.9 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. 8.10 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.11 Integration. This Agreement represents the agreement of the Company, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Company or any Lender relative to the subject matter hereof not expressly set forth or referred to herein. 8.12 Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. 8.13 Consent to Jurisdiction and Service of Process. All judicial proceedings brought against the Company with respect to this Agreement may be brought in any state or federal court of competent jurisdiction in the State of New York, and, by execution and delivery of this Agreement, the Company accepts, for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any final judgment rendered thereby in connection with this Agreement from which no appeal has been taken or is available. The Company irrevocably agrees that all process in any such proceedings in any such court may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address set forth in subsection 8.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto, such service being hereby acknowledged by the Company to be effective and binding service in every respect. Each of the Company, the Administrative Agent and the Lenders irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens which it may now or hereafter have to the bringing of any such action or proceeding in any such jurisdiction. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of any Lender to bring proceedings against the Company in the court of any other jurisdiction. 8.14 Confidentiality. Each of the Lenders agrees that it will use its best efforts not to disclose without the prior consent of the Company (other than to its employees, auditors or counsel or to another Lender or to any affiliate of a Lender which is a prospective or actual Transferee) any information with respect to the Company and its Subsidiaries which is furnished pursuant to this Agreement or any documents contemplated by or referred to herein or therein and which is designated by the Company to the Lenders in writing as confidential, except that any Lender may disclose any such information (a) as has become generally available to the public other than by a breach of this subsection 8.14, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in response to any summons or subpoena or any law, order, regulation or ruling applicable to such Lender, or (d) to any prospective Participant or assignee in connection with any contemplated transfer pursuant to subsection 8.6, provided that such prospective transferee shall have been made aware of this subsection 8.14 and shall have agreed to be bound by its provisions as if it were a party to this Agreement. 8.15 Acknowledgments. The Company hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of the Agreement; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Company arising out of or in connection with this Agreement and the relationship between the Administrative Agent and the Lenders, on one hand, and the Company, on the other hand, in connection herewith is solely that of debtor and creditor; and (c) no joint venture exists among the Lenders with respect to this Agreement or among the Company and the Lenders. 8.16 Waivers Of Jury Trial. The Company, the Administrative Agent and the Lenders hereby irrevocably and unconditionally waive trial by jury in any legal action or proceeding relating to this Agreement and for any counterclaim therein. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by its proper and duly authorized officers as of the day and year first above written. AMERICAN HOME PRODUCTS CORPORATION By Title: THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender By Title: SCHEDULES Schedule I Commitments Schedule II Bank Addresses and Lending Offices EXHIBITS Exhibit A Form of Borrowing Notice Exhibit B Form of Bid Loan Request Exhibit C Form of 2.17 Certificate Exhibit D Form of Bid Loan Offer - Absolute Rate Bid Loans Exhibit E Form of Bid Loan Offer - Index Rate Bid Loans Exhibit F Form of Bid Loan Confirmation Exhibit G Form of Commitment Transfer Supplement Exhibit H Form of Certificate of Secretary of the Company Exhibit I Form of Opinion of Counsel to the Company EX-10.25 5 0005.txt AMERICAN HOME PRODUCTS CORPORATION RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT UNDER THE 1999 STOCK INCENTIVE PLAN DATE: NUMBER OF SHARES SUBJECT TO TARGET AWARD: Name Address CityStateZip Under the terms and conditions of this Agreement and of the Company's 1999 Stock Incentive Plan (the "Plan"), a copy of which has been delivered to you and is made a part hereof, the Company hereby awards to you restricted stock units (the "Units") representing shares of the Company's Common Stock (the "Common Stock") subject to the restrictions set forth in this Agreement in the amount set forth above (the "Target Award"). Upon the satisfaction by the Company of certain performance criteria as described in Paragraph 3 of this Agreement, the Units will be converted into shares of the Company's Common Stock, on the terms and conditions set forth herein. Except as provided herein, the terms used in this Agreement shall have the same meanings as in the Plan. 1. Rights as Stockholders. Prior to the satisfaction of the performance criteria, no shares of the Company's Common Stock represented by the Units will be earmarked for you or your account nor shall you have any of the rights of a stockholder with respect to such shares. Upon issuance of the shares of Common Stock as of the Conversion Date (as defined herein) or the Determination Date (as defined herein), as the case may be, you will be the owner of record of such shares and shall receive either (through book-entry form) a credit to an account maintained on your behalf or a stock certificate representing such shares of Common Stock and you shall be entitled to all of the rights of a stockholder of the Company, including the right to vote and the right to receive dividends, subject to the provisions of Paragraph 4. 2. Restricted Period. During the period (the "Restricted Period") from the date of this Agreement through the Conversion Date (with respect to the Units converted on such date) and the Determination Date (with respect to the remaining Units, if any), you may not sell, transfer, assign, pledge, or otherwise encumber or dispose of the Units granted hereunder. 3. Conversion to Common Stock. (a) At a meeting of the Committee to be held within 60 days after the end of 2002 or at such other time or times as the Committee in its discretion deems appropriate, the Committee shall compare the EPS (as defined below) with the EPS Target (as defined below) for such year. If, on the date of such meeting (the "Conversion Date"), the Committee determines that: (i) EPS is less than 90% of the EPS Target, then all rights with respect to the Target Award shall be subject to subparagraph 3(b) below; (ii) EPS is greater than or equal to 90% of the EPS Target and less than or equal to 95% of the EPS Target, then Units representing 75% of the Target Award shall be converted into Common Stock and all rights with respect to the remaining portion of such Target Award shall be subject to subparagraph 3(b) below; (iii) EPS is greater than 95% of the EPS Target and less than or equal to 105% of the EPS Target, then Units representing the entire Target Award shall be converted into Common Stock; and (iv) EPS is greater than 105% of the EPS Target, then Units representing the entire Target Award shall be converted into Common Stock and you shall be entitled to receive an additional grant of Common Stock representing 25% of the Target Award (a "Bonus Award"); such additional grant to be made by the Committee at such meeting. (b) In the event that all or a portion of the Target Award is not converted to Common Stock on the Conversion Date pursuant to subparagraphs 3(a)(i) or (ii) above, or the Bonus Award is not earned pursuant to subparagraph 3(a)(iv) above (an "Unearned Bonus Award"), the Units represented by such Target Award or portion thereof shall be eligible for subsequent conversion to shares of Common Stock as provided in this subparagraph and the Unearned Bonus Award shall also be eligible to be earned. At a meeting of the Committee to be held on a date within 60 days after the end of 2004 or on such other date as the Committee in its discretion deems appropriate (the "Determination Date"), the Committee shall determine the Total Shareholder Return (as defined herein) of the Company and of each member of the Peer Group (as defined herein), and shall mark them comparatively, for the years 2002 through 2004 and, in the event that the Company ranks within the highest three, then Units representing the Target Award or portion thereof shall be converted to Common Stock on the applicable Determination Date and/or you shall be entitled to receive the Unearned Bonus Award, if any, which award shall be granted by the Committee at such meeting, and if not, then such amounts shall be forfeited and all rights thereto shall be surrendered to the Company. (c) Notwithstanding anything to the contrary contained in this Agreement, Units shall be converted into Common Stock, in whole numbers of shares only and, if necessary, the calculations based upon such amounts in subparagraphs 3(a)(ii) and 3(a)(iv) above shall be rounded up or down to the nearest whole number. (d) As used in this Agreement, the term: (i) "EPS" means the earnings or net income per share of common stock of the Company for 2002, adjusted to exclude the effect of extraordinary or unusual items of income or expense, all as determined in good faith by the Committee acting in its sole discretion. (ii) "EPS Target" shall be the amount established by the Committee at a meeting to be held no later than March 1, 2002; provided, however, that if for any reason the Committee shall determine that the EPS Target is no longer a practicable or appropriate measure of financial performance, the Committee may take action to substitute another financial measure as it deems appropriate under the circumstances. (iii) "Peer Group" shall consist of those companies listed on Annex A attached hereto which Annex may be amended from time to time as a result of circumstances, e.g., merger, consolidations, etc., deemed by the Committee in its sole discretion to warrant such amendment. (iv) "Total Shareholder Return" for any company for any period shall mean the percentage change in the per share stock market price of such company's common stock (or equivalent security) during such period (assuming that each of such company's per share dividends are reinvested in such security at the closing market per share price as of the last trading day of the calendar quarter in which the ex-dividend date for such dividend occurs) which shall be calculated in good faith by the Committee acting in its sole discretion. 4. Restricted Stock Trust. (a) Subject to Paragraph 4(b) below, you are eligible to make a one-time irrevocable election to cause the Company to contribute as of the Conversion Date and the Determination Date, the shares of Common Stock issuable hereunder, to the Restricted Stock Trust (as defined below) by completing the form set forth on Schedule A attached hereto wherein such shares of stock shall be held, subject to claims of the Company's creditors, until delivery to you under the terms of Paragraph 5 herein. Subject to Paragraph 4(b), below, if you do not make such election, such shares shall be delivered to you as provided in Paragraph 5(a)(i) of this Agreement. (b) Notwithstanding anything to the contrary contained in this Agreement, if you are or, in the judgment of the Committee, are expected to be a Named Executive Officer with respect to the year in which the Conversion Date or the Determination Date occurs, then you will be deemed to have made the election under Paragraph 4(a) above to have the Common Stock issuable hereunder as of such date and thereafter contributed to the Restricted Stock Trust. (c) For purposes of this Agreement: (i) "Named Executive Officer" shall mean the Chief Executive Officer of the Company or any of the four highest compensated officers (other than the Chief Executive Officer of the Company) whose total compensation payable is required to be reported to shareholders under the Securities Exchange Act of 1934, as amended (the "1934 Act"); and (ii) "Restricted Stock Trust" means the trust fund established under the Restricted Stock Trust Agreement, dated as of April 20, 1994 as amended (the "Trust Agreement"), to accommodate the deferral of delivery of shares of Common Stock represented by Units (and any dividends paid thereon) as provided in Paragraph 5(a)(ii) of this Agreement, which trust fund is subject to the claims of the Company's general creditors under federal and state law in the event of insolvency of the Company as described in the Trust Agreement. 5. Delivery of Shares of Common Stock. (a) Subject to Paragraphs 4 and 9 of this Agreement, as soon as practicable after each of the Conversion Date and the Determination Date, all shares of Common Stock, if any, to be issued to you as of any such date, shall be issued either (through book-entry form) by a credit to an account maintained on your behalf or a certificate representing the Common Stock free of any restrictive legend other than as may be required by applicable state or federal securities law, with such Common Stock to be either (i) so delivered to you promptly or (ii) if you have made or are deemed to have made the election under Paragraph 4 above, contributed to the Restricted Stock Trust, in which case such shares shall be maintained in the Restricted Stock Trust and delivery shall be deferred in accordance with the election set forth on Schedule A attached hereto, or if either (1) no such election is made or (2) your employment with the Company is terminated prior to Retirement for any reason (including death), delivery shall be made on the first business day of the calendar year following your termination of employment or as otherwise provided in the Trust Agreement. (b) Notwithstanding any other provisions hereof, the number of shares of Common Stock which shall be delivered to you pursuant to Paragraph 5(a) either directly or from the Restricted Stock Trust shall be (i) the number of such shares which would have been delivered in the absence of this Paragraph 5(b) minus (ii) the number of whole shares of Common Stock necessary to satisfy the minimum federal, state and/or local income tax withholding obligations which are imposed on the Company by applicable law in respect of the delivery of such award as well as other withholding obligations (e.g. Social Security and Medicare) which may be due and payable under applicable law as of the lapse of the Restricted Period as defined in Paragraph 2, whether or not delivery of such shares is deferred under Paragraph 4 (and which may be satisfied by the reduction effected hereby in the number of deliverable shares), it being understood that the value of the shares referred to in clause (ii) above shall be determined, for the purposes of satisfying such withholding obligations, on the basis of the average of the high and low per share prices for the Common Stock as reported on the Consolidated Transaction Reporting System on the designated date of delivery, or on such other reasonable basis for determining fair market value as the Committee may from time to time adopt. 6. Termination of Employment. (a) Subject to Section 7(f) of the Plan, in the event of your termination of employment during the Restricted Period for any reason other than death, Disability or Retirement, you shall forfeit all rights to all Units granted hereunder and you agree to assign, transfer, and deliver such Units to the Company, provided, the Committee may provide for a partial or complete exception to this requirement as it deems equitable in its sole discretion. (b) In the event that your employment is terminated due to Disability or Retirement, or in the event of your death, vesting of Units relating to the Target Award and any related Bonus Award and delivery of the shares of Common Stock of the Company represented thereby will be made to you or your designated beneficiary or your legal representative, legatee or such other person designated by an appropriate court as entitled to receive the same, as the case may be, on the terms and, subject to the conditions of this Agreement, including Paragraph 3 above. 7. [Reserved]. 8. Miscellaneous. This Agreement may not be amended except in writing and neither the existence of the Plan and this Agreement nor the Target Award granted hereby shall create any right to continue to be employed by the Company or its subsidiaries and your employment will continue to be at will and terminable at will by the Company. In the event of a conflict between this Agreement and the Plan, the Plan shall govern. 9. Compliance With Laws. (a) This Agreement shall be governed by the laws of the state of Delaware and any applicable laws of the United States. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be delivered any Units or shares of Common Stock of the Company represented thereby pursuant to this Agreement unless and until the Company is advised by its counsel that the issuance of such shares either (through book-entry form) by a credit to an account maintained on your behalf or by delivery of certificates representing such shares is in compliance with all applicable laws and regulations of governmental authority. The Company shall in no event be obliged to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance of such shares either (through book-entry form) by a credit to an account maintained on your behalf or by delivery of certificates representing such shares to comply with any such law or regulation. (b) If you are subject to Section 16 of the 1934 Act, transactions under the Plan and this Agreement are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan, this Agreement or action by the Committee involving you is deemed not to comply with an applicable condition of Rule 16b-3, such provision or action shall be deemed null and void as to you, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan and/or this Agreement does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements or the price and amount of awards as applicable) shall be deemed automatically to be incorporated by reference into the Plan and/or this Agreement insofar as you are concerned, with such incorporation to be deemed effective as of the effective date of such Rule 16b-3 provision. AMERICAN HOME PRODUCTS CORPORATION By: --------------------------------- Vice President and Corporate Treasurer Accepted and agreed to: Name (Please Print) Social Security Number Signature Date of Birth SCHEDULE A ELECTION FORM (To Be Completed in Conjunction with Your Restricted Stock Performance Award Agreement) I, , hereby make an election to defer distribution of all shares of Common Stock issuable to me pursuant to the Restricted Stock Performance Award Agreement (the "Agreement") less those shares necessary to satisfy any applicable withholding obligation under Paragraph 5(b) of the Agreement and to cause the Company to contribute such shares to the Restricted Stock Trust (with any dividends thereon to be reinvested under the AHPC Master Investment Plan). See Note Below I, , hereby make an election to receive a distribution of such number of shares in the Restricted Stock Trust under the Agreement to which I am entitled in substantially equal annual installments over a period not to exceed ten years as follows commencing, at the time indicated by my election as set forth below, subject to the provisions of the Agreement, including Paragraph 5, thereof (provided, however, that in the event of my death all remaining installments shall be accelerated and distributed promptly): Circle the number of annual installments: 2 3 4 5 6 7 8 9 10 Indicate your election: Commencing after: ___ Retirement (as defined in the Plan) ___ Specific date to commence distribution after my Retirement Date but in no event shall any annual installment be made after the tenth anniversary of my Normal Retirement Date (age 65). Indicate specific date: ____________________ month/day/year These elections shall be irrevocable upon execution of the Agreement. Signature of Executive Dated: ------------------------------------------------------ Witnessed: --------------------------------------------------- NOTE: 1. If you are or are expected to be a Named Executive Officer with respect to any year in which a Conversion Date or Determination Date occurs, you will be deemed to have elected deferred distribution hereunder. Beneficiary Designation In the event of my death, I designate the following beneficiary (ies) to receive any shares of the Company's Common Stock to be distributed to me or which have been deferred on my behalf to the Restricted Stock Trust under this Agreement together with any dividends thereon. Beneficiary (ies) Contingent Beneficiary (ies) Signature of Executive Dated: --------------------------------------------------------------- Witnessed: ----------------------------------------------------------- Annex A Peer Group Abbott Laboratories Bristol-Myers Squibb Company Johnson & Johnson Eli Lilly and Company Merck & Co., Inc. Pfizer Inc. Schering-Plough Corporation Warner-Lambert Company EX-10.34 6 0006.txt AMERICAN HOME PRODUCTS CORPORATION DEFERRED COMPENSATION PLAN Effective as of July 31, 1997 Amended as of January 1, 2000 PURPOSE The purpose of the Deferred Compensation Plan (the "Plan") is to encourage the retention of a key group of management employees by allowing them to defer various types of compensation. SECTION ONE - DEFINITIONS Whenever used in the Plan, the following terms shall have the following meanings: (a) "Administrator" - means the Committee or such entity or person to whom the Committee may delegate responsibility for administration of the Plan. (b) "Beneficiary" - means one or more persons or entities (including a trust or estate) designated by an Employee, at any time or from time to time, to receive any payment under the Plan at or after such Employee's death. Such designation shall be made on a form provided or approved by the Administrator. If at any time a deferred amount shall become payable at or after the death of an Employee, and there shall not be in existence any person or entity so designated, then "Beneficiary" means the estate of such Employee. (c) "Board of Directors" - means the Board of Directors of the Company. (d) "Bonus Compensation" - means cash compensation received by an Eligible Employee in excess of amounts paid as salary, whether under any incentive compensation or bonus plan, program or arrangement which is maintained or which may be adopted by the Company including the AHPC Management Incentive Plan or otherwise. (e) "Change of Control" - shall be deemed to have occurred if (i) any "person" (as that term is used in Sections 13 and 14(d)(2) of the Exchange Act) other than a Permitted Holder (as defined below) is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of fifty percent (50%) or more of either the outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally, (ii) during any period of two (2) consecutive years, individuals who constitute the Board of Directors of the Company at the beginning of such period cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company's stockholders of each new director was approved by a vote of at least three-quarters (3/4) of the directors then still in office who were directors at the beginning of the period, or (iii) the Company undergoes a liquidation or dissolution or a sale of all or substantially all of the assets of the Company. No merger, consolidation, or corporate reorganization in which the owners of the combined voting power of the Company's then outstanding voting securities entitled to vote generally prior to such combination, own fifty percent (50%) or more of the resulting entity's outstanding voting securities shall, by itself, be considered a Change of Control. As used herein, "Permitted Holder" means: (i) the Company, (ii) any corporation, partnership, trust, or other entity controlled by the Company, and (iii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any such controlled entity. (f) "Code" - means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" - means the Compensation and Benefits Committee of the Board of Directors. (h) "Company" - means American Home Products Corporation, a Delaware Corporation. (i) "Deemed Rate of Interest" - means a rate of interest deemed payable on amounts deferred under the Plan equal to the average of the quarter end yields for a ten-year period ending September 30 of the prior year, of ten-year U.S. Treasury notes plus two percent (2%). Effective as of June 1, 1999 the Deemed Rate of Interest shall be ten percent (10%). The Deemed Rate of Interest shall be calculated, accrued, credited, and compounded quarterly by the Treasurer of the Company. The Deemed Rate of Interest may be increased or decreased from time to time by the Board as it may deem appropriate, provided that no such decrease shall be effective for deemed interest accruing prior to the latest of (i) the date of Board action implementing such decrease, and (ii) the date such decrease is communicated to Participants. (j) "Eligible Employee" - means an employee of the Company employed in the United States who either: (i) is a principal officer of the Company as that term is defined at Paragraph 30 of the By-Laws of the Company, or (ii) earns an annual base salary of not less than one hundred seventy-five thousand dollars ($175,000) or such greater amount as may be determined from time to time by the Committee. Whether or not a person is an Eligible Employee will be determined on a Plan Year by Plan Year basis, such that a person who qualifies as an Eligible Employee in a particular Plan Year shall not qualify as an Eligible Employee in a subsequent Plan Year in which he/she meets neither of criteria (i) or (ii) above. (k) "Exchange Act" - means the Securities Exchange Act of 1934, as amended. (l) "Effective Date" - means July 31, 1997. (m) "Normal Retirement Date" - shall have the same meaning as set forth in the American Home Products Corporation Retirement Plan - United States. (n) "Participant" - means an Eligible Employee who elects to defer compensation under the terms of the Plan. (o) "Plan" - means the American Home Products Corporation Deferred Compensation Plan as set forth herein and as it may be amended and/or restated from time to time. (p) "Plan Year" - means the calendar year, except that the first Plan Year which shall be the period beginning on the Effective Date and ending on December 31, 1997. (q) "Retirement Date" - means the date an Employee elects to retire under the provisions of the American Home Products Corporation Retirement Plan - United States. (r) "SESP" - means the American Home Products Corporation Supplemental Employee Savings Plan, as amended from time to time. (s) "Stock Plans" - means the 1996 Stock Incentive Plan of the Company and all similar prior and subsequent plans of the Company providing for the granting of stock options to officers and other key employees of the Company. (t) "Tier I Severance Payments" - means payments payable pursuant to change in control severance agreements entered into between the Company and members of the Finance Committee, Operations Committee and other principal elected corporate officers of the Company, which provide for severance benefits to such employees in the event of their termination following a change of control of the Company as defined in the severance agreement. SECTION TWO - DEFERRALS UNDER PRIOR PLANS An Eligible Employee who, prior to the Effective Date, elected to defer part or all of (i) the cash portion of his/her Management Incentive Plan ("MIP") compensation, (ii) his/her base salary under the Deferred Compensation Program ("Program") of the Company, (iii) the income on the proceeds (net of after-tax withholding and prescribed fees) of the cashless exercise of his/her stock options under the Stock Plans, i.e., proceeds from the sale of the stock resulting from such exercise, or (iv) the proceeds (net after-tax withholding) of the exercise of stock appreciation rights, may elect to have such deferrals or proceeds considered to be credited under the Plan as of the Effective Date in accordance with such terms and conditions as may be established by the Committee. Thereafter, such deferrals shall continue in accordance with the deferral and distribution provisions of the Plan; provided that amounts attributable to such deferrals shall remain subject to the same elections and restrictions as previously had been in effect with respect thereto, unless thereafter changed by the Eligible Employee in accordance with the terms of the Plan. SECTION THREE - PARTICIPATION (a) Participation on the Effective Date. An employee of the Company shall become a Participant as of the Effective Date if he/she is an Eligible Employee on the Effective Date and elects to include previously deferred amounts under the Plan as described in Section Two above or elects to defer on and after the Effective Date by filing a deferral election form with the Administrator in accordance with Section 5. (b) Participation after the Effective Date. Any Eligible Employee who has not become a Participant on the Effective Date in accordance with Section 3(a) above shall become a Participant as of the Effective Date of his/her first deferral under the Plan in accordance with Section 5 following the Effective Date. SECTION FOUR - DEFERRALS UNDER THE PLAN (a) Deferral of Bonus Compensation. (1) A Participant may designate a percentage of his or her Bonus Compensation, including the cash portions of his/her MIP compensation, payable from the Company which is payable in a Plan Year (the "Deferred Bonus Compensation") to be deferred and distributed in accordance with a written election made by the Participant in accordance with Section 5. (2) A Participant's Deferred Bonus Compensation shall accrue deemed interest, compounded quarterly, at the Deemed Rate of Interest from the date such Deferred Bonus Compensation otherwise would have been paid to the date of distribution. (3) The Company shall distribute to a Participant his/her total Deferred Bonus Compensation (together with deemed interest accrued thereon) in accordance with the deferral period and distribution form designated by the Participant in accordance with Section 5. (b) Deferral of Base Salary. (1) A Participant may designate a percentage of his/her total annual base salary for a Plan Year (the "Deferred Salary Compensation") to be deferred and distributed in accordance with a written election made by the Participant in accordance with Section 5. However, no such deferral shall be effective unless the Participant elects with respect to the same Plan Year to have no less than six percent (6%) of his/her total base salary deferred in accordance with the SESP, and such SESP deferral shall be subject to the terms of the SESP and not to this Plan. (2) A Participant's Deferred Salary Compensation shall accrue deemed interest, compounded quarterly, at the Deemed Rate of Interest from the date such Deferred Salary Compensation otherwise would have been paid to the date of distribution. (3) The Company shall distribute to the Participant his/her total Deferred Salary Compensation (together with deemed interest accrued thereon) in accordance with the deferral period and distribution form designated by the Participant in accordance with Section 5. (4) A Participant may, upon no less than thirty (30) days' advance written notice to the Vice President - Finance of the Company or any successor thereto as designated by the Committee, prospectively terminate his/her deferral of base salary, effective as of the date stated in such written notice. Such termination shall not affect the treatment hereunder of amounts deferred prior to the effective date of such written notice. (c) Deferral of Proceeds from a Cashless Exercise/Sale Transaction. (1) A Participant may designate an amount of the proceeds (net of withheld taxes and prescribed fees) of a cashless exercise/sale transaction of stock options granted under the Stock Plans to be held by the Company pursuant to the Plan (the "Deferred Stock Option Proceeds") so that deemed interest accrued thereon in accordance with clause (2) immediately below would be deferred and distributed in accordance with a written election made by the Participant in accordance with Section 5. (2) A Participant's Deferred Stock Option Proceeds shall accrue deemed interest, compounded quarterly, at the Deemed Rate of Interest from the date the amount of such Deferred Stock Option Proceeds otherwise would have been paid. (3) The Company shall distribute to a Participant his/her total Deferred Stock Option Proceeds (together with deemed interest accrued thereon) in accordance with the deferral period and distribution form designated by the Participant in accordance with Section 5. (4) For purposes of clarity, it shall be understood that the intent of this Section 4(c) is to provide for a deferral of the Participant's taxation only with respect to the deemed interest credited in accordance with clause (2) above and not on the Deferred Stock Option Proceeds. As a result, it is intended that the cashless exercise/sale transaction shall be taxable to the Participant as if no election had been made hereunder and, upon distribution from the Plan, only the deemed interest accrued on the Deferred Stock Option Proceeds, and not the Deferred Stock Option Proceeds themselves, shall be taxable to the Participant. (d) Deferral of Proceeds from Exercise of Stock Appreciation Rights ("SARs"). (1) A Participant may designate an amount of the proceeds of the exercise of SARs ("Deferred SAR Proceeds"), as specified on the deferral election form, to be deferred and distributed in accordance with a written election made by the Participant in accordance with Section 5. (2) A Participant's Deferred SAR Proceeds shall accrue deemed interest, compounded quarterly, at the Deemed Rate of Interest from the date such Deferred SAR Proceeds otherwise would have been paid to the Participant. (3) The Company shall distribute to the Participant his/her total Deferred SAR Proceeds (together with deemed interest accrued thereon) in accordance with the deferral period and distribution form designated by the Participant in accordance with Section 5. (e) Deferral of Payments from Tier I Severance Agreements. (1) A Participant may designate all or a portion of the amount of Tier 1 Severance Payments, which are payable to him or her ("Deferred Tier I Severance Payments") as specified on the deferral election form, to be deferred and distributed in accordance with a written election made by the Participant in accordance with Section 5. (2) A Participant's Deferred Tier I Severance Payments shall accrue deemed interest, compounded quarterly, at the Deemed Rate of Interest from the date such Deferred Tier I Severance Payments otherwise would have been paid to the Participant. (3) The Company shall distribute to the Participant his/her total Deferred Tier I Severance Payments (together with deemed interest accrued thereon) in accordance with the deferral period and distribution form designated by the Participant in accordance with Section 5. SECTION FIVE - FORM OF DEFERRAL ELECTIONS (a) All deferrals made under Section 4 shall be evidenced by the Participant's properly executing a deferred compensation agreement form supplied by the Administrator in accordance with the rules set forth in this Section 5. (b) An election to consider amounts previously deferred to be credited under this Plan in accordance with Section 2 must be received by the Committee or its designee prior to the Effective Date. (c) An election to defer Bonus Compensation in accordance with Section 4(a) or base salary in accordance with Section 4(b) with respect to a particular Plan Year must be received by the Committee or its designee no later than the last day of the preceding Plan Year. Such election must designate the timing and form of distribution of such Deferred Bonus Compensation and/or base salary and earnings thereon in accordance with the options described in Section 6(a) and (b), respectively. (d) An election to defer proceeds from a cashless/sale transaction held by the Company in accordance with Section 4(c) or Tier I Severance Payments in accordance with Section (4)(e) with respect to a particular Plan Year must be received by the Committee or its designee in a timeframe established by the Committee from time to time. Such election must designate the timing and form of distribution of such proceeds or payments and earnings thereon in accordance with the options described in Section 6(c) and/or 6(e), whichever being applicable. (e) An election to defer proceeds from the exercise of SARs in accordance with Section 4(d) must be received by the Committee no later than six months prior to the exercise date of the SAR. Such election must designate the timing and form of distribution of such Deferred SAR Proceeds and earnings thereon in accordance with the options described in Section 6(d). (f) Notwithstanding the above, an employee who becomes an Eligible Employee for the first time during a Plan Year shall be permitted, within the thirty (30) day period that begins on the first day he/she becomes an Eligible Employee, to make an election to defer base salary accrued after the effective date of such election for the remainder of the Plan Year and Bonus Compensation payable with respect to the Plan Year, provided, in the case of Bonus Compensation, that the amount of such compensation, if any, is not known prior to the effective date of such election. SECTION SIX - DISTRIBUTIONS (a) Deferred Bonus Compensation. (1) Commencement of Payment of Deferred Bonus Compensation. Deferred Bonus Compensation (together with deemed interest accrued thereon) shall commence to be paid at the election of the Participant either: (i) ten (10) years following the date the Deferred Bonus Compensation otherwise would have been paid, or (ii) at the Participant's Retirement Date. (2) Form of Distribution of Deferred Bonus Compensation. Deferred Bonus Compensation (together with deemed interest accrued thereon) shall be distributed at the election of a Participant either: (i) in a lump sum payment payable within ninety (90) days following the time designated pursuant to Section 6(a)(1) above, or (ii) in installment payments of up to ten (10) substantially equal annual installments, with the first installment payable within ninety (90) days following the time designated pursuant to Section 6(a)(1) above, with the remaining installments payable within ninety (90) days following the anniversaries of such time. The amount of each installment shall be determined by dividing the amount credited to the Participant's account at the time the installment is to be made (including deemed interest) by the number of remaining installments (including the installment then due). (b) Deferred Salary Compensation. (1) Commencement of Payment of Deferred Salary Compensation. Deferred Salary Compensation (together with deemed interest accrued thereon) shall commence to be paid at the election of the Participant either: (i) ten (10) years following the date the Deferred Salary Compensation otherwise would have been paid, or (ii) at the Participant's Retirement Date. (2) Form of Distribution of Deferred Salary Compensation. Deferred Salary Compensation (together with interest accrued thereon) shall be distributed at the election of the Participant either: (i) in a lump sum payable within ninety (90) days following the time designated pursuant to Section 6(b)(1) above, or (ii) in installment payments of up to ten (10) substantially equal annual installments, with the first installment payable within ninety (90) days following the time designated pursuant to Section 6(b)(1) above, with the remaining installments payable within ninety (90) days following the anniversaries of such time. The amount of each installment shall be determined by dividing the amount credited to the Participant's account at the time the installment is to be made (including deemed interest) by the number of remaining installments (including the installment then due). (c) Deferred Stock Option Proceeds. (1) Commencement of Payment of Deferred Stock Option Proceeds. Deferred Stock Option Proceeds (together with deemed interest accrued thereon) shall commence to be paid at the election of a Participant either (i) not less than three (3) years nor more than ten (10) years following the exercise of the stock options subject to such election, or (ii) at the attainment of the Retirement Date of the Participant. (2) Form of Distribution of Deferred Stock Option Proceeds. Deferred Stock Option Proceeds (together with deemed interest accrued thereon) shall be distributed at the election of a Participant either: (i) in a lump sum payable within ninety (90) days following the time designated in Section 6(c)(1) above, or (ii) in installment payments of up to ten (10) substantially equal annual installments, with the first installment payable within ninety (90) days following the time designated in Section 6(c)(1) above, with the remaining installments payable within ninety (90) days following the anniversaries of such time. The amount of each installment shall be determined by dividing the amount of deferrals in the Participant's account at the time the installment is to be made (including deemed interest thereon) by the number of installments. (3) Early Payment of Deferred Stock Option Proceeds. A Participant may, upon written request to the Committee, receive payment of a portion or all of his/her Deferred Stock Option Proceeds (as elected by the Participant) prior to the date selected pursuant to Section 6(c)(1) above. In that event of such early payment, the deemed interest credited to the Participant for that Plan Year shall be one percent (1%) less than the rate otherwise applicable for the Plan Year, and shall be credited on Deferred Stock Option Proceeds distributable under this Section 6(c)(3) only through the date of distribution. A Participant shall not be allowed to elect to receive early payment under this Section 6(c)(3) of any deemed interest credited to his/her Deferred Stock Option Proceeds, but only of the Deferred Stock Option Proceeds themselves. (d) Deferred SAR Proceeds. (1) Commencement of Payment of Deferred SAR Proceeds. Deferred SAR Proceeds (together with deemed interest accrued thereon) shall commence to be paid at the election of a Participant either (i) ten (10) years following the exercise of the SAR subject to such election, or (ii) at the Participant's Retirement Date. (2) Form of Distribution of SAR Proceeds. Deferred SAR Proceeds (together with deemed interest accrued thereon) shall be distributed at the election of a Participant either: (i) in a lump sum payment payable within ninety (90) days following the time designated pursuant to Section 6(d)(1) above, or (ii) in installment payments of up to ten (10) substantially equal annual installments, with the first installment payable within ninety (90) days following the time period designated pursuant to Section 6(d)(1) above, with the remaining installments payable within ninety (90) days following the anniversaries of such time. The amount of each installment shall be determined by dividing the amount of deferrals in the Participant's account at the time the installment is to be made (including deemed interest thereon) by the number of installments. (e) Deferred Tier I Severance Payment. (1) Commencement of Payment of Deferred Tier I Severance Payments. Deferred Tier I Severance Payments (together with deemed interest accrued thereon) shall commence to be paid at the election of a Participant either (i) ten (10) years following the deferral of the payments subject to such election, or (ii) at the Participant's Retirement Date. (2) Form of Distribution of Tier I Severance Payments. Deferred Tier I Severance Payments (together with deemed interest accrued thereon) shall be distributed at the election of a Participant either: (i) in a lump sum payment payable within ninety (90) days following the time designated pursuant to Section 6(e)(1) above, or (ii) in installment payments of up to ten (10) substantially equal annual installments, with the first installment payable within ninety (90) days following the time period designated pursuant to Section 6(e)(1) above, with the remaining installments payable within ninety (90) days following the anniversaries of such time. The amount of each installment shall be determined by dividing the amount of deferrals in the Participant's account at the time the installment is to be made (including deemed interest thereon) by the number of installments. (f) Payment Upon Separation From Service. Notwithstanding the above, in the event a Participant shall separate from service with the Company (for reasons other than death) prior to the commencement of payment of his/her Deferred Bonus Compensation, Deferred Salary Compensation, Deferred Stock Option Proceeds, Deferred SAR Proceeds, and/or Deferred Tier I Severance Payments the Participant's account shall be distributed to the Participant in a single lump sum, together with deemed interest accrued thereon through the date of distribution, within ninety (90) days following such separation, provided that the foregoing shall not apply in the case of a Participant who (i) is eligible to retire under the terms of the American Home Products Corporation Retirement Plan - United States as of his or her date of separation from service, and (ii) had elected to receive payment of any amounts deferred under the Plan in the form of installment payments, commencing at or after his/her Retirement Date (but only with respect to amounts for which such election had been made). (g) Payment Upon Death. Notwithstanding anything in the Plan to the contrary, in the event a Participant dies prior to the receipt of any or all of his/her Deferred Bonus Compensation, Deferred Salary Compensation, Deferred Option Proceeds, Deferred SAR Proceeds, and/or Deferred Tier I Severance Compensation such amount shall be distributed in a single lump sum to the Participant's Beneficiary(ies), together with deemed interest accrued thereon through the date of such distribution, within ninety (90) days following his/her death. (h) Notwithstanding anything in the Plan to the contrary, including Sections 6(a)(1)(ii), 6(b)(1)(ii), 6(c)(1)(ii), 6(d)(1)(ii) and 6(e)(1)(ii), a Participant who has elected to commence payment of any amounts deferred under the Plan at his or her Retirement Date or Normal Retirement Date, may elect to defer such commencement of payments beyond his or her Retirement Date or his or her Normal Retirement Date to any date which occurs no later than ten (10) years following his or her Normal Retirement Date; provided, however, that if a Participant elects to receive multiple installments, in no event shall such installments extend beyond the tenth anniversary of the Participant's Normal Retirement Date. SECTION SEVEN - MISCELLANEOUS (a) Funding of the Plan. The Plan is unfunded and the Company has no obligation to set aside, earmark, or place in trust any funds with which to pay its obligations under this Plan. The Company's obligation shall not be secured in any way and a Participant's rights shall in no way be preferred over the general creditors of the Company. (b) Change of Control. In the event of a Change of Control, all Deferred Bonus Compensation, Deferred Salary Compensation, Deferred Stock Option Proceeds, Deferred SAR Proceeds or Deferred Tier I Severance Payments shall be paid to the Participant in a lump sum, together with deemed interest accrued thereon, within ten (10) days following the Change of Control. Notwithstanding any other provision of the Plan to the contrary, with respect to a Change of Control which may occur as a result of the consummation of the transactions contemplated by the Agreement and Plan of Merger, dated as of November 3, 1999, among American Home Products Corporation, Wolverine Sub Corp. and Warner-Lambert Company, the provisions of this Section 7(b) shall not apply with respect to any Participant. (c) Employment. This Plan does not constitute an employment contract between the Company and a Participant. Nothing in this Plan shall be construed to give a Participant the right to be retained in the service of the Company, nor interfere with the right of the Company to terminate or discipline a Participant at any time. (d) Construction. This Plan shall be construed and interpreted under the laws of the State of New Jersey. (e) Taxes. The Company may withhold from distributions made from the Plan any taxes required to be withheld under federal, state, or local law. (f) Non-Assignable. Benefits payable under this Plan may not be anticipated, assigned (either at law or equity), alienated, pledged, encumbered, or subjected to attachment, garnishment, levy, execution, or other legal process, and any attempt to effect such distribution shall be void. (g) Minors and Incompetents. If the Administrator determines that any person to whom a payment is due hereunder is a minor or incompetent by reason of physical or mental disability, the Administrator shall have the power to cause the payments then due to such person to be made to another for the benefit of the minor or incompetent, without responsibility of the Company or the Administrator to see to the application of such payment, unless claim prior to such payment is made therefor by a duly appointed legal representative. Payments made pursuant to such power shall operate as a complete discharge of the Company and the Administrator. SECTION EIGHT - EMERGENCY BENEFIT In the event that the Committee determines that the Employee has suffered an unforeseeable financial emergency, the Administrator shall pay to the Employee as soon as possible following such determination, an amount not in excess of the amount needed to satisfy the emergency. Such payment shall be distributed first out of the Employee's Deferred Stock Option Proceeds and deemed interest accrued thereon, second, out of Deferred Bonus Compensation and deemed interest accrued thereon, third, out of Deferred Salary Compensation and deemed interest accrued thereon, fourth, out of Deferred SAR Proceeds and deemed interest accrued thereon and fifth, out of Deferred Tier I Severance Payments and deemed interest thereon. Deemed interest shall not be accrued for any Employee on an amount paid to the Employee after the date of such payment. For this purpose, an "unforeseeable financial emergency " means an unanticipated emergency that is caused by an event beyond the control of the Employee that would result in severe financial hardship if the emergency distribution were not permitted. In determining whether a Participant has suffered an unforeseeable financial emergency, the Administrator shall apply principals similar to those contained in Treasury Regulation Section 1.457-2(h)(4). SECTION NINE - ADMINISTRATION OF THE PLAN The Plan shall be administered by the Administrator which shall have full discretionary authority to interpret the Plan; to make all determinations as may be necessary or advisable; and to adopt, amend or rescind any rules, regulations, and procedures as it deems necessary or appropriate for the administration of the Plan. The determinations, actions, and decisions of the Administrator shall be binding and conclusive for all purposes and upon all persons. The Administrator may delegate part or all of its responsibilities under the Plan to such party or parties as it may deem necessary or appropriate. SECTION TEN - AMENDMENT AND TERMINATION The Board of Directors may from time to time amend or revise the terms of the Plan, or may discontinue the Plan at any time. However, such amendment, revision or discontinuance of the Plan may not adversely affect an Employee's benefit(s) accrued under the Plan prior to the date of such action. SECTION ELEVEN - CLAIMS PROCEDURE If a Participant does not receive the timely payment of the benefits which he/she believes are due under the Plan, the Participant may make a claim for benefits in the manner hereinafter provided. All claims for benefits under the Plan shall be made in writing and shall be signed by the Participant. Claims shall be submitted to the Administrator. If the Participant does not furnish sufficient information with the claim for the Administrator to determine the validity of the claim, the Administrator shall indicate to the Participant any additional information, which is necessary for the Administrator to determine the validity of the claim. Each claim hereunder shall be acted on and approved or disapproved by the Administrator within 90 days following the receipt by the Administrator of the information necessary to process the claim. In the event the Administrator denies a claim for benefits in whole or in part, the Administrator shall notify the Participant in writing of the denial of the claim and notify the Participant of his right to a review of the Administrator's decision by the Administrator. Such notice by the Administrator shall also set forth, in a manner calculated to be understood by the Participant, the specific reason for such denial, the specific provisions of the Plan on which the denial is based, a description of any additional material or information necessary to perfect the claim with an explanation of the Plan's appeals procedure as set forth in this Section Eleven. If no action is taken by the Administrator on a Participant's claim within 90 days after receipt by the Administrator, such claim shall be deemed to be denied for purposes of the following appeals procedure. Any applicant whose claim for benefits is denied in whole or in part may appeal for a review of the decision by the Administrator. Such appeal must be made within three months after the applicant has received actual or constructive notice of the denial as provided above. An appeal must be submitted in writing within such period and must: (a) request a review by the Administrator of the claim for benefits under the Plan; (b) set forth all of the grounds upon which the Participant's request for review is based or any facts in support thereof; and (c) set forth any issues or comments which the Participant deems pertinent to the appeal. The Administrator shall act upon each appeal within 60 days after receipt thereof unless special circumstances require an extension of the time for processing, in which case a decision shall be rendered by the Administrator as soon as possible but not later than 120 days after the appeal is received by it. The Administrator may require the Participant to submit such additional facts, documents or other evidence as the Administrator in its discretion deems necessary or advisable in making its review. The Participant shall be given the opportunity to review pertinent documents or materials upon submission of a written request to the Administrator, provided the Administrator finds the requested documents or materials are pertinent to the appeal. On the basis of its review, the Administrator shall make an independent determination of the Participant's eligibility for benefits under the Plan. The decision of the Administrator on any appeal of a claim for benefits shall be final and conclusive upon all parties thereto. In the event the Administrator denies an appeal in whole or in part, it shall give written notice of the decision to the Participant, which notice shall set forth, in a manner calculated to be understood by the Participant, the specific reasons for such denial and which shall make specific reference to the pertinent provisions of the Plan on which the Administrator's decision is based. EX-12 7 0007.txt Exhibit 12 American Home Products Corporation Computation of Ratio of Earnings to Fixed Charges (3) (Thousands of dollars, except ratio amounts)
Years Ended December 31, ----------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ---------- ---------- ---------- Earnings Income (loss) from continuing operations before federal and foreign taxes (2) ($1,101,040) ($1,907,299) $3,089,936 $2,364,753 $2,398,866 Add: Fixed charges 324,887 403,694 371,986 513,860 601,927 Minority interests 26,784 30,301 620 2,421 13,677 Distributed equity income - - 771 - - Amortization of capitalized interest 1,917 1,803 1,487 1,057 5,621 Less: Equity income 55,991 2,122 473 9,777 8,448 Capitalized interest 43,303 15,375 9,497 12,898 - ----------- ----------- ---------- ---------- ---------- Total earnings (loss) as defined ($846,746) ($1,488,998) $3,454,830 $2,859,416 $3,011,643 =========== =========== ========== ========== ========== Fixed Charges: Interest and amortization of debt expense $238,840 $343,271 $322,970 $461,370 $571,414 Capitalized interest 43,303 15,375 9,497 12,898 - Interest factor of rental expense (1) 42,744 45,048 39,519 39,592 30,513 ----------- ----------- ---------- ---------- ---------- Total fixed charges as defined $324,887 $403,694 $371,986 $513,860 $601,927 =========== =========== ========== ========== ========== Ratio of earnings to fixed charges (2) - - 9.3 5.6 5.0 (1) A 1/3 factor was used to compute the portion of rental expenses deemed representative of the interest factor. (2) The results of operations for the year ended December 31, 1999 are inadequate to cover total fixed charges as defined. The coverage deficiency for the year ended December 31, 1999 is $403,694. Excluding the charge for the REDUX and PONDIMIN diet drug litigation of $4,750,000, the pro forma ratio of earnings to fixed charges would be 8.1 for the year ended December 31, 1999. The results of operations for the year ended December 31, 2000 are inadequate to cover total fixed charges as defined. The coverage deficiency for the year ended December 31, 2000 is $324,887. Excluding the charge for the REDUX and PONDIMIN diet drug litigation of $7,500,000, the gain on sale of Immunex common stock of $2,061,204 and the Warner-Lambert Company termination fee of $1,709,380, the pro forma ratio of earnings to fixed charges would be 8.9 for the year ended December 31, 2000. (3) Amounts have been restated to reflect the Cyanamid Agricultural Products business as a discontinued operation.
EX-13 8 0008.txt 2000 HIGHLIGHTS
YEARS ENDED DECEMBER 31, (In thousands except per share amounts) 2000 1999 Net Revenue $ 13,262,754 $ 11,881,196 - -------------------------------------------------------------------------------------------- Income from Continuing Operations before Unusual Items* 2,514,004 2,133,257 - -------------------------------------------------------------------------------------------- Diluted EPS before Unusual Items 1.90 1.61 - -------------------------------------------------------------------------------------------- Loss from Continuing Operations* (901,040) (1,207,243) - -------------------------------------------------------------------------------------------- Diluted Loss per Share from Continuing Operations (0.69) (0.92) - -------------------------------------------------------------------------------------------- Dividends per Common Share 0.920 0.905 - -------------------------------------------------------------------------------------------- Total Assets 21,092,466 23,123,756 - -------------------------------------------------------------------------------------------- Stockholders' Equity 2,818,093 6,214,747 - --------------------------------------------------------------------------------------------
* Unusual items, after-tax, for 2000 were the Warner-Lambert Company termination fee of $1,111,097, the gain on the sale of Immunex Corporation common stock of $1,414,859, the diet drug litigation charge of $5,375,000, goodwill impairment of $341,000, the special charge for the voluntary market withdrawal of any products containing phenylpropanolamine of $52,000 and the special charge for certain product discontinuations of $173,000. Unusual items, after-tax, for 1999 were the diet drug litigation charge of $3,287,500 and the special charge for the RotaShield voluntary market withdrawal of $53,000. American Home Products Corporation is a global leader in pharmaceuticals, consumer health care products and animal health products. Our products are sold in more than 150 countries, and our product portfolio includes some of the most innovative therapies introduced in recent years. AHP's worldwide resources encompass more than 48,000 employees, manufacturing facilities on five continents and one of the industry's broadest R&D programs, representing all three major discovery and development platforms - small molecules, proteins and vaccines. As one of the world's foremost research-based pharmaceutical companies, AHP is at the vanguard of the biotechnology revolution that is transforming the diagnosis, treatment and prevention of disease. We are breaking new ground in applying biopharmaceutical science to develop novel therapies for serious, unmet medical needs across a wide variety of therapeutic areas. [Photo] [Photo] John R. Stafford, Chairman Robert Essner, President and Chief Executive Officer and Chief Operating Officer MESSAGE TO STOCKHOLDERS The strong operating performance of American Home Products in 2000 reflects AHP's successful evolution into a world leader in research-based pharmaceutical products. In June, we completed the divestiture of our agricultural products business. AHP now is completely focused on pharmaceuticals, consumer health care products and animal health products. Each of these businesses achieved excellent results during the year, enabling our Company to increase net revenue, on a pro forma basis, by 13 percent. With leading products in important market segments and strengths in product discovery, development, manufacturing and marketing, we anticipate solid growth for AHP well into the future. AHP's revenue growth in 2000 underscores the strength of our global pharmaceutical business. Today, more than 81 percent of net revenues are from pharmaceuticals - up from 51 percent just 10 years ago. AHP's stock price in 2000 benefited from the Company's operating performance, outpacing major competitors in the pharmaceutical industry, as well as the Standard & Poor's 500, the Dow Jones Industrial Average and the NASDAQ, by a wide margin. AHP's performance in new product launches was among the most impressive in the industry. Wyeth-Ayerst, our ethical pharmaceutical division, received regulatory approval for seven major pharmaceutical and vaccine products from June 1999 to May 2000, the best new product approval record in the industry during that time period. These innovative new products reflect success from all three of our discovery and development platforms: small molecules, proteins and vaccines. We took aggressive action during 2000 to move toward resolution of the diet drug litigation involving AHP. In August, AHP received trial court approval of the negotiated nationwide, class action settlement of the litigation, which covers the vast majority of the individuals who took AHP's diet drugs. Among patients who opted out of the settlement, approximately 80 percent of claims now have been settled or are subject to settlement agreements. In the fourth quarter of 2000, the Company recorded an additional charge of $7.5 billion related to the litigation, bringing the total charges for the diet drug litigation to $12.25 billion. We are confident that no further charges will be required. Although this total is more than originally expected, we believe it is in the best interest of AHP stockholders to resolve this litigation quickly. By working to put this matter behind us, our strong pipeline and accelerating operating momentum no longer will be overshadowed, and we can devote full attention to growing our pharmaceutical business and capitalizing on our many global opportunities. NET REVENUE AND RESULTS OF OPERATIONS AHP's worldwide net revenue for 2000 reached $13.3 billion, an increase of 13 percent over 1999 pro forma net revenue. Excluding the negative impact of foreign 2 "TODAY, MORE THAN 81 PERCENT OF NET REVENUES ARE FROM PHARMACEUTICALS - UP FROM 51 PERCENT JUST 10 YEARS AGO." [BAR GRAPH OMITTED] [Insert Graphic] PHARMACEUTICAL NET REVENUE $ millions exchange, pro forma worldwide net revenue increased 16 percent for the year. This increase was due primarily to growth in pro forma global pharmaceutical net revenue of 15 percent in 2000. Excluding the diet drug charge and other unusual items detailed in the financial section of this report and including the dilutive effect of common stock equivalents, both income and diluted earnings per share from continuing operations increased 18 percent - from $2.13 billion and $1.61, respectively, for 1999 to $2.51 billion and $1.90, respectively, for 2000. Also in 2000, we reached an agreement with Immunex Corporation - in which AHP was the majority stockholder - to participate in a stock offering that would allow Immunex, our partner in the promotion of Enbrel, to raise funds for additional research and manufacturing capabilities while enabling AHP to realize a portion of the gain on its highly successful investment in the company. In November, we completed the sale of more than 60 million shares of Immunex stock in an underwritten public offering, reducing AHP's ownership of outstanding shares from 55 percent to approximately 41 percent at the end of 2000. The Company recorded an after-tax gain of $1.4 billion related to the sale. AHP continues to be a major participant in the future development and growth of Immunex. Importantly, our co-promotion partnership with Immunex for the breakthrough rheumatoid arthritis (RA) therapy, Enbrel, remains in full effect going forward. INVESTING IN THE FUTURE AHP invested approximately $1.7 billion in research and development in 2000. This investment is focused on key therapeutic franchises that offer a strong foundation for growth and innovation. We also are making major capital investments to provide AHP with a competitive edge in biotechnology and protein manufacturing. For example, we anticipate spending more than $2 billion over the next five years to expand our manufacturing capacity for recombinant protein and vaccine products at four locations - Andover, Massachusetts; St. Louis, Missouri; Sanford, North Carolina; and West Greenwich, Rhode Island - and to build a new state-of-the-art biopharmaceutical development and manufacturing facility in Grange Castle, Clondalkin, Ireland. In addition to our own research programs, we have established key alliances with a number of other major pharmaceutical and biotechnology firms. Two important alliances were announced in July 2000, when we reached agreements with Celera Genomics Group and Incyte Genomics, Inc. Through these relationships, AHP will gain access to databases containing extensive information on human, animal and microbial genes, including Celera's complete sequence of chemical "letters" of DNA that make up the human genome. As a result of these investments and alliances, AHP now has one of the largest biotechnology research programs in the pharmaceutical industry. Using genomics, recombinant DNA and other technologies, AHP scientists are developing new strategies and innovative products in the fight against some of the most devastating diseases, including cancer, Alzheimer's, diabetes and hemophilia. 3 In October 2000, Wyeth-Ayerst entered into a consent decree with the U.S. Food and Drug Administration (FDA) focusing on the Company's compliance with current Good Manufacturing Practices at our facilities in Marietta, Pennsylvania, and Pearl River, New York. We are confident in the safety and efficacy of our products and feel certain that the investments we are making to improve our manufacturing processes and facilities will help us to consistently maintain the highest quality standards. In 2001, we will begin the relocation of employees into the new Wyeth-Ayerst global headquarters in Collegeville, Pennsylvania, which we purchased in 2000. The Collegeville facility will provide a fully integrated campus environment that will enhance efficiency and communication. HUMAN ETHICAL PHARMACEUTICALS The strong growth of AHP's human pharmaceutical business in 2000 reflected the impact of new product launches as well as the continuing strength of our cornerstone global products. Sales of the Premarin family of hormone replacement therapy products approached $1.9 billion for the year. Worldwide sales of the Effexor family of antidepressants reached nearly $1.2 billion in 2000 - a 48 percent increase over 1999. Enbrel achieved $690 million in global sales. Wyeth-Ayerst continued to expand these key product lines in 2000 with new claims, indications and dosages: Effexor XR was approved in the United States for the long-term treatment of generalized anxiety disorder; Enbrel received FDA approval for inhibiting the progression of structural damage in the joints of early stage RA patients; and regulatory submissions were filed for new, lower dose formulations of Premarin and Premarin/MPA products. AHP's new products also produced significant results in 2000. The launch of Meningitec, a meningococcal Group C conjugate vaccine, was advanced to reach the market in the United Kingdom in October 1999, enabling the U.K. Department of Health to initiate a vaccination program before the 1999-2000 winter season. Meningococcal disease is one of the most common causes of death in children and young people under the age of 20 in the United Kingdom. In January 2001, the U.K. Department of Health reported a 90 percent reduction in the number of meningococcal Group C cases in the age group at highest risk since the inception of the vaccination program. Prevnar, the first vaccine to help prevent invasive pneumococcal disease in infants and young children, has been well-received in both the private and public health sectors following its recommendation for infant immunization. "AHP NOW HAS ONE OF THE LARGEST BIOTECHNOLOGY RESEARCH PROGRAMS IN THE PHARMACEUTICAL INDUSTRY." [BAR GRAPH OMITTED] [PLOT POINTS TO COME] PHARMACEUTICAL AND CONSUMER HEALTH CARE R&D EXPENDITURES $ millions 4 "AHP INVESTED APPROXIMATELY $1.7 BILLION IN RESEARCH AND DEVELOPMENT IN 2000." After FDA approval in February 2000, Wyeth-Ayerst shipped more than 9 million doses of Prevnar for a total of $461 million in sales in 2000. European Union approval of the vaccine - marketed as Prevenar internationally - was received in February 2001. In February 2000, the FDA approved Protonix for short-term treatment in the healing and symptomatic relief of erosive esophagitis. Following a May 2000 launch, Protonix had a successful first year on the market with $145 million in sales. In March 2000, ReFacto, for hemophilia A, was approved by the FDA, and the product was launched in the United States in January 2001. In addition, Wyeth-Ayerst's novel oncology therapy, Mylotarg, was approved in the United States in May 2000 for the treatment of relapsed acute myeloid leukemia in patients over age 60. Altace, an ACE inhibitor co-promoted in the United States by Wyeth-Ayerst and King Pharmaceuticals, Inc., received FDA approval in 2000 for an important new indication - to reduce the risk of stroke, heart attack and death from cardiovascular causes in patients over age 55 at risk for cardiovascular disease. Additionally in 2000, a regulatory submission was accepted for review in the United States for FluMist, an intranasal flu vaccine. Regulatory review of rhBMP-2, a unique recombinant protein that stimulates bone growth to facilitate the healing of long-bone fractures that require open surgical management, began early in 2001. CONSUMER HEALTH CARE Whitehall-Robins Healthcare continues to be a leader in the global consumer health care market. Total sales in 2000 were nearly $2.5 billion, driven by increased sales in our three largest consumer health care categories - analgesics, cough/cold/allergy products and vitamins/nutritional supplements. Ten of the division's products rank number one or two in their category in the United States, and two global consumer health care brands - Advil and Centrum - are among the top 10 selling consumer health care brands in the world. ANIMAL HEALTH PRODUCTS AHP's Fort Dodge is a global leader in the animal health industry. Fort Dodge sales in 2000 reached nearly $800 million, an increase of 20 percent over 1999. Fort Dodge has expanded recently through innovative product development, supplemented by a series of strategic acquisitions. Product introductions during the year included the launch in Australia of ProHeart SR12, a groundbreaking, once-a-year injectable for the prevention of heartworms in dogs, which is expected to enter the U.S. market in 2001. INSIDE AHP On May 1, 2001, Robert Essner will become the Chief Executive Officer of the Company and will continue as President of the Company, a position he was elected to in July 2000. John R. Stafford will remain Chairman of the Board, and Mr. Essner will continue to serve on the Board. Mr. Essner has been instrumental for the past 11 years in leading - -------------------------------------------------------------------------------- 75 YEARS OF INNOVATION American Home Products Corporation was formed in 1926 through the merger of a group of non-prescription medicine companies. From its inception, the Corporation was successful in building stockholder value. To illustrate - assuming no dividend reinvestment - a $1,000 investment in AHP stock when it went public in 1926 would be worth nearly $2.5 million today. The same investment in the S&P 500 - without dividend reinvestment - would be worth approximately $0.1 million. Over its 75-year history, AHP consistently has invested in its health care businesses, leading to significant accomplishments such as the mass production of penicillin during World War II and the development and manufacturing of vaccines that virtually have eliminated smallpox and polio globally. In recent years, AHP has developed a leading expertise in biotechnology and substantially increased its pharmaceutical R&D spending, expanding its pipeline of high-tech pharmaceutical products and delivering many new, first-in-class therapies for serious, unmet medical needs to the global market. - -------------------------------------------------------------------------------- 5 our pharmaceutical business. We believe that his election as the next Chief Executive Officer provides for continuity of our strategic direction as a first-tier pharmaceutical company devoted to the development, manufacturing and marketing of a broad range of innovative products. Several other significant appointments were made within the last 12 months. In July, Louis L. Hoynes, Jr., was elected Executive Vice President and General Counsel of AHP. He previously was Senior Vice President and General Counsel of AHP. Additionally at AHP, L. Patrick Gage, Ph.D., was elected Senior Vice President - Science and Technology; Bernard J. Poussot was elected Senior Vice President; Lawrence V. Stein was elected Vice President and Deputy General Counsel; and Justin R. Victoria was elected Vice President - Investor Relations. Changes in AHP's Board of Directors during 2000 include the election in July of Richard L. Carrion, who serves as Chairman, President and Chief Executive Officer of Banco Popular de Puerto Rico - the leading banking institution in Puerto Rico - and of Popular, Inc., Banco Popular's holding company; and the election in October of Walter V. Shipley, retired Chairman of the Board of The Chase Manhattan Corporation. In 2000, three officers of AHP - Joseph J. Carr, Gerald A. Jibilian and William J. Murray - retired after many years of dedicated service. We thank these gentlemen for their many contributions to the Company. It is with great sadness that we note the passing of Robert I. Levy, M.D., Senior Vice President - Science and Technology for AHP, in October 2000. Dr. Levy was a giant in the field of medicine and in the pharmaceutical industry, and his leadership was invaluable in guiding AHP through its evolution into a leading research-based global pharmaceutical company. MOVING FORWARD AHP is moving forward with confidence in its 75th anniversary year as a strong, independent company well-positioned for continued growth in the global pharmaceutical marketplace. We recently have launched a significant number of new pharmaceutical products, and we continue to invest in our research and manufacturing capabilities to sustain our growth in the future. More important, the drugs we produce are saving lives and improving the quality of life for people around the world. In the pharmaceutical business, we recognize a special obligation to our customers. From molecule to market, we must produce medicines of the highest quality. This obligation is at the heart of AHP's commitment to continuous improvement. To realize our vision for quality, we are making substantial investments in plants, systems and people. We thank our employees for their diligence and dedication, which were the keys to our success in 2000. Their hard work, innovative ideas and commitment to quality will maintain our momentum and help us achieve even greater results in the years ahead. We also thank AHP's Board of Directors for their guidance and support. Our future is exciting. We look forward to applying our growing knowledge of the human genome and the mechanisms of disease in the search for new cures and innovative therapies for life-threatening diseases and other challenging health problems on a global scale. /s/John R. Stafford John R. Stafford Chairman and Chief Executive Officer /s/Robert Essner Robert Essner President and Chief Operating Officer March 6, 2001 6 [BACKGROUND PICTURE OF JAMIN CHI, SCIENTIST I, WYETH-AYERST RESEARCH WORKING WITH TEST TUBES] INVESTING IN THE FUTURE: BIOTECHNOLOGY OPENS A NEW WORLD OF PHARMACEUTICAL DISCOVERY AND DEVELOPMENT AHP is committed to remaining at the forefront of pharmaceutical research in the new millennium and is making significant investments in biotechnology. We are applying these technologies throughout the drug development process to speed up the discovery of proprietary targets, improve target validation, screen potential treatments more quickly, and design safer and more efficacious products in all three of our primary discovery platforms: small molecules, proteins and vaccines. We also have established strategic alliances with leading genomics and biotechnology companies around the world to supplement our internal resources, such as the agreements we signed in 2000 with Celera Genomics Group and Incyte Genomics, Inc. to access their extensive genetic databases, including the entire human genome sequence. The benefits of these investments clearly are demonstrated by the innovative products we have introduced in recent years and by our strong R&D pipeline. In the articles that follow, three AHP research scientists describe in their own words the impact of biotechnology on key research projects. Their stories are representative of the efforts made by thousands of AHP's scientists and technicians who are using new biotechnology tools to develop novel therapies for challenging medical conditions that will benefit people throughout the world. 7 "rhBMP-2 could fundamentally change the clinical approach to bone regeneration and repair." John Wozney, Ph.D., Assistant Vice President, Bone Biology, Wyeth-Ayerst Research [PHOTO of John Wozney] [GRAPHIC OMITTED] "Our research addresses the clinical problem of bone regeneration in cases where bone either is lost or does not heal properly due to trauma. Currently, surgeons attempt to regenerate and heal bone through the use of medical devices, bone grafts or bone graft materials - all of which have shortcomings. We wanted to find a biological solution that would stimulate the body's own ability to form bone. We knew that bone growth is triggered by cellular activity during embryonic development or following a bone injury. However, it was only through the recent availability of advanced biotechnology tools that we were able to explore this process at a molecular level and begin to uncover the proteins that were involved. The successful application of this approach led to the discovery of the bone morphogenetic proteins, or BMPs - a family of proteins that helps to control the development of many tissue types, including bone. One of these proteins, BMP-2, appeared to be a very promising therapeutic candidate to induce bone formation. Biotechnology allowed us to derive the gene sequence of this protein, isolate and clone the sequence, and insert the BMP-2 gene into a production cell to create a recombinant form of the protein - rhBMP-2 - for clinical testing. In clinical trials, we found that rhBMP-2 does indeed induce bone formation in patients when applied locally. In February 2001, our Pre-marketing Authorization Application was accepted by the U.S. Food and Drug Administration for the use of rhBMP-2 in the treatment of long-bone fractures that require open surgical management. The introduction of rhBMP-2 could fundamentally change the clinical approach to bone regeneration and repair. In addition to bone growth, the BMP family of proteins holds tremendous potential for therapies involving many other types of tissues, including cartilage regeneration in osteoarthritis, tendon and ligament repair, and even the regeneration of lost function in the kidney or the brain. In fact, the discovery of BMPs has created a whole new area of basic research in tissue repair and regeneration. And biotechnology made it all possible." [BROKEN BONE GRAPHIC] 8 "Biotechnology has dramatically altered the process of drug discovery in the 20 years since I entered the field as a molecular biologist. Today, pharmaceutical development largely is centered on the study of proteins and genes. Virtually every drug on the market either is a small molecule that binds to a protein target, such as an enzyme, or is itself a protein. Biotechnology gives us the tools to unravel the secrets of proteins to find potential targets for therapies and provides the ability to reproduce these protein targets for faster and more efficient testing of drugs to change their function. [GRAPHIC OMITTED] Our discovery of the PSGL-1 gene is a good example of how the ability to isolate and characterize a gene can lead to multiple therapeutic opportunities. The gene encodes the human PSGL-1 glycoprotein, which extends from the surface of white blood cells, or leukocytes, and helps the cells bind to the blood vessel wall in a process known as cell adhesion. Thus, PSGL-1 plays a critical role in the migration of these cells from the bloodstream to the site of tissue damage. While this process is essential in helping the body heal itself after an injury, it also can be harmful. Immediately following a heart attack, for example, the leukocytes that attach to the damaged blood vessels create inflammation, which actually causes additional tissue damage, called reperfusion injury. Biotechnology allowed us to understand the molecular details of this process and then create a genetically engineered protein that links the adhesive part of PSGL-1 to the tail portion of a human antibody. This new therapeutic, called rPSGL-Ig, protects the site of tissue damage by preventing leukocytes and platelets from adhering and causing inappropriate inflammation. Currently, rPSGL-Ig is in Phase II clinical trials evaluating its ability to help accelerate clot destruction and prevent reperfusion injury following a heart attack. While the creation of a potentially beneficial new drug is extremely rewarding, we are equally gratified that our research has revealed many other therapeutic opportunities. With our detailed knowledge of this cell adhesion pathway, we are exploring additional therapies - both small molecule and protein - - that could block this process in other inflammatory and autoimmune conditions, such as strokes and organ transplant rejection. Ultimately, the integration of biotechnology into our discovery process makes this an exciting time to be doing pharmaceutical research." "BIOTECHNOLOGY GIVES US THE TOOLS TO UNRAVEL THE SECRETS OF PROTEINS." Gray Shaw, Senior Scientist and Laboratory Head, Wyeth-Ayerst Research [PHOTO GARY SHAW] 9 "BIOTECHNOLOGY HELPED US DEVELOP A POTENTIAL LIFE-SAVING TREATMENT MORE QUICKLY." Kurt Steiner, Ph.D., Senior Director, Biological Research, Wyeth-Ayerst Research [PHOTO KURT STEINER] "Biotechnology played a key role in the development of PTP-112, a novel treatment for type II diabetes. In type II patients - who constitute the vast majority of diabetics - the pancreas continues to produce insulin, but the tissues in the body that normally react to insulin don't respond properly or efficiently. As a result of this `insulin resistance,' blood sugar levels rise, and vital processes in the body that usually are triggered by insulin don't respond appropriately, creating serious health problems such as kidney failure, nerve damage and blindness. Until the 1990s, the standard treatments for type II diabetes stimulated release of insulin to compensate for resistance - an approach that often did not work effectively or led to secondary failure later as patients became less responsive over time. More recent treatments have targeted insulin resistance but have met with limited success. We wanted to get at the root of the problem and find a way to overcome insulin resistance. Our search for potential therapeutic targets focused on the PTPase family of enzymes because they are directly involved in the process of `turning off' insulin receptors. With the help of biotechnology, we validated one specific target enzyme, PTP-1B. We then created a humanized, recombinant version of the protein to use with a high-throughput screen, rapidly testing tens of thousands of compounds to find one that would inhibit the action of this enzyme. Upon finding a promising candidate, we refined it using technologies such as x-ray crystallography and molecular modeling along with creative medicinal chemistry to enhance the structure of the compound for greater efficacy. The result of that work was PTP-112, a small molecule with a novel therapeutic action that keeps the insulin receptor `turned on' and prolongs the body's responses to insulin. PTP-112 is scheduled to begin Phase II clinical trials during 2001. [GRAPHIC OMITTED] Biotechnology helped us develop a potential life-saving treatment more quickly and efficiently than we could have in the past. It enhanced our ability to find a likely therapeutic target and allowed us to create a recombinant version for validation and testing - something that is possible only with these advanced capabilities. Perhaps most important, biotechnology provided us with the data we needed to move this product forward into clinical testing with greater confidence." 10 AHP'S THERAPEUTIC FRANCHISES: A SOLID FOUNDATION FOR GROWTH AND INNOVATION [BACKGROUND PHOTO] AHP today has one of the strongest product portfolios of any company in the pharmaceutical industry. Anchored by breakthrough therapies and strengthened by innovative products from our R&D pipeline, AHP's pharmaceuticals, consumer health care products and animal health products provide a solid foundation for growth and innovation and support our continued expansion as a global health care leader. The following pages highlight the latest developments in our key therapeutic franchises and offer testimonials from some of the people whose quality of life is enhanced by AHP's products. 11 [PHOTO OF PRESCRIPTION DRUGS] WOMEN'S HEALTH CARE AHP has been a leader in women's health care for nearly 60 years. Our Women's Health Care franchise is anchored by the Premarin family, the most widely used hormone replacement therapy (HRT) for postmenopausal women. The Premarin family of products achieved nearly $1.9 billion in global sales this year, a 5 percent increase over 1999, led by sales of the combination HRT products - Prempro and Premphase - which grew 19 percent in 2000. The Premarin family of products was the most prescribed medication in the United States during 2000. Efforts continued to expand this important product line in 2000, including the filing of regulatory submissions in the United States for lower dose formulations of Premarin and Premarin/MPA products for the relief of moderate to severe vasomotor symptoms associated with menopause. An additional indication for the prevention of osteoporosis is expected to be filed for regulatory approval during 2001. A key area of HRT research focuses on therapies that incorporate trimegestone, a novel progestin licensed from Aventis Pharma and developed by Wyeth-Ayerst. In 2000, AHP received marketing approval in Sweden for the first trimegestone product on the market, Totelle - an HRT product containing trimegestone and 17 (beta)-estradiol for the prevention of osteoporosis and the relief of menopausal vasomotor symptoms. Totelle is undergoing regulatory review throughout the other European Union countries. Another new combination HRT, using Premarin and trimegestone, is undergoing Phase III clinical trials in the United States. AHP also is conducting a major research program in tissue- selective estrogens, which target specific tissue systems and promise to provide clinicians and users with selective hormone treatments to optimize efficacy and tolerability. During 2001, Phase III clinical trials will begin for AHP's tissue-selective estrogen - TSE-424 - for postmenopausal osteoporosis. In addition to its menopausal health research programs, AHP is a global leader in hormone-based oral contraceptive (OC) research and holds a leading market position worldwide. Recently, we received approval for a new gestodene-based OC, Minesse, in 17 countries. Minesse is the lowest dose oral contraceptive available on the international market. Submissions for regulatory approval in five additional countries were filed for Minesse in 2000. AHP's other major OCs include Alesse and Triphasil. AHP is committed to discovering and developing the next generation of therapies to meet the unique health care needs of women worldwide. 12 [BACKGROUND PHOTO] "I started taking Premarin about eight years ago. It's been a good choice for me because I haven't experienced the menopausal symptoms that I hear about from so many of my friends. I consider myself fortunate to be in such good health, and I definitely think Premarin is part of the reason." Diane Dunn - Columbus, Ohio - with daughters Katherine, Meghan and Barbara 13 Misty Slightam - Seattle, Washington [BACKGROUND PHOTO] "I've suffered from depression for a long time. I just never wanted to do anything, and I isolated myself. About two years ago, my doctor asked me to try Effexor XR. Within a few weeks, I started feeling better. I began to do things with other people - just going out and having fun. It's nice to be able to feel like a real person and smile again." 14 [PHOTO OF PRESCRIPTION DRUGS] NEUROSCIENCE THERAPIES Our Neuroscience franchise focuses on improving the quality of life for those affected by serious central nervous system (CNS) disorders. The key global brand in this franchise is the Effexor family, which reached nearly $1.2 billion in worldwide sales in 2000. The therapeutic profile of Effexor XR, a novel antidepressant, continued to expand during 2000 with the U.S. approval of an indication for the long-term treatment of generalized anxiety disorder (GAD), which is characterized by persistent, excessive anxiety about routine life events. Effexor XR is the only product approved for depression and both short- and long-term treatment of GAD. Effexor XR now has been approved in 49 countries for GAD. AHP also submitted supplemental New Drug Applications (sNDA) for Effexor and Effexor XR for the prevention of relapse and the recurrence of depression, and we expect to file an sNDA for a social anxiety disorder indication in 2001. Sonata, our novel insomnia treatment approved in the United States in 1999, also received regulatory approval in 26 additional countries during 2000. In February 2001, regulatory approval was granted for a 35-night efficacy supplement, which is expected to further expand the Sonata franchise. Our R&D efforts in Neuroscience are directed at several other major CNS disorders. Retigabine, a novel anticonvulsant for epilepsy licensed from Asta Medica, is in Phase II clinical trials. In addition, Phase I trials are under way for a potential first-line treatment for schizophrenia. AHP formed an alliance in 2000 with Elan Corporation to collaborate on the development of an innovative immunotherapy for mild to moderate Alzheimer's disease - a progressive, degenerative disorder of the brain that affects an estimated 4 million people in the United States. In preclinical research, this experimental treatment has been shown to reduce and prevent the development of amyloid plaque, a substance believed to be associated with the progression of Alzheimer's disease. Phase I clinical safety studies have been completed in the United States. AHP formed an alliance with Elan Corporation for the development of a treatment for mild to moderate Alzheimer's disease. 15 [PHOTO OF PRESCRIPTION DRUGS] VACCINES AND INFECTIOUS DISEASES AHP's Vaccines and Infectious Diseases franchises share a common mission: to reduce the number of serious illnesses and deaths from bacterial and viral infections and to help overcome the growing problem of bacterial resistance to existing treatments. Leading this fight is Prevnar, a new vaccine for invasive pneumococcal disease, the major cause of bacteremia, meningitis and pneumonia in infants and young children. Approved and launched in the United States during the first quarter of 2000, Prevnar achieved sales of $461 million for the year. Prevnar received recommendations for use - both from the American Academy of Pediatrics and from the Centers for Disease Control and Prevention's Advisory Committee on Immunization Practices - for all children up to two years of age as well as for high-risk children between the ages of two and five. Marketed as Prevenar outside the United States, the vaccine was approved in the European Union in February 2001. During 2000, AHP filed a supplemental application for Prevnar in the United States for the prevention of pneumococcal otitis media, or middle ear infection. Another new vaccine, Meningitec, was approved in October 1999 in the United Kingdom for the prevention of meningococcal Group C disease. Meningitec played the central role in a 90 percent reduction in reported cases of meningococcal Group C disease in the age group at highest risk in the United Kingdom. AHP received the prestigious Prix Galien award in the United Kingdom for innovation in the health care industry, recognizing the public health benefit brought by the introduction of Meningitec. Sales of Meningitec in 2000 exceeded $322 million. FluMist, a unique live, attenuated influenza vaccine, administered in the form of a nasal spray, was accepted for review by the FDA. This easy-to-administer formulation, licensed from Aviron, is expected to increase the number of people - especially children - taking advantage of protection against the flu. AHP's Infectious Diseases franchise also grew significantly in 2000. Sales of our leading product, Zosyn, marketed as Tazocin outside the United States, increased by more than 16 percent to $367 million for the year. Zosyn is used to treat serious diseases, including intra-abdominal infection and community-acquired and hospital-acquired pneumonia. Our research in this franchise took significant steps forward in 2000. GAR-936, a novel glycylcycline antibiotic, entered Phase II clinical trials. Additionally, in the rapidly growing area of anti-virals, HCI-436 - developed with ViroPharma Incorporated - began Phase II trials as a potential first- in-class treatment for hepatitis C. Meningitec received the Prix Galien award in the United Kingdom, recognizing the innovation and public health benefit brought by this vaccine. 16 [BACKGROUND PHOTO] "My pediatrician highly recommended a new vaccine called Prevnar. He said it prevents a type of meningitis that can be very dangerous for young children. It's good to know that new vaccines are available for these types of diseases, and I'm glad we were able to take advantage of it to help protect Nicole's health." Gloria Herrel - San Jose, California - with daughter Nicole 17 Deborah Cooper - Huntington Beach, California - with daughter Kelsey [BACKGROUND PHOTO] "I was diagnosed with rheumatoid arthritis shortly after my daughter was born. There were times when I couldn't move my fingers enough to pick her up or play with her. About three years ago, I started taking Enbrel, and now I can push my daughter on the swing and play tennis with my family. I've gotten my quality of life back." 18 [PHOTO OF PRESCRIPTION DRUGS] MUSCULOSKELETAL THERAPIES AHP's Musculoskeletal franchise is the source of important new therapies for patients with joint and bone disorders. Led by Enbrel, a breakthrough biological treatment for rheumatoid arthritis (RA) that helps patients lead more active lives, this franchise is pursuing numerous opportunities to apply novel treatment approaches to bone, tissue and organ repair. Enbrel was approved for marketing in the United States in November 1998 as the first biological treatment for the symptoms of moderate to severe RA. Discovered by Immunex Corporation - in which AHP is the largest shareholder - and co-promoted in North America by Immunex and Wyeth-Ayerst, Enbrel has received subsequent approvals in the United States for inhibiting the progression of structural damage in the joints of early stage RA patients and for treating juvenile RA. In 2000, its second full year on the market, Enbrel achieved global sales of $690 million - 84 percent growth over 1999. Thirty countries have approved Enbrel for the treatment of RA, including the European Union. The Company and Immunex are investing more than $1 billion for the construction of two major biological manufacturing facilities to meet the growing demand for this product, driven by its use in rheumatoid arthritis as well as potential use in other therapeutic applications. AHP also has a strong presence in the osteoarthritis (OA) treatment market with Synvisc, the leading viscosupplementation product in the United States. Synvisc is injected into the knee to restore lubrication and cushioning to the joint. Synvisc, jointly developed and marketed with Genzyme Biosurgery, increased sales by 44 percent to $179 million in 2000, and the product is included in the American College of Rheumatology's new recommendations for treatment of OA in the knee. Additionally, the FDA has accepted the regulatory submission for rhBMP-2 as a treatment for long-bone fractures that require surgical management. The development of this unique product is discussed on page 8 of this report. Other potential applications for rhBMP-2 include use in spinal fusion surgery (in collaboration with Medtronic Sofamor Danek) and dental/craniofacial surgery. Bone morphogenetic proteins also are being studied for possible use in soft tissue repair, such as tendons and ligaments. AHP and Immunex are investing more than $1 billion to construct major biological manufacturing facilities to meet the growing demand for ENBREL. 19 [PHOTO OF PRESCRIPTION DRUGS] INTERNAL MEDICINE The cardiovascular therapies in AHP's Internal Medicine franchise continued to grow in 2000 - bolstered by recent updates of two important medical guidelines that added the franchise's key products to their treatment recommendations. In August 2000, the American Heart Association (AHA) revised its Advanced Cardiac Life Support Guidelines to add Cordarone I.V., an antiarrhythmic medication, to treat ventricular fibrillation/pulseless ventricular tachycardia in patients who do not respond to cardiopulmonary resuscitation or defibrillation. The decision to include Cordarone I.V. in the guidelines was based on extensive data supporting its efficacy - most notably, the ARREST trial, in which Cordarone I.V. increased patient survival to hospital admission by 29 percent. Cordarone I.V. sales increased 81 percent in 2000 to $186 million. Altace, an angiotensin-converting-enzyme (ACE) inhibitor co-promoted in the United States by Wyeth-Ayerst and King Pharmaceuticals, Inc., received a new indication from the FDA in 2000 to reduce the risk of stroke, heart attack and death from cardiovascular causes in patients age 55 and over with a history of cardiovascular disease or who have diabetes that is accompanied by at least one other cardiovascular risk factor. Altace is the only ACE inhibitor with this indication, which was based on evidence from the landmark Heart Outcomes Prevention Evaluation Study. Patients in the study taking Altace experienced 32 percent fewer strokes, 26 percent fewer cardiovascular deaths and 20 percent fewer heart attacks. In January 2001, the American Stroke Association, a division of the AHA, published new guidelines recommending the use of Altace to reduce the incidence of stroke in diabetes patients. In the gastrointestinal area, our new proton pump inhibitor (PPI), Protonix tablets, was approved in February 2000 and launched in the United States in May 2000 for the short-term treatment of erosive esophagitis associated with gastroesophageal reflux disease. Despite strong competition, Protonix achieved sales of $145 million in its first year on the market. Additionally, an intravenous version of Protonix is expected to be approved in the first half of 2001. This approval would position Protonix as the first drug in its class that offers both an oral and an intravenous formulation in the U.S. market. Zoton, a PPI which is licensed by the Company for sale internationally, increased sales in 2000 by 12 percent to $234 million. Research projects in Internal Medicine include rPSGL-Ig and PTP-112, discussed on pages 9 and 10 of this report. Also, Enbrel, co-promoted by Immunex Corporation and Wyeth-Ayerst for rheumatoid arthritis, is undergoing Phase III clinical trials for the treatment of congestive heart failure. Use of CORDARONE I.V. increased patient survival to hospital admission by 29 percent. 20 Juliet Henshaw - Pleasanton, California [BACKGROUND PHOTO] "As a paramedic in Alameda County, California, I've encountered hundreds of cases of cardiac arrhythmia. One of the biggest challenges we face is keeping these people alive until we get to a hospital. Our county currently is involved in a pilot study with Cordarone I.V., which has been shown to increase patient survival to hospital admission." 21 Rita Gonzales - Houston, Texas - with son Damien [BACKGROUND PHOTO] "My son Damien started taking ReFacto for his hemophilia four years ago in a clinical trial. The selection of a clotting product is very important for every family dealing with this condition. We talked with our physician about safety, purity, side effects and the size of the dose and chose ReFacto. We've been very happy with the results." 22 [PHOTO OF PRESCRIPTION DRUGS] HEMOPHILIA For approximately two decades, AHP has been a global scientific leader in the search for safer and more effective treatments for hemophilia. As a result of this commitment and a significant investment in recombinant DNA technology, our efforts have led to important medical advances in the treatment of hemophilia: the development of the first recombinant factor IX product (BeneFIX for hemophilia B) and the first albumin-free formulated factor VIII product (ReFacto for hemophilia A). The original hemophilia treatments developed in the 1960s and 1970s were derived from purified human blood plasma, which resulted in widespread transmission of viral pathogens. Despite major improvements in purity and viral safety, today's plasma-derived products still give rise to patient concern about the potential for blood-borne diseases. AHP's hemophilia product portfolio employs a theoretically safer approach using advanced biotechnology tools to produce clotting factors from non-human production cells. The anchor products of our Hemophilia franchise are BeneFIX and ReFacto. BeneFIX, the only recombinant factor IX product, represents the state of the art in hemophilia B treatment because it is not derived from human plasma. BeneFIX was launched in the United States in 1997 and in Europe in 1999. It now is the number one selling hemophilia B product in the world, with sales increasing by 18 percent in 2000. BeneFIX continued to expand through commercialization in several new markets during this past year, and commercial launches are scheduled in additional countries during 2001. ReFacto, the first recombinant factor VIII product without human serum albumin added to the final formulation, further reduces the theoretical risk of viral contamination for hemophilia A patients. ReFacto was launched throughout Europe during 1999, and sales surpassed $90 million during its first full year on the market. The FDA approved ReFacto in March 2000, and the product was launched in the United States in January 2001. AHP plans to invest approximately $100 million in a manufacturing facility in St. Louis, Missouri, to meet the growing demand for ReFacto. Our research into hemophilia treatments continues to focus on increased patient safety and efficacy. During 2001, we are scheduled to begin clinical trials on an improvement to our existing ReFacto product. This improved version of ReFacto will be produced without any animal- or human-derived proteins throughout the entire manufacturing process. In addition to our focus on improving existing treatments, we formed an alliance during 2000 with Targeted Genetics Corporation to pursue gene therapy treatments for hemophilia A and B that eventually may offer a cure for these diseases. AHP's hemophilia product portfolio uses advanced biotechnology tools to discover and develop safer and more effective treatments. 23 [PHOTO OF PRESCRIPTION DRUGS] IMMUNOLOGY AND ONCOLOGY The Immunology franchise is focused on expanding the market for Rapamune, AHP's novel immunosuppressant for organ transplantation. Rapamune, in its liquid form, was approved in the United States in 1999 for the prevention of organ rejection following kidney transplants and received a recommendation for approval in Europe in December 2000. In addition, AHP received approval for a tablet form of Rapamune in the United States in August 2000, which will improve ease of dosing. Research projects in Immunology include expanded indications for Rapamune for other types of organ transplantation, including Phase II trials that are under way for therapy following liver transplants. AHP is studying other innovative approaches to immunosuppression such as anti-B7 monoclonal antibodies, which potentially offer a more specific approach to the prevention of organ transplant rejection. In addition, Phase III clinical trials are under way for recombinant interleukin-11 for the treatment of Crohn's disease. The May 2000 approval of Mylotarg by the FDA marked a significant milestone for AHP's Oncology franchise. Mylotarg - a novel chemotherapy agent for relapsed acute myeloid leukemia in patients age 60 and over - is the first oncology treatment to directly target leukemic cells using innovative monoclonal antibody-targeted chemotherapy. Developed in collaboration with Celltech Group Plc., Mylotarg is unique because it delivers a powerful antitumor agent called calicheamicin directly to leukemic cells. AHP scientists developed technology linking calicheamicin to a humanized antibody that attaches to and destroys a specific type of cancer cell. This is dramatically different from standard chemotherapy, which kills both cancerous and healthy cells. AHP is conducting trials to extend the use of Mylotarg to other forms of leukemia, as well as evaluating additional monoclonal antibodies in order to expand the use of this groundbreaking chemotherapy technology to breast cancer, lymphoma and prostate cancer. Mylotarg joins Neumega in AHP's global Oncology franchise product portfolio. Clinical studies with Neumega - recombinant interleukin-11, approved for use in the United States as a platelet growth factor for chemotherapy-induced thrombocytopenia in nonmyeloid malignancies - are further defining its role in managing thrombocytopenia in myeloid malignancies and viral disease. There currently are two other promising oncology research programs in Phase II clinical trials: CCI-779 and ERA-923. CCI-779 is designed to interrupt growth in a variety of tumors by inhibiting the action of a protein called mTOR, which appears to control a number of cell growth functions. It will be evaluated as a treatment for breast, prostate and renal cell cancers as well as soft tissue sarcoma. ERA-923 is a selective estrogen receptor modulator being developed as a treatment for breast cancer. Mylotarg is the first oncology treatment that directly targets leukemia cells using innovative antibody-targeted chemotherapy. 24 Irving Smith - Brooklyn, New York [BACKGROUND PHOTO] "After being on dialysis for four years because of kidney failure, I had a kidney transplant last November. My mother donated one of her kidneys to me. I've been taking Rapamune and other drugs since the operation, and everything is going well so far. I feel stronger than I have in years - almost like I'm a new person." 25 [BACKGROUND PHOTO] "I've been working with Advil for more than 13 years now. When I pitched in the major leagues, I used Advil to help treat all those strains and sprains. And now, Advil helps me manage the aches and pain associated with osteoarthritis. Thanks to Advil, I'm still doing the things I love to do." Nolan Ryan - Alvin, Texas 26 [PHOTO OF PRESCRIPTION DRUGS] CONSUMER HEALTH CARE Global branding is the cornerstone of AHP's success in the worldwide consumer health care market. Two AHP product lines - Advil and Centrum - are among the top 10 selling consumer health care brands in the world. Other major AHP global consumer health care brands include Caltrate, Chap Stick, Dimetapp, Preparation H and Robitussin. We continue to build on this global franchise through innovative line extensions and geographic expansion while also introducing new products that meet the growing worldwide demand for effective self-medication. The Advil family of products, which achieved sales of more than $590 million in 2000, received an important new addition in 2000 with the U.S. launch of Advil Migraine, the first and only FDA-approved non-prescription migraine medicine that comes in liquid-filled capsules. A number of other new and innovative line extensions contributed to this growth, including the recent introductions of Advil 400mg tablets in France, Children's Advil Suspension in Colombia and Advil Liqui-gels in Canada. The unique Liqui-gel product also was launched under the Anadin brand in the United Kingdom and under the Spalt brand in Germany to further boost the overall growth of the global analgesic franchise. Global sales of Centrum multivitamin/multimineral products reached $533 million in 2000. Centrum now is available in more than 60 countries around the world. International introductions of Centrum Silver in Australia, Brazil, China, Poland, Russia and Thailand are broadening the appeal of the brand's unique nutritional benefits. Recent additions to the product line in the United States include: Centrum Performance, a premium formulation of vitamins, minerals and herbs designed to meet the high-energy demands of an active lifestyle; Centrum Focused Formulas, with targeted combinations of nutrients and herbals to support specific health areas such as Heart, Energy and Mental Clarity; and Centrum Kids, featuring the characters from the popular "Rugrats" television show. Brand extensions - such as the recently added honey-containing products that include Honey Cold, Honey Cough and Honey Flu - also fueled sales growth for the Robitussin franchise as well as for the Chap Stick brand, whose latest additions include Chap Stick Overnight Lip Treatment and Chap Stick Lipsations. In addition, our franchise continued to expand its presence in health food stores with the Solgar line of vitamin and nutritional supplements. Centrum incorporates the latest scientific advances in nutrition to offer innovative products addressing specific concerns, needs and lifestyles. 27 [PHOTO OF PRESCRIPTION DRUGS] ANIMAL HEALTH PRODUCTS As a world leader in animal health products, Fort Dodge Animal Health offers a wide range of biologicals and pharmaceuticals for the livestock, swine and poultry industries as well as for companion animals, such as dogs, cats and horses. Global sales of Fort Dodge products grew by 20 percent to nearly $800 million in 2000. Innovative Fort Dodge biologicals include: LymeVax, a vaccine for canine Lyme disease; Fel-O-Vax vaccines for multiple feline diseases; Fluvac vaccine for equine herpes virus and influenza; and Bursine vaccine for infectious bursal disease in chickens. Key pharmaceutical products include: Cydectin Pour-On for parasite control in beef and dairy cattle; EtoGesic tablets for canine osteoarthritis; and Quest Gel dewormer and boticide for horses. In 2000, Fort Dodge introduced an improvement in the control of heartworm disease in dogs with the launch of ProHeart SR12 in Australia. Until the advent of ProHeart SR12, the most common way to prevent heartworms was with daily or monthly tablets administered by pet owners - an approach that frequently results in poor compliance. With ProHeart SR12, a dog receives a single injection from a veterinarian, protecting the animal for a full year. Fort Dodge expects to launch this product in the United States and Japan during 2001. Another unique Fort Dodge product recently launched in the United States under conditional license is a vaccine to aid in the prevention of Equine Protozoal Myeloencephalitis (EPM) - a serious disorder that attacks the central nervous system of horses. Symptoms of EPM can include seizures, muscle atrophy and paralysis, but the condition is difficult to diagnose, and current treatments can cost thousands of dollars. Fort Dodge's vaccine is the first ever available for the prevention of this debilitating condition. Innovative products in the animal health R&D pipeline include: West Nile Encephalitis vaccines for companion animals (in conjunction with the Centers for Disease Control and Prevention); a Feline Immunodeficiency Virus vaccine; and food safety treatments such as a poultry Salmonella vaccine. Fort Dodge Animal Health introduced an improvement in the control of heartworm disease in dogs with the launch of ProHeart SR12. 28 FINANCIAL REVIEW [BACKGROUND PHOTO] "My business is training dogs for movies, television and advertising. With the help of Fort Dodge's products, my dogs have the kind of appearance and spirit that my clients are looking for." Gregg Holland - Santa Rosa, California 30 Ten-Year Selected Financial Data 32 Consolidated Balance Sheets 33 Consolidated Statements of Operations 34 Consolidated Statements of Changes in Stockholders' Equity 35 Consolidated Statements of Cash Flows 36 Notes to Consolidated Financial Statements 50 Report of Independent Public Accountants 50 Management Report on Financial Statements 51 Quarterly Financial Data 51 Market Prices of Common Stock and Dividends 52 Management's Discussion and Analysis of Financial Condition and Results of Operations 29 TEN-YEAR SELECTED FINANCIAL DATA (Dollar amounts in thousands except per share amounts)
YEARS ENDED DECEMBER 31, 2000 1999 1998 SUMMARY OF NET REVENUE AND EARNINGS - ---------------------------------------------------------------------------------------------------------------------------- Net revenue(1) $ 13,262,754 $ 11,881,196 $ 11,268,570 Income (loss) from continuing operations(1)(2)(5) (901,040) (1,207,243) 2,152,344 Diluted earnings (loss) per share from continuing operations(1)(2)(3) (0.69) (0.92) 1.61 Dividends per common share 0.9200 0.9050 0.8700 YEAR-END FINANCIAL POSITION - ---------------------------------------------------------------------------------------------------------------------------- Current assets(1) $ 10,180,811 $ 12,384,778 $ 10,698,188 Current liabilities(1)(5) 9,742,059 6,480,383 3,478,119 Ratio of current assets to current liabilities(1)(5) 1.05 1.91 3.08 Total assets(1) 21,092,466 23,123,756 20,224,231 Long-term debt(1) 2,394,790 3,606,423 3,839,402 Average stockholders' equity(5) 4,516,420 7,914,772 8,895,024 STOCKHOLDERS -- OUTSTANDING SHARES - ---------------------------------------------------------------------------------------------------------------------------- Number of common stockholders 58,355 62,482 65,124 Weighted average common shares outstanding used for diluted earnings per share calculation (in thousands)(3) 1,306,474 1,308,876 1,336,641 EMPLOYMENT DATA(1) - ---------------------------------------------------------------------------------------------------------------------------- Number of employees at year end 48,036 46,815 47,446 Wages and salaries $ 2,264,258 $ 2,032,431 $ 2,175,517 Benefits (including social security taxes) 602,816 593,222 577,930
(1) As a result of the sale of the Cyanamid Agricultural Products business on June 30, 2000, amounts for the years 1994 through 1999 were restated to reflect this business as a discontinued operation. Beginning in 1994, current assets include the net assets of the discontinued business held for sale related to the Cyanamid Agricultural Products business. (2) See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for amounts related to gains on sales of business and Immunex common stock, termination fee, litigation charges, goodwill impairment and special charges for the years ended December 31, 2000, 1999 and 1998. (3) The weighted average common shares outstanding for diluted loss per share for 2000 and 1999 did not include common share equivalents, as the effect would have been antidilutive. (4) The 1994 information reflects the acquisition of American Cyanamid Company for the one-month period ended December 31, 1994. (5) In the 2000 fourth quarter, the Company recorded an additional litigation charge of $7,500,000 related to the litigation brought against the Company regarding the use of the diet drugs Redux or Pondimin. The initial litigation charge of $4,750,000 was recorded in the 1999 third quarter. As a result of these litigation charges, current liabilities have increased substantially in 2000 and 1999 compared with prior years, and the ratio of current assets to current liabilities and average stockholders' equity has decreased substantially in 2000 and 1999 compared with prior years. 30
1997 1996 1995 1994(4) 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------- $ 12,076,621 $ 12,099,428 $ 11,466,287 $ 8,882,952 $ 8,304,851 $ 7,873,687 $ 7,079,443 1,747,638 1,651,617 1,472,525 1,525,517 1,469,300 1,460,842 1,375,273 1.33 1.28 1.18 1.24 1.17 1.15 1.08 0.8300 0.7825 0.7550 0.7350 0.7150 0.6650 0.5938 - --------------------------------------------------------------------------------------------------------------------- $ 10,025,512 $ 10,310,256 $ 11,084,841 $ 11,321,682 $ 4,807,684 $ 4,552,077 $ 4,119,057 3,476,322 3,584,256 3,929,940 4,291,452 1,584,411 1,492,717 1,270,135 2.88 2.88 2.82 2.64 3.03 3.05 3.24 19,851,517 19,924,666 20,721,093 21,328,267 7,687,353 7,141,405 5,938,797 5,007,610 6,010,297 7,806,717 9,972,444 859,278 601,934 104,710 7,568,672 6,252,545 4,898,550 4,065,295 3,719,539 3,431,568 2,987,885 - --------------------------------------------------------------------------------------------------------------------- 64,313 67,545 68,763 71,223 72,664 73,064 71,209 1,312,975 1,287,790 1,250,902 1,234,100 1,252,990 1,267,240 1,273,390 - --------------------------------------------------------------------------------------------------------------------- 54,921 54,194 58,957 70,300 51,399 50,653 47,938 $ 2,428,518 $ 2,439,604 $ 2,512,418 $ 1,811,402 $ 1,654,984 $ 1,575,615 $ 1,388,397 619,528 614,179 641,169 439,572 396,045 367,899 300,810
31 CONSOLIDATED BALANCE SHEETS (In thousands except share and per share amounts)
DECEMBER 31, 2000 1999 - -------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 2,644,306 $ 1,892,715 Marketable securities 341,031 520,587 Accounts receivable less allowances (2000 -- $144,150 and 1999 -- $141,759) 2,740,272 2,389,863 Inventories 1,531,727 1,607,960 Net assets -- discontinued business held for sale -- 4,192,346 Other current assets including deferred taxes 2,923,475 1,781,307 ------------------------------ Total Current Assets 10,180,811 12,384,778 Property, plant and equipment: Land 149,810 135,013 Buildings 2,694,612 2,598,890 Machinery and equipment 3,510,529 3,269,793 Construction in progress 1,223,282 389,252 ------------------------------ 7,578,233 6,392,948 Less accumulated depreciation 2,543,409 2,274,771 ------------------------------ 5,034,824 4,118,177 Goodwill and other intangibles, net of accumulated amortization (2000 -- $1,739,368 and 1999 -- $1,667,711) 4,052,410 4,823,309 Other assets including deferred taxes 1,824,421 1,797,492 ------------------------------ Total Assets $ 21,092,466 $ 23,123,756 ============================== - -------------------------------------------------------------------------------------------------------------- LIABILITIES Loans payable $ 58,717 $ 1,880,816 Trade accounts payable 595,233 562,679 Accrued expenses 8,831,459 3,809,525 Accrued federal and foreign taxes 256,650 227,363 ------------------------------ Total Current Liabilities 9,742,059 6,480,383 Long-term debt 2,394,790 3,606,423 Other noncurrent liabilities 5,226,495 5,925,313 Accrued postretirement benefits other than pensions 911,029 896,890 ------------------------------ - -------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY $2.00 convertible preferred stock, par value $2.50 per share; 5,000,000 shares authorized 55 61 Common stock, par value $0.33 1/3 per share; 2,400,000,000 shares authorized (outstanding shares: 2000 -- 1,311,774,000 and 1999 -- 1,303,916,000) 437,258 434,639 Additional paid-in capital 3,952,457 3,392,705 Retained earnings (accumulated deficit) (899,118) 3,000,827 Accumulated other comprehensive loss (672,559) (613,485) ------------------------------ Total Stockholders' Equity 2,818,093 6,214,747 ------------------------------ Total Liabilities and Stockholders' Equity $ 21,092,466 $ 23,123,756 ==============================
The accompanying notes are an integral part of these Consolidated Financial Statements. 32 CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share amounts)
YEARS ENDED DECEMBER 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Net Revenue $ 13,262,754 $ 11,881,196 $ 11,268,570 ------------------------------------------------ Cost of goods sold 3,269,418 3,022,556 2,843,185 Selling, general and administrative expenses 5,032,548 4,388,265 4,209,162 Research and development expenses 1,687,889 1,587,505 1,475,862 Interest expense, net 57,562 213,866 207,157 Other income, net (161,039) (255,697) (285,848) Gains on sales of business and Immunex common stock (2,061,204) -- (592,084) Termination fee (1,709,380) -- -- Litigation charges 7,500,000 4,750,000 -- Goodwill impairment 401,000 -- -- Special charges 347,000 82,000 321,200 ------------------------------------------------ Income (loss) from continuing operations before federal and foreign taxes (1,101,040) (1,907,299) 3,089,936 Provision (benefit) for federal and foreign taxes (200,000) (700,056) 937,592 ------------------------------------------------ Income (Loss) from Continuing Operations (901,040) (1,207,243) 2,152,344 Discontinued operations: Income (loss) from operations of discontinued agricultural products business (including federal and foreign taxes of $57,289, $1,551 and $173,530 for 2000, 1999 and 1998, respectively) 103,346 (19,878) 321,994 Loss on disposal of agricultural products business (including federal and foreign tax charges of $855,248) (1,572,993) -- -- ------------------------------------------------ Income (Loss) from Discontinued Operations (1,469,647) (19,878) 321,994 ------------------------------------------------ Net Income (Loss) $ (2,370,687) $ (1,227,121) $ 2,474,338 ================================================ Basic Earnings (Loss) per Share from Continuing Operations $ (0.69) $ (0.92) $ 1.64 Basic Earnings (Loss) per Share from Discontinued Operations (1.12) (0.02) 0.24 ------------------------------------------------ Basic Earnings (Loss) per Share $ (1.81) $ (0.94) $ 1.88 ================================================ Diluted Earnings (Loss) per Share from Continuing Operations $ (0.69) $ (0.92) $ 1.61 Diluted Earnings (Loss) per Share from Discontinued Operations (1.12) (0.02) 0.24 ------------------------------------------------ Diluted Earnings (Loss) per Share $ (1.81) $ (0.94) $ 1.85 ================================================
The accompanying notes are an integral part of these Consolidated Financial Statements. 33 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands except per share amounts)
$2.00 RETAINED ACCUMULATED CONVERTIBLE ADDITIONAL EARNINGS OTHER TOTAL PREFERRED COMMON PAID-IN (ACCUMULATED COMPREHENSIVE STOCKHOLDERS' STOCK STOCK CAPITAL DEFICIT) LOSS EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1998 $ 72 $435,298 $2,530,696 $ 5,489,292 $ (280,106) $ 8,175,252 ================================================================================ Net income 2,474,338 2,474,338 Currency translation adjustments (45,803) (45,803) Unrealized loss on marketable securities (2,428) (2,428) ------------ Comprehensive income 2,426,107 ------------ Cash dividends declared: Preferred stock (per share: $2.00) (54) (54) Common stock (per share: $0.87) (1,143,198) (1,143,198) Common stock acquired for treasury (2,521) (34,984) (377,098) (414,603) Common stock issued for stock options 4,342 399,488 403,830 Conversion of preferred stock and other exchanges (8) 347 177,674 (10,551) 167,462 -------------------------------------------------------------------------------- Balance at December 31, 1998 64 437,466 3,072,874 6,432,729 (328,337) 9,614,796 ================================================================================ - ------------------------------------------------------------------------------------------------------------------------------------ Net loss (1,227,121) (1,227,121) Currency translation adjustments (285,963) (285,963) Unrealized gain on marketable securities 815 815 ------------ Comprehensive loss (1,512,269) ------------ Cash dividends declared: Preferred stock (per share: $2.00) (50) (50) Common stock (per share: $0.905) (1,183,571) (1,183,571) Common stock acquired for treasury (6,409) (39,505) (1,012,385) (1,058,299) Common stock issued for stock options 3,376 230,894 234,270 Conversion of preferred stock and other exchanges (3) 206 128,442 (8,775) 119,870 -------------------------------------------------------------------------------- Balance at December 31, 1999 61 434,639 3,392,705 3,000,827 (613,485) 6,214,747 ================================================================================ - ------------------------------------------------------------------------------------------------------------------------------------ Net loss (2,370,687) (2,370,687) Currency translation adjustments (70,496) (70,496) Unrealized gain on marketable securities 11,422 11,422 ------------ Comprehensive loss (2,429,761) ------------ Cash dividends declared: Preferred stock (per share: $2.00) (46) (46) Common stock (per share: $0.92) (1,201,431) (1,201,431) Common stock acquired for treasury (2,472) (16,316) (374,289) (393,077) Common stock issued for stock options 4,949 405,933 410,882 Conversion of preferred stock and other exchanges (6) 142 170,135 (6,663) 163,608 International operations year end change 53,171 53,171 -------------------------------------------------------------------------------- Balance at December 31, 2000 $ 55 $437,258 $3,952,457 $ (899,118) $ (672,559) $ 2,818,093 ================================================================================
The accompanying notes are an integral part of these Consolidated Financial Statements. 34 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEARS ENDED DECEMBER 31, 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Income (loss) from continuing operations $ (901,040) $(1,207,243) $ 2,152,344 Adjustments to reconcile income (loss) from continuing operations to net cash provided from operating activities of continuing operations: Litigation charges 7,500,000 4,750,000 -- Gains on sales of business and Immunex common stock (2,061,204) -- (592,084) Goodwill impairment 401,000 -- -- Special charges 347,000 82,000 321,200 Gains on sales of assets (159,430) (205,739) (445,380) Depreciation 336,239 341,871 315,103 Amortization 198,810 199,307 196,504 Deferred income taxes (814,282) (1,410,068) 51,952 Diet drug litigation payments (3,966,845) (117,581) -- Deconsolidation of Immunex (236,768) -- -- Changes in working capital, net of businesses acquired, sold or deconsolidated: Accounts receivable (433,182) 164,588 (391,921) Inventories 31,188 (115,699) (100,493) Other current assets 179,817 (170,478) (213,003) Trade accounts payable and accrued expenses 270,518 (73,946) (21,545) Accrued federal and foreign taxes (393,330) (121,227) (4,008) Other items, net 178,851 377,592 82,082 ---------------------------------------------- Net cash provided from continuing operations 477,342 2,493,377 1,350,751 Net cash provided from/(used for) discontinued operations 77,600 (327,771) 10,074 ---------------------------------------------- Net Cash Provided from Operating Activities 554,942 2,165,606 1,360,825 ============================================== - -------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchases of property, plant and equipment (1,681,906) (937,435) (690,058) Purchase of business, net of cash acquired -- -- (425,041) Proceeds from sales of businesses 3,800,000 -- 1,770,000 Proceeds from sale of Immunex common stock 2,404,875 -- -- Proceeds from sales of assets 256,192 327,730 620,632 Purchases of marketable securities (677,802) (789,846) (350,687) Proceeds from sales and maturities of marketable securities 384,292 383,941 278,290 ---------------------------------------------- Net Cash Provided from/(Used for) Investing Activities 4,485,651 (1,015,610) 1,203,136 ============================================== - -------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net proceeds from/(repayments of) debt (3,080,381) 1,593,468 (1,174,137) Dividends paid (1,201,477) (1,183,621) (1,143,252) Purchases of common stock for treasury (393,077) (1,058,299) (414,603) Exercises of stock options 410,882 234,270 403,830 Termination of interest rate swap agreements -- -- (96,655) ---------------------------------------------- Net Cash Used for Financing Activities (4,264,053) (414,182) (2,424,817) ---------------------------------------------- Effects of exchange rates on cash balances (24,949) (25,418) (8,197) ---------------------------------------------- Increase in Cash and Cash Equivalents 751,591 710,396 130,947 Cash and Cash Equivalents, Beginning of Year 1,892,715 1,182,319 1,051,372 ---------------------------------------------- Cash and Cash Equivalents, End of Year $ 2,644,306 $ 1,892,715 $ 1,182,319 ==============================================
The accompanying notes are an integral part of these Consolidated Financial Statements. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The accompanying Consolidated Financial Statements include the accounts of American Home Products Corporation and its majority-owned subsidiaries (the Company). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts based on judgments and estimates made by management. Effective January 1, 2000, the financial results of certain pharmaceutical subsidiaries in Japan and India, which previously were included on an equity basis, were consolidated in the financial results of the Company due to changes which gave the Company the ability to exercise control over the operations of these affiliates. Also, effective January 1, 2000, the financial results of Immunex Corporation (Immunex), which previously were consolidated, were deconsolidated and included on an equity basis in the results of operations of the Company (see Note 2). Prior to 2000, certain of the Company's international affiliates reported their results of operations on a one-month lag (year ended November 30), which allowed more time to compile results. In December 2000, the one-month lag was eliminated, primarily to reflect the results of these operations on a more timely basis. As a result, December 2000 income from continuing operations for these entities of $53,171,000 was recorded directly to stockholders' equity. DESCRIPTION OF BUSINESS: The Company is a U.S.-based multi-national corporation engaged in the discovery, development, manufacture, distribution and sale of a diversified line of products in two primary businesses: Pharmaceuticals and Consumer Health Care. Pharmaceuticals include branded and generic human ethical pharmaceuticals, biologicals, nutritionals, and animal biologicals and pharmaceuticals. Principal products include women's health care products, infant nutritionals, cardiovascular products, neuroscience therapies, gastroenterology drugs, anti-infectives, vaccines, biopharmaceuticals, oncology therapies, musculoskeletal therapies and transplantation products. Principal animal health products include vaccines, pharmaceuticals, endectocides and growth implants. Consumer Health Care products include analgesics, cough/cold/allergy remedies, nutritional supplements, herbal products, and hemorrhoidal, antacid, asthma and other relief items sold over-the-counter. The Company sells its diversified line of products to wholesalers, pharmacies, hospitals, physicians, retailers and other health care institutions located in various markets in more than 150 countries throughout the world. The Company is not dependent on any single customer or major group of customers for its sales. The Company is not dependent on any one patent-protected product or line of products for a substantial portion of its net revenue or results of operations. However, Premarin, one of the Company's conjugated estrogens products, which has not had patent protection for many years, contributes significantly to net revenue and results of operations. See "Competition" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 57 for further details. EQUITY METHOD OF ACCOUNTING: The Company accounts for its investments in 20%- to 50%-owned companies using the equity method. Accordingly, the Company's share of the earnings of these companies is included in Other income, net. The related equity investment is included in Other assets including deferred taxes. At December 31, 2000, Immunex was the Company's only material equity investment. Immunex is a biopharmaceutical company that discovers, manufactures and markets therapeutic products for the treatment of cancer and musculoskeletal disorders such as rheumatoid arthritis. See Note 2 for the discussion of Immunex common stock sold in 2000. CASH EQUIVALENTS consist primarily of certificates of deposit, time deposits and other short-term, highly liquid securities with original maturities of three months or less and are stated at cost, which approximates fair value. The carrying value of cash equivalents approximates fair value due to the short-term, highly liquid nature of cash equivalents. MARKETABLE SECURITIES consist of U.S. government or agency issues, commercial paper, time deposits and corporate bonds and are stated at fair value, which approximates cost due to the short-term, highly liquid nature of these securities (less than six months). All marketable securities are available-for-sale investments. The fair values are estimated based on current market prices. INVENTORIES are valued at the lower of cost or market. Inventories valued under the last-in, first-out (LIFO) method amounted to $325,059,000 and $407,668,000 at December 31, 2000 and 1999, respectively. The current value exceeded the LIFO value by $59,658,000 and $66,879,000 at December 31, 2000 and 1999, respectively. The remaining inventories are valued under the first-in, first-out (FIFO) method or the average cost method. Inventories at December 31 consisted of:
(In thousands) 2000 1999 - -------------------------------------------------------------------------------- Finished goods $ 585,123 $ 753,831 Work in progress 586,656 471,327 Materials and supplies 359,948 382,802 ------------------------------- $1,531,727 $1,607,960 ===============================
PROPERTY, PLANT AND EQUIPMENT is carried at cost. Depreciation is provided over the estimated useful lives of the related assets placed into service, principally on the straight-line method. GOODWILL AND OTHER INTANGIBLES: The excess of cost over the fair value of net assets acquired is amortized using the straight-line 36 method over various periods ranging from 15 to 40 years for goodwill and three to 10 years for other intangibles. The Company continually reviews goodwill and other intangibles to evaluate whether changes have occurred that would suggest such assets may be impaired. If circumstances suggest an impairment, undiscounted future cash flows of the assets acquired or purchased are estimated. If this estimate indicates that the remaining estimated useful life of goodwill or other intangibles requires revision or that the associated costs are not recoverable, the carrying value of the goodwill or other intangibles is reduced to fair value by the estimated shortfall of future cash flows on a discounted basis. FOREIGN CURRENCY AGREEMENTS: The Company enters into short-term foreign currency agreements to manage specifically identifiable risks. Short-term (approximately 30 days) foreign exchange forward contracts are part of the Company's management of foreign currency balance sheet exposures. Foreign currency agreements are accounted for under the fair value method. The fair value of foreign currency agreements is based on current market prices. The fair value represents the estimated amount the Company would receive or pay to terminate the agreements, taking into consideration current foreign currency exchange rates. The fair value of the foreign currency agreements is carried on the Consolidated Balance Sheets with changes in the fair value recognized in results of operations offsetting any gains and losses recognized on the underlying transactions. In 2000, the Company established a cash flow hedging program to cover currency risk related to intercompany inventory sales denominated in foreign currencies. The exposures are managed using purchased foreign currency put options. Put options provide the Company with the right, but not the obligation, to sell foreign currencies at a predetermined price. Net gains on exercised option contracts are deferred on the Consolidated Balance Sheets and are reclassified into earnings in the same period that the underlying exposure is reflected in results of operations. There were no option contracts outstanding as of December 31, 2000. The net impact of foreign currency programs on the results of operations for 2000 was not material. CURRENCY TRANSLATION: The majority of the Company's international operations are translated into U.S. dollars using current foreign currency exchange rates with currency translation adjustments reflected in Accumulated other comprehensive loss in stockholders' equity. Currency translation adjustments comprise the majority of Accumulated other comprehensive loss on the Consolidated Balance Sheets and the Consolidated Statements of Changes in Stockholders' Equity. Currency translation adjustments related to international operations in highly inflationary economies are included in the results of operations. REVENUE RECOGNITION: Revenue from the sale of Company products is recognized in Net revenue upon shipment to customers. Provisions for certain rebates, product returns and discounts to customers are provided for as reductions in determining Net revenue in the same period the related sales are recorded. Revenue under co-promotion agreements from the sale of products developed by other companies, such as the Company's arrangement with Immunex to co-promote Enbrel, is recorded as alliance revenue and is included in Net revenue. Such alliance revenue is earned when the co-promoting company ships the product to a third party. Selling and marketing expenses related to alliance revenue are included in Selling, general and administrative expenses. SHIPPING AND HANDLING COSTS, which include transportation to customers, transportation to distribution points, warehousing and handling costs, are included in Selling, general and administrative expenses. The Company typically does not charge customers for shipping and handling costs. Shipping and handling costs were $212,493,000, $204,508,000 and $204,866,000 in 2000, 1999 and 1998, respectively. REBATES AND SALES INCENTIVES are offered to customers based upon volume purchases, the attainment of market share levels, sales support, government mandates, coupons and consumer discounts. Rebates and sales incentives included in Accrued expenses at December 31, 2000 and 1999 were $482,666,000 and $434,490,000, respectively. EARNINGS (LOSS) PER SHARE: The following table sets forth the computations of basic earnings (loss) per share and diluted earnings (loss) per share: (In thousands except per share amounts)
Years Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- Income (loss) from continuing operations less preferred dividends $ (901,086) $(1,207,293) $ 2,152,290 Income (loss) from discontinued operations (1,469,647) (19,878) 321,994 ----------------------------------------- Net income (loss) less preferred dividends $(2,370,733) $(1,227,171) $ 2,474,284 ----------------------------------------- Denominator: Weighted average common shares outstanding 1,306,474 1,308,876 1,314,580 ----------------------------------------- Basic earnings (loss) per share from continuing operations $ (0.69) $ (0.92) $ 1.64 Basic earnings (loss) per share from discontinued operations (1.12) (0.02) 0.24 ----------------------------------------- Basic earnings (loss) per share $ (1.81) $ (0.94) $ 1.88 ========================================= Income (loss) from continuing operations $ (901,040) $(1,207,243) $ 2,152,344 Income (loss) from discontinued operations (1,469,647) (19,878) 321,994 ---------------------------------------- Net income (loss) $(2,370,687) $(1,227,121) $ 2,474,338 ----------------------------------------- Denominator: Weighted average common shares outstanding 1,306,474 1,308,876 1,314,580 Common share equivalents of outstanding stock options and deferred contingent common stock awards* -- -- 22,061 ----------------------------------------- Total shares* 1,306,474 1,308,876 1,336,641 ----------------------------------------- Diluted earnings (loss) per share from continuing operations* $ (0.69) $ (0.92) $ 1.61 Diluted earnings (loss) per share from discontinued operations* (1.12) (0.02) 0.24 ----------------------------------------- Diluted earnings (loss) per share* $ (1.81) $ (0.94) $ 1.85 =========================================
* The total weighted average common shares outstanding for diluted loss per share for 2000 and 1999 did not include common share equivalents, as the effect would have been antidilutive. 37 RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133." SFAS No. 138 was issued to address a limited number of issues causing implementation difficulties for entities that apply SFAS No. 133. SFAS Nos. 133 and 138 require that all derivatives be measured at fair value and be recognized as assets or liabilities on the balance sheet. Changes in the fair value of derivatives should be recognized in either net income (loss) or comprehensive income (loss), depending on the designated purpose of the derivative. The Company will adopt SFAS Nos. 133 and 138 in the 2001 first quarter. Based on the Company's current activities, the Company does not believe that adoption of these pronouncements will have a material impact on the Company's financial position, results of operations or cash flows. In May 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives." EITF No. 00-14 addresses the recognition, measurement and Consolidated Statements of Operations classification for sales incentives offered voluntarily to customers. This guidance is required to be implemented by the Company no later than the 2001 second quarter. The Company currently is in compliance with the recognition and measurement aspects of EITF No. 00-14. The Company does not believe that the Consolidated Statements of Operations classification requirement will have a material impact on net revenue. RECLASSIFICATIONS: Certain reclassifications have been made to the December 31, 1999 and 1998 Consolidated Financial Statements to conform with the December 31, 2000 presentation. 2. ACQUISITIONS, DIVESTITURES AND DISCONTINUED OPERATIONS Discontinued Operations -- Cyanamid Agricultural Products On March 20, 2000, the Company signed a definitive agreement with BASF Aktiengesellschaft (BASF) to sell the Cyanamid Agricultural Products business which manufactures, distributes and sells crop protection and pest control products worldwide. On June 30, 2000, the sale was completed, and BASF paid the Company $3,800,000,000 in cash and assumed certain debt. The Company recorded an after-tax loss on the sale of this business of $1,572,993,000 or $1.20 per share-diluted and reflected this business as a discontinued operation in the 2000 first quarter. The loss on the sale included closing costs from the transaction and operating income of the discontinued business from April 1, 2000 through June 30, 2000 (the disposal date). The loss on the sale was due primarily to a difference in the basis of the net assets sold for financial reporting purposes compared with the Company's basis in such net assets for tax purposes. This difference related, for the most part, to goodwill, which is not recognized for tax purposes. As a result, the transaction generated a taxable gain requiring the recording of a tax provision, in addition to a book loss related to a write-off of net assets in excess of the selling price. The Consolidated Financial Statements and related notes for the periods ended December 31, 1999 and 1998 have been restated, where applicable, to reflect the Cyanamid Agricultural Products business as a discontinued operation. Operating results of discontinued operations were as follows:
(In thousands except per share amounts) Statement of Operations Data ----------------------------------------- Years Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- Net revenue $ 546,790 $ 1,668,980 $ 2,194,117 ----------------------------------------- Income (loss) before federal and foreign taxes 160,635 (18,327) 495,524 Provision for federal and foreign taxes 57,289 1,551 173,530 ----------------------------------------- Income (loss) from operations of discontinued agricultural products business 103,346 (19,878) 321,994 Loss on disposal of agricultural products business (including federal and foreign tax charges of $855,248) (1,572,993) -- -- ----------------------------------------- Income (loss) from discontinued operations $(1,469,647) $ (19,878) $ 321,994 ========================================= Diluted income (loss) per share from discontinued operations $ (1.12) $ (0.02) $ 0.24 =========================================
Sale of Immunex Common Stock In October 2000, the Company increased its ownership in Immunex from approximately 53% to approximately 55% by converting a $450,000,000 convertible subordinated note into 15,544,041 newly issued shares of common stock of Immunex. In November 2000, through a joint public equity offering, Immunex sold 20 million shares of newly issued Immunex common stock, and the Company sold 60.5 million shares of Immunex common stock. Proceeds to the Company were approximately $2,404,875,000, resulting in a gain on the sale of $2,061,204,000 ($1,414,859,000 after-tax or $1.08 per share-diluted). Included in the gain on the sale was a noncash pre-tax gain of $303,192,000 ($200,247,000 after-tax), representing the Company's increase in its proportionate share of the net book value of Immunex from Immunex's issuance of 20 million shares of its common stock at a price above the net book value per share owned by the Company. The Company used the net proceeds from the sale of its Immunex common stock to reduce outstanding commercial paper and for other general corporate purposes. The public equity offering reduced the Company's ownership in Immunex from approximately 55% to approximately 41%, which represented the ownership at December 31, 2000. As a result of the reduction in ownership below 50%, the Company included the financial results of Immunex on an equity basis retroactive to January 1, 2000. Quarterly results of operations in 2000, reflected in "Quarterly Financial Data" herein, were restated to reflect the accounting for Immunex on an equity basis; however, there was no impact on income from continuing operations. Key elements of related agreements between the Company and Immunex included the future sale by the Company of its recently acquired biotechnology facility in Rhode Island to Immunex and the Company's agreement, if requested, to supply up to $550,000,000 in financing guarantees relating to Immunex's financing of its proposed new research and technology center in Seattle, Washington. All existing licensing and marketing rights to Enbrel remain unchanged. 38 Other Acquisitions and Divestitures In July 1998, the Company purchased the vitamin and nutritional supplement products business of Solgar Vitamin and Herb Company Inc. and its related affiliates (Solgar) for $425,041,000 in cash. The purchase price exceeded the net assets acquired by $397,568,000. The excess purchase price has been recorded in Goodwill and other intangibles and is being amortized over periods of four to 25 years. In December 2000, based on projected profitability and future cash flows, the carrying value of Solgar goodwill was determined to be impaired (see Note 3). As a result, a pre-tax charge of $170,000,000 was recorded to write down the carrying value of Solgar goodwill to its fair value of $189,644,000 at December 31, 2000. In February 1998, the Company sold the Sherwood-Davis & Geck medical devices business for approximately $1,770,000,000, resulting in a pre-tax gain of $592,084,000. The proceeds from the sale were used primarily to reduce outstanding commercial paper. Income and diluted earnings per share from continuing operations for 1998 included an after-tax gain on the sale of $330,782,000 and $0.25, respectively. The Company had other acquisitions and divestitures during 2000, 1999 and 1998, the effects of which, individually and in the aggregate, were not material to the Company's financial position, results of operations or cash flows. The operations of all businesses acquired and divested during 2000, 1999 and 1998, individually and in the aggregate, except for the sale of the Cyanamid Agricultural Products business, were not material to the Company's financial position, results of operations or cash flows in any of these years. 3. TERMINATION FEE, GOODWILL IMPAIRMENT AND SPECIAL CHARGES Termination Fee On November 3, 1999, the Company and Warner-Lambert Company entered into an agreement to combine the two companies in a merger-of-equals transaction. On February 6, 2000, the merger agreement was terminated. The Company recorded income of $1,709,380,000 ($1,111,097,000 after-tax or $0.85 per share-diluted) resulting from the receipt of a $1,800,000,000 termination fee provided for under the merger agreement offset, in part, by certain related expenses. Goodwill Impairment Based on projected profitability and future cash flows associated with generic pharmaceuticals and the Solgar consumer health care product line, it was determined that goodwill related to these product lines, at December 31, 2000, was impaired. As a result, the Company recorded a charge of $401,000,000 ($341,000,000 after-tax or $0.26 per share-diluted) in 2000 to write down the carrying value of goodwill, to fair value, based upon discounted future cash flows. SPECIAL CHARGES: Voluntary Market Withdrawals In November 2000, the U.S. Food and Drug Administration (FDA) requested that the pharmaceutical industry voluntarily stop producing and distributing any products containing phenylpropanolamine (PPA). The Company immediately ceased global production and shipments of any products containing PPA and voluntarily withdrew any such products from customer warehouses and retail store shelves. As a result, the Company recorded a special charge of $80,000,000 ($52,000,000 after-tax or $0.04 per share-diluted) to provide primarily for product returns and the write-off of inventory. The Company already had reformulated a majority of the products involved in the voluntary market withdrawal and began shipping these products in the United States at the end of November 2000. At December 31, 2000, approximately $49,552,000 of the accrual remained. During the 1999 second quarter, the Company recorded a special charge aggregating $82,000,000 ($53,000,000 after-tax or $0.04 per share-diluted) for estimated costs associated with the suspension of shipments and the voluntary market withdrawal of RotaShield, the Company's rotavirus vaccine. At December 31, 2000, approximately $4,200,000 of the accrual remained. Product Discontinuations During the 2000 fourth quarter, the Company recorded a special charge of $267,000,000 ($173,000,000 after-tax or $0.13 per share-diluted) related to the discontinuation of certain products manufactured at the Company's Marietta, Pennsylvania, and Pearl River, New York, facilities. Approximately $227,100,000 related to fixed asset impairments and inventory write-offs, with the remainder of the charge covering severance obligations, idle plant costs and contract termination costs. At December 31, 2000, approximately $39,900,000 of the accrual remained. Restructuring Charge and Related Asset Impairments In December 1998, the Company recorded a special charge for restructuring and related asset impairments of $321,200,000 ($224,800,000 after-tax or $0.17 per share-diluted) to recognize the costs of the reorganization of the pharmaceutical and nutritional supply chains (primarily in the Asian-Pacific and Latin American regions), the reorganization of the U.S. pharmaceutical and consumer health care distribution systems, and a reduction in personnel from the globalization of certain business units. The reorganization of the pharmaceutical and nutritional supply chains will result in the closure of 14 plants (nine pharmaceutical and five nutritional). The reorganization of the U.S. pharmaceutical and consumer health care distribution systems resulted in the closure of three distribution centers. The restructuring ultimately will result in the elimination of 3,600 positions offset, in part, by 1,000 newly created positions in the same functions at other locations. The components of this charge were as follows: (i) personnel costs of $119,975,000, (ii) noncash costs for fixed asset write-offs of $115,225,000 and (iii) other closure/exit costs of $86,000,000. The noncash costs of $115,225,000 reduced the carrying value of the fixed assets to their estimated fair value, taking into consideration depreciation expected during the transition period, which was determined by experience with similar properties and external appraisals. These fixed assets, with a fair value of $11,575,000, have remained operational during the transition period of obtaining the necessary regulatory approvals to relocate these operations to new and existing facilities. Since these fixed assets have remained in use, depreciation was not suspended and will be recognized over the transition period. Other closure/exit costs are a direct 39 result of the restructuring plan. The majority of the other closure/exit costs are anticipated to be paid after the facilities cease production and prior to disposition. These costs include non-cancelable operating leases, security, utilities, maintenance, property taxes and other related costs that will be paid during the disposal period. Due to the specialized nature of these facilities, the majority of the costs will be paid over a two- to three-year period as product transfers are approved by regulatory authorities and manufacturing sites are closed. However, delays in obtaining certain regulatory approvals and other closure delays will cause certain costs to be paid after that period. At December 31, 2000, approximately 3,300 positions had been eliminated, and two distribution centers owned by the Company and a leased distribution center had been closed. The manufacturing plants, eight of which were closed in 2000, are continuing their phase-out period. The Company currently anticipates closing three plants in 2001 and the remaining facilities in 2002, assuming no further delays in regulatory approvals. Activity in the restructuring accruals from continuing operations was as follows:
Personnel Fixed Asset Other Closure/ (In thousands) Costs Write-offs Exit Costs Total - ----------------------------------------------------------------------------------------------------- Restructuring accruals at inception $ 119,975 $ 115,225 $ 86,000 $ 321,200 Cash expenditures (527) -- (922) (1,449) Write-offs of fixed assets -- (115,225) -- (115,225) ------------------------------------------------------- Restructuring accruals at December 31, 1998 119,448 -- 85,078 204,526 Cash expenditures (64,695) -- (5,817) (70,512) ------------------------------------------------------- Restructuring accruals at December 31, 1999 54,753 -- 79,261 134,014 Cash expenditures (48,504) -- (19,626) (68,130) ------------------------------------------------------- Restructuring accruals at December 31, 2000 $ 6,249 $ -- $ 59,635 $ 65,884 =======================================================
4. DEBT AND FINANCING ARRANGEMENTS The Company's debt from continuing operations at December 31 consisted of:
(In thousands) 2000 1999 - -------------------------------------------------------------------------------- Commercial paper $ 798,029 $2,841,630 Notes payable: 7.70% notes due 2000 -- 1,000,000 6.50% notes due 2002 250,000 250,000 7.90% notes due 2005 1,000,000 1,000,000 7.25% debentures due 2023 250,000 250,000 Pollution control and industrial revenue bonds: 5.1% - 5.8% due 2006 - 2020 85,150 96,850 Other debt: 2.1% - 24.0% due 2001 - 2009 70,328 48,759 ------------------------- 2,453,507 5,487,239 Less current portion 58,717 1,880,816 ------------------------- $2,394,790 $3,606,423 =========================
The fair value of the Company's outstanding debt was $2,506,594,000 and $5,490,427,000 at December 31, 2000 and 1999, respectively. The fair value of the Company's outstanding debt was estimated based on market prices. The weighted average interest rate on the commercial paper outstanding at December 31, 2000 and 1999 was 6.45% and 5.72%, respectively. The commercial paper had original maturities that did not exceed 270 days and a weighted average remaining maturity of 35 days and 42 days at December 31, 2000 and 1999, respectively. In 1998, the Company reduced its $5,000,000,000 revolving credit facility to $2,000,000,000 by terminating a $2,500,000,000, 364-day credit facility in its entirety and by reducing a $2,500,000,000, five-year credit facility to $2,000,000,000. The remaining $2,000,000,000, five-year credit facility supports a significant portion of the Company's commercial paper program and has a maturity date of July 31, 2002. In March 2001, subsequent to the date of the "Report of Independent Public Accountants," the Company obtained new revolving credit facilities totaling $6,000,000,000 to support future expected borrowings under its commercial paper program. The new credit facilities are composed of a $3,000,000,000, 364-day facility with the option to extend the term of borrowings, if any, under the facility for an additional year and a $3,000,000,000, 364-day bridge facility to capital markets, which will be terminated upon the issuance of term debt by the Company during 2001. The interest rate on borrowings under the three credit facilities, which total $8,000,000,000, is based on various rate options available to the Company. The proceeds of the credit facilities may be used to support commercial paper and the Company's general corporate and working capital requirements, including payments related to the Redux and Pondimin litigation. The credit facilities each contain the same financial covenant and various other customary covenants, representations, warranties, conditions and default provisions. At December 31, 2000 and 1999, there were no borrowings outstanding under the $2,000,000,000 credit facility. The entire balance of 40 commercial paper outstanding at December 31, 2000 and the portion of commercial paper outstanding at December 31, 1999 supported by the $2,000,000,000 credit facility were classified as Long-term debt since the Company intends, and has the ability, to refinance these obligations through the issuance of additional commercial paper, through the use of its $2,000,000,000 credit facility or through the issuance of long-term debt. Outstanding commercial paper of $841,630,000 at December 31, 1999 was classified as current, representing the amount of the outstanding commercial paper borrowings in excess of the Company's $2,000,000,000 credit facility that supports the commercial paper program. The Company has outstanding $1,000,000,000 of 7.90% notes due February 2005. These non-callable notes, which have semiannual interest payments due on February 15 and August 15, are unsecured and unsubordinated. The Company also has outstanding $250,000,000 of 6.50% notes due October 2002 and $250,000,000 of 7.25% debentures due March 2023. The 6.50% non-callable notes have semiannual interest payments due on April 15 and October 15. The 7.25% non-callable debentures have semiannual interest payments due on March 1 and September 1. The non-callable notes and debentures are unsecured and unsubordinated. The Company's $1,000,000,000 of 7.70% notes, which were classified as current at December 31, 1999, were due and repaid in February 2000. The aggregate maturities of debt during the next five years and thereafter at December 31, 2000 are as follows:
(In thousands) - -------------------------------------------------------------------------------- 2001 $ 58,717 2002 252,347 2003 7,697 2004 5,788 2005 1,001,394 Thereafter 329,535 ---------- 1,655,478 Commercial paper (classified as Long-term debt) 798,029 ---------- Total debt $2,453,507 ==========
Interest payments in connection with the Company's debt obligations for the years ended December 31, 2000, 1999 and 1998 amounted to $342,970,000, $294,790,000 and $316,018,000, respectively. Interest expense, net included interest income of $181,278,000, $129,406,000 and $115,813,000 in 2000, 1999 and 1998, respectively. Interest capitalized in connection with capital projects was $43,303,000, $15,375,000 and $9,497,000 in 2000, 1999 and 1998, respectively. The Company enters into short-term foreign exchange forward contracts as part of its management of foreign currency exposures (see Note 1). At December 31, 2000 and 1999, the Company had notional amounts of $558,768,000 and $681,102,000, respectively, of foreign exchange forward contracts outstanding. The fair value of the foreign exchange forward contracts was a net receivable of $3,355,000 at December 31, 2000 and a net payable of $12,979,000 at December 31, 1999. The Company believes that the risk of loss associated with the foreign currency agreements from non-performance by the counterparties is not material to its financial position, results of operations or cash flows. 5. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities include reserves for the Redux and Pondimin litigation (see Note 10), reserves relating to income taxes, environmental matters, product liability and other litigation, as well as restructuring, pension and other employee benefit liabilities, and minority interests. The Company has responsibility for environmental, safety and cleanup obligations under various local, state and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. At December 31, 2000, the Company was a party to, or otherwise involved in, legal proceedings directed at the cleanup of 59 Superfund sites. It is the Company's policy to accrue for environmental cleanup costs if it is probable that a liability has been incurred and an amount is reasonably estimable. In many cases, future environmental-related expenditures cannot be quantified with a reasonable degree of accuracy. Environmental expenditures that relate to an existing condition caused by past operations that do not contribute to current or future results of operations are expensed. As investigations and cleanups proceed, environmental-related liabilities are reviewed and adjusted as additional information becomes available. The aggregate environmental-related accruals were $378,570,000 and $359,190,000 at December 31, 2000 and 1999, respectively. Environmental-related accruals have been recorded without giving effect to any possible future insurance proceeds or the timing of payments. See Note 10 for a discussion of contingencies. In 2000, the Company introduced a new incentive program to employees, the Performance Incentive Award Program (PIA), based on the Company's operating results and the individual employees' performance. Substantially all U.S. and Puerto Rico exempt employees, who are not subject to other incentive programs, and key international employees are eligible to receive cash awards under PIA. The value of PIA awards for 2000 was $94,658,000. In 1999, cash bonuses totaling $38,773,000 were paid to key employees. In 1998, the Company provided incentive awards under the Management Incentive Plan (MIP), which provides for cash and deferred contingent common stock awards to key employees. The value of MIP awards for 1998 was $56,892,000, which included deferred contingent common stock of $14,261,000 (261,256 shares). Deferred contingent common stock awards plus accrued dividends totaling 1,104,340 shares were outstanding at December 31, 2000. 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS PENSIONS: The Company sponsors various retirement plans for most full-time employees. These defined benefit and defined contribution plans cover most U.S. and certain international locations. Total pension expense from continuing operations for both defined benefit and defined contribution plans for 2000, 1999 and 1998 was $107,654,000, $95,464,000 and $93,435,000, respectively. Pension plan benefits for defined benefit plans are based primarily on participants' compensation and years of credited service. It has been the Company's policy to fund the minimum amount required by local regulations of current and prior year service costs under its funded defined benefit retirement plans. Contributions to defined contribution plans are based on a percentage of employees' compensation. Pension expense from continuing operations recognized for defined 41 contribution plans for 2000, 1999 and 1998 totaled $62,902,000, $61,587,000 and $58,715,000, respectively. OTHER POSTRETIREMENT BENEFITS: The Company provides postretirement health care and life insurance benefits for retired employees of most domestic locations and Canada. Most full-time employees become eligible for these benefits after attaining specified age and service requirements. Although the Company sold the Cyanamid Agricultural Products business (see Note 2), which was accounted for as a discontinued operation, the pensions and other postretirement benefits were excluded from the sale for U.S. plans since employees of the Cyanamid Agricultural Products business accrued benefits in plans that encompassed other business segments. Except for one pension plan in Germany, all international plans will continue to be maintained by the Company to pay benefits that were accrued prior to the sale. Accordingly, benefit obligations, fair value of plan assets and accrued benefit liabilities were not restated, except to reflect the sale of the pension plan in Germany. However, components of net periodic benefit cost from continuing operations were restated to reflect the Cyanamid Agricultural Products business as a discontinued operation. The change in benefit obligation, change in plan assets and reconciliation of funded status of the Company's defined benefit plans (principally U.S. plans) for 2000 and 1999 were as follows:
PENSIONS OTHER POSTRETIREMENT BENEFITS ---------------------------- ----------------------------- CHANGE IN BENEFIT OBLIGATION (In thousands) 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Benefit obligation at January 1 $ 3,005,665 $ 3,156,754 $ 1,076,298 $ 1,025,286 Consolidation of Japan benefit plan 186,327 -- -- -- Service cost 74,656 69,056 20,460 23,001 Interest cost 225,248 211,971 77,666 74,871 Service and interest cost from discontinued operations 3,074 9,839 2,189 3,986 Amendments 11,235 28,518 16,952 -- Net actuarial loss/(gain) 71,158 (107,782) (72,589) 13,089 Curtailments/settlements (39,826) (2,315) (24,289) -- Benefits paid (296,613) (350,573) (75,900) (64,486) Currency translation adjustment (30,349) (9,803) (457) 551 -------------------------------------------------------------- Benefit obligation at December 31 $ 3,210,575 $ 3,005,665 $ 1,020,330 $ 1,076,298 ==============================================================
PENSIONS OTHER POSTRETIREMENT BENEFITS ---------------------------- ----------------------------- CHANGE IN PLAN ASSETS (In thousands) 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at January 1 $ 3,001,154 $ 2,891,610 -- -- Consolidation of Japan benefit plan 76,089 -- -- -- Actual return on plan assets 34,607 439,515 -- -- Amendments -- 6,843 -- -- Company contributions 17,554 14,259 $ 75,900 $ 64,486 Benefits paid (296,613) (350,573) (75,900) (64,486) Currency translation adjustment (16,775) (500) -- -- -------------------------------------------------------------- Fair value of plan assets at December 31 $ 2,816,016 $ 3,001,154 $ -- $ -- ==============================================================
PENSIONS OTHER POSTRETIREMENT BENEFITS ---------------------------- ----------------------------- RECONCILIATION OF FUNDED STATUS (In thousands) 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Benefit obligation in excess of plan assets $ 394,559 $ 4,511 $ 1,020,330 $ 1,076,298 Unrecognized net actuarial gain/(loss) (44,225) 289,953 (15,603) (112,160) Unrecognized prior service cost (60,502) (74,198) (18,698) (2,248) Unrecognized net transition obligation (8,266) (4,811) -- -- -------------------------------------------------------------- Accrued benefit liability $ 281,566 $ 215,455 $ 986,029 $ 961,890 ==============================================================
The fluctuation in unrecognized net actuarial loss for pensions in 2000 compared with the unrecognized net actuarial gain for pensions in 1999 was due primarily to the actual return on plan assets being less than the expected return on plan assets in 2000, pertaining mostly to the U.S. plans. Accrued benefit liability increased in 2000 compared with 1999 due primarily to consolidating the benefit plan of a subsidiary in Japan. The decrease in unrecognized net actuarial loss for other postretirement benefits resulted from a change in the plans' expected per capita cost for benefits provided to employees. 42 There were no plan assets for the Company's other postretirement benefit plans at December 31, 2000 and 1999 as postretirement benefits are funded by the Company when claims are paid. The current portion of the accrued benefit liability for other postretirement benefits was $75,000,000 and $65,000,000 at December 31, 2000 and 1999, respectively. At December 31, 2000 and 1999, the Company had six unfunded pension plans with aggregate projected benefit obligations of $234,888,000 and $219,706,000, respectively, and accumulated benefit obligations of $186,328,000 and $176,504,000, respectively. Assumptions used in developing the benefit obligations at December 31 were as follows:
PENSIONS OTHER POSTRETIREMENT BENEFITS ------------------------------- ------------------------------------- WEIGHTED AVERAGE ASSUMPTIONS AT DECEMBER 31, 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Discount rate 7.5% 7.75% 7.0% 7.5% 7.75% 7.0% Rate of compensation increase 4.0% 4.5% 4.0% -- -- -- Expected return on plan assets 9.5% 9.5% 9.5% -- -- -- Increase in per capita cost of health care benefits that gradually decreases and is held constant thereafter beginning in 2004 -- -- -- 7.0%-5.0% 7.5%-5.0% 8.0%-5.0%
The assumed health care cost trend rates have a significant effect on the amounts reported. A one percentage point increase in the assumed health care cost trend rates would increase the postretirement benefit obligation by $105,327,000 and the total service and interest cost components from continuing operations by $12,923,000. A one percentage point decrease in the assumed health care cost trend rates would decrease the postretirement benefit obligation by $98,815,000 and the total service and interest cost components from continuing operations by $10,235,000. Net periodic benefit cost from continuing operations for 2000, 1999 and 1998 of the Company's defined benefit plans (principally U.S. plans) was as follows:
PENSIONS OTHER POSTRETIREMENT BENEFITS COMPONENTS OF NET PERIODIC BENEFIT COST FROM ---------------------------------------- -------------------------------------- CONTINUING OPERATIONS (In thousands) 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Service cost $ 74,656 $ 69,056 $ 64,590 $ 20,460 $ 23,001 $ 17,489 Interest cost 225,248 211,971 213,428 77,666 74,871 64,965 Expected return on plan assets (270,131) (260,323) (253,034) -- -- -- Amortization of prior service cost 10,704 10,734 11,328 330 339 339 Amortization of transition obligation 2,184 1,114 1,143 -- -- -- Recognized net actuarial loss/(gain) 2,091 2,827 3,005 134 6,852 (103) Curtailment gain -- (1,502) (5,740) -- -- -- ----------------------------------------------------------------------------------- Net periodic benefit cost from continuing operations $ 44,752 $ 33,877 $ 34,720 $ 98,590 $ 105,063 $ 82,690 ===================================================================================
Net periodic pension benefit cost from continuing operations was higher in 2000 compared with 1999 due primarily to consolidating a subsidiary in Japan effective January 1, 2000 (see Note 1). Net periodic other postretirement benefit cost from continuing operations was higher in 1999 compared with 1998 due primarily to a change in early retirement assumptions. As a result of the sale of the Cyanamid Agricultural Products business, the Company realized a curtailment gain related to the pension plans of $25,517,000. This curtailment gain was recorded in Loss on disposal of agricultural products business. 7. CAPITAL STOCK There were 2,400,000,000 shares of common stock and 5,000,000 shares of preferred stock authorized at December 31, 2000 and 1999. Of the authorized preferred shares, there is a series of shares (21,948 and 24,241 outstanding at December 31, 2000 and 1999, respectively) which is designated as $2.00 convertible preferred stock. Each share of the $2.00 series is convertible at the option of the holder into 36 shares of common stock. This series may be called for redemption at $60.00 per share plus accrued dividends. On October 7, 1999, the Company's Board of Directors declared a dividend of one preferred share purchase right for each share of common stock outstanding on October 18, 1999. The rights also will apply to all future stock issuances. Each right permits the holder, under certain circumstances and upon the occurrence of certain events, to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock of the Company (the Series A Preferred Stock) at an exercise price of $225 per one one-thousandth of a share of Series A Preferred Stock under a Rights Plan relating to such Series A Preferred Stock. The 5,000,000 shares of preferred stock authorized will be used for the exercise of any preferred share purchase rights. The Rights Plan has provisions that are triggered if any person or group acquires beneficial ownership of 15% or more of the outstanding common stock or acquires the 43 Company in a merger or other business combination (an Acquiring Person). In such event, stockholders (other than the Acquiring Person) would receive stock of the Company or the Acquiring Person, as the case may be, having a market value of twice the exercise price along with substantially increased voting and dividend rights, among other things. The rights expire on October 7, 2009, and prior to there being an Acquiring Person, the Company may redeem the rights issued under the Rights Plan for $0.01 per right. The Board can, except with respect to the redemption price, amend the Rights Plan in any manner without the consent of the holders of the rights, provided that such amendment does not adversely affect the rights of the holder at any time after there is an Acquiring Person. Changes in outstanding common shares during 2000, 1999 and 1998 were as follows:
(In thousands except shares of preferred stock) 2000 1999 1998 - -------------------------------------------------------------------------------- Balance at January 1 1,303,916 1,312,399 1,300,755 Issued for stock options 15,123 10,589 19,811 Purchases of common stock for treasury (7,414) (19,226) (8,284) Conversions of preferred stock (2,293, 1,239 and 3,365 shares in 2000, 1999 and 1998, respectively) and other exchanges 149 154 117 ----------------------------------------- Balance at December 31 1,311,774 1,303,916 1,312,399 =========================================
The Company has a common stock repurchase program under which the Company is authorized to repurchase common shares. At December 31, 2000, the Company was authorized to repurchase 6,492,460 common shares in the future. 8. STOCK OPTIONS The Company has two Stock Option Plans and four Stock Incentive Plans. No further grants may be made under the two Stock Option Plans. Under the four Stock Incentive Plans, options to purchase a maximum of 229,000,000 shares may be granted at prices not less than 100% of the fair market value of the Company's common stock on the date the option is granted. At December 31, 2000, 46,242,457 shares were available for future grants under the Stock Incentive Plans. The plans provide for the granting of incentive stock options as defined under the Internal Revenue Code. Under the plans, grants may be made to selected officers and employees of non-qualified stock options with a 10-year term or incentive stock options with a term not exceeding 10 years. The plans also provide for the granting of stock appreciation rights (SAR), which entitle the holder to receive shares of the Company's common stock or cash equal to the excess of the market price of the common stock over the exercise price when exercised. At December 31, 2000, there were no outstanding SARs. Each Stock Incentive Plan allows for, among other things, the issuance of up to 8,000,000 shares (32,000,000 shares in the aggregate for all Stock Incentive Plans) as restricted stock awards. Restricted stock awards representing 148,900, 148,850 and 68,400 units were granted in 2000, 1999 and 1998, respectively, under the plans to certain key executives. These units generally are converted to shares of restricted stock based on the achievement of certain performance criteria related to performance years 1998 through 2004. Under the 1999 Stock Option Plan for Non-Employee Directors, a maximum of 250,000 shares may be granted to non-employee directors at 100% of the fair market value of the Company's common stock on the date of the grant. During each of 2000 and 1999, 21,000 stock options were granted to non-employee directors, and 208,000 shares were available for future grants at December 31, 2000. Under the 1994 Restricted Stock Plan for Non-Employee Directors, a maximum of 100,000 restricted shares may be granted to non-employee directors. The restricted shares granted to each non-employee director are not delivered prior to the end of a five-year restricted period. At December 31, 2000, 66,400 shares were available for future grants. Stock option information related to the plans was as follows:
WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE STOCK OPTIONS 2000 PRICE 1999 PRICE 1998 PRICE - ------------------------------------------------------------------------------------------------------------------------------ Outstanding at January 1 85,244,130 $ 39.13 75,790,629 $ 30.53 83,306,276 $ 24.86 Granted 16,496,678 56.51 21,945,755 62.00 15,167,210 50.13 Canceled (3,866,134) 58.32 (1,903,601) 51.83 (2,872,314) 37.03 Exercised (2000 -- $11.80 to $62.31 per share) (15,123,361) 27.90 (10,588,653) 22.76 (19,810,543) 20.79 ----------- ----------- ----------- Outstanding at December 31 (2000 -- $14.52 to $65.19 per share) 82,751,313 43.74 85,244,130 39.13 75,790,629 30.53 =========== =========== =========== Exercisable at December 31 51,830,094 35.31 52,789,450 28.27 54,471,524 24.51 =========== =========== ===========
44 The following table summarizes information regarding stock options outstanding at December 31, 2000:
Options Outstanding Options Exercisable - ---------------------------------------------------------------------- ------------------------------- Weighted Average Weighted Average Weighted Average Range of Number Remaining Exercise Number Exercise Exercise Prices Outstanding Contractual Life Price Exercisable Price - --------------------------------------------------------------------------------------------------------- $14.52 to 19.99 16,211,773 3.3 years $17.80 16,211,773 $17.80 20.00 to 29.99 5,305,927 4.9 years 26.38 5,305,927 26.38 30.00 to 39.99 14,541,345 5.7 years 36.18 14,541,345 36.18 40.00 to 49.99 764,125 8.0 years 46.00 362,785 46.20 50.00 to 59.99 27,800,657 8.5 years 53.96 8,671,779 50.59 60.00 to 65.19 18,127,486 8.4 years 62.32 6,736,485 62.33 ---------- ---------- 82,751,313 6.7 years 43.74 51,830,094 35.31 ========== ==========
The Company accounts for stock-based compensation using the intrinsic value method. Accordingly, no compensation expense has been recognized for stock options. If compensation expense for the Company's stock options issued in 2000, 1999 and 1998 had been determined based on the fair value method of accounting, the Company's net income (loss) and earnings (loss) per share would have been adjusted to the pro forma amounts indicated below:
(In thousands except per share amounts) 2000 1999 1998 - -------------------------------------------------------------------------------- Net income (loss) less preferred dividends: As-reported $(2,370,733) $(1,227,171) $2,474,284 Pro forma (2,520,657) (1,312,238) 2,412,431 Basic earnings (loss) per share: As-reported $ (1.81) $ (0.94) $ 1.88 Pro forma (1.93) (1.00) 1.84 Net income (loss): As-reported $(2,370,687) $(1,227,121) $2,474,338 Pro forma (2,520,611) (1,312,188) 2,412,485 Diluted earnings (loss) per share*: As-reported $ (1.81) $ (0.94) $ 1.85 Pro forma (1.93) (1.00) 1.80
* The total weighted average common shares outstanding for diluted loss per share for 2000 and 1999 did not include common share equivalents, as the effect would have been antidilutive. The fair value of issued stock options is estimated on the date of grant using a variant of the Black-Scholes option pricing model incorporating the following assumptions for stock options granted in 2000, 1999 and 1998, respectively: expected volatility (the amount by which the stock price is expected to fluctuate) of 31.2%, 25.0% and 24.2%; expected dividend yield of 1.6%, 2.2% and 2.8%; risk-free interest rate of 6.3%, 5.6% and 5.6%; and expected life of five, four and four years. The weighted average fair value of stock options granted during 2000, 1999 and 1998 was $18.76, $14.36 and $10.03 per option share, respectively. 9. INCOME TAXES The provision (benefit) for income taxes from continuing operations consisted of:
(In thousands) YEARS ENDED DECEMBER 31, 2000 1999 1998 - -------------------------------------------------------------------------------- Current: Federal $ 321,484 $ 290,020 $ 422,309 Foreign 292,798 419,992 463,331 ---------------------------------------------- 614,282 710,012 885,640 Deferred: Federal (836,883) (1,399,709) 82,275 Foreign 22,601 (10,359) (30,323) ---------------------------------------------- (814,282) (1,410,068) 51,952 ---------------------------------------------- $ (200,000) $ (700,056) $ 937,592 ==============================================
Net deferred tax assets from continuing operations, inclusive of valuation allowances for certain deferred tax assets from continuing operations, were reflected on the Consolidated Balance Sheets at December 31 as follows:
(In thousands) 2000 1999 - -------------------------------------------------------------------------------- Net current deferred tax assets $2,595,662 $1,013,410 Net noncurrent deferred tax assets 795,441 1,461,582 ---------- ---------- Net deferred tax assets $3,391,103 $2,474,992 ========== ==========
Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred tax assets result principally from the recording of certain accruals and reserves, which currently are not deductible for tax purposes. Deferred tax liabilities result principally from the use of accelerated depreciation for tax purposes and timing differences of equity investments. 45 The components of the Company's deferred tax assets and liabilities from continuing operations at December 31 were as follows:
(In thousands) 2000 1999 - -------------------------------------------------------------------------------- Deferred tax assets: Diet drug litigation accruals $ 2,157,951 $ 1,421,346 Product litigation and environmental liabilities and other operating accruals 708,247 598,431 Postretirement, pension and other employee benefits 592,709 509,438 Net operating loss and other tax credit carryforwards 4,134 105,639 Goodwill impairment 60,000 -- Restructuring and reorganization accruals 214,758 177,464 Inventory reserves 94,393 86,752 Investments and advances 38,894 39,045 Other 81,970 68,124 ----------------------------- Total deferred tax assets 3,953,056 3,006,239 ----------------------------- Deferred tax liabilities: Depreciation (277,512) (260,261) Pension and other employee benefits (54,751) (49,050) Equity investments (102,945) -- Other (75,592) (70,527) ----------------------------- Total deferred tax liabilities (510,800) (379,838) ----------------------------- Deferred tax asset valuation allowances (51,153) (151,409) ----------------------------- Net deferred tax assets from continuing operations $ 3,391,103 $ 2,474,992 =============================
Valuation allowances have been established for certain deferred tax assets related to net operating loss carryforwards and portions of other deferred tax assets as the Company determined that it was more likely than not that these benefits will not be realized. During 2000 and 1999, the valuation allowance decreased by $100,256,000 and $97,642,000, respectively. The decrease of the valuation allowance in 2000 related to a reduction in net operating loss carryforwards as a result of the deconsolidation of Immunex (see Note 2). The 1999 valuation allowance decrease was due primarily to the utilization of net operating loss carryforwards. The Company has provided for federal income taxes on unremitted earnings from its subsidiaries overseas that are expected to be remitted back to the United States. Federal income taxes for unremitted earnings which are permanently reinvested overseas were not material. Reconciliations between the Company's effective tax rate and the U.S. statutory rate from continuing operations, excluding the effect of the termination fee in 2000 (see Note 3), gain on the sale of Immunex common stock in 2000 (see Note 2) and the diet drug litigation charges in 2000 and 1999 (see Note 10), were as follows:
TAX RATE YEARS ENDED DECEMBER 31, 2000 1999 1998 - -------------------------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% Effect of Puerto Rico and Ireland manufacturing operations (11.0) (9.3) (5.7) Research credits (2.2) (1.5) (1.1) Goodwill amortization 1.9 1.8 1.7 Goodwill impairment 3.0 -- -- Gain on sale of business -- -- 3.1 Other, net (0.8) 0.8 (2.7) -------------------------------------- Effective tax rate 25.9% 26.8% 30.3% ======================================
Including the effect of the termination fee and the gain on the sale of Immunex common stock in 2000, which had tax provisions of 35.0% and 31.4%, respectively, and the 28.3% tax benefit associated with the 2000 litigation charge, the overall effective tax rate from continuing operations in 2000 was an 18.2% tax benefit. Including the effect of the 1999 litigation charge, which had a 30.8% tax benefit, the overall effective tax rate from continuing operations in 1999 was a 36.7% tax benefit. The difference in the tax benefit related to the 2000 and 1999 litigation charges versus the statutory rate of 35.0% was caused by provisions of $500,000,000 and $200,000,000 in 2000 and 1999, respectively, for additional federal income taxes, net of tax credits, that will be paid as the Company plans to remit certain overseas earnings, taxed at a lower rate than in the United States, to the United States for diet drug litigation settlement payments. Total income tax payments, net of tax refunds, for continuing and discontinued operations in 2000, 1999 and 1998 amounted to $1,038,265,000, $717,174,000 and $897,361,000, respectively. 10. CONTINGENCIES AND LITIGATION CHARGES The Company is involved in various legal proceedings, including product liability and environmental matters of a nature considered normal to its business (see Note 5 for a discussion of environmental matters). It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable. The Company has been named as a defendant in numerous legal actions relating to the diet drugs Redux or Pondimin, which the Company estimated were used in the United States, prior to their 1997 voluntary market withdrawal, by approximately 5.8 million people. These actions allege, among other things, that the use of Redux and/or Pondimin, independently or in combination with the prescription drug phentermine (which the Company did not manufacture, distribute or market), caused certain serious conditions, including valvular heart disease. On October 7, 1999, the Company announced a nationwide, class action settlement (or the settlement) to resolve litigation brought against the Company regarding the use of the diet drugs Redux or Pondimin. The settlement covers all claims arising out of the use of 46 Redux or Pondimin, except for claims of primary pulmonary hypertension (PPH), and is open to all Redux or Pondimin users in the United States, regardless of whether they have lawsuits pending. The settlement agreement is subject to judicial approval. Preliminary approval was granted on November 23, 1999. The settlement agreement states that it shall not be construed to be an admission or evidence of any liability or wrongdoing whatsoever by the Company or the truth of any of the claims alleged. Of the estimated 5.8 million diet drug users, approximately 260,000 individuals have registered for the settlement to date. A majority of those who registered have elected the settlement's Accelerated Implementation Option, which provides for prompt benefits and resolves the claims of those class members. An amendment to the settlement agreement, dated July 20, 2000, related to the timing of payments by the Company into the proposed settlement funds, administration of the settlement trust and opt out credits available to the Company. On August 28, 2000, Senior District Judge Louis C. Bechtle of the United States District Court for the Eastern District of Pennsylvania approved the settlement, which approval has been appealed to the United States Court of Appeals for the Third Circuit. A decision on that appeal is not expected until later in 2001. Payments by the Company related to the settlement are made into settlement Funds A and B (the settlement funds). Fund A is intended to cover refunds, medical screening costs, additional medical services and cash payments, education and research costs, and administration costs. Fund B will compensate claimants with significant heart valve disease. Payments to provide settlement benefits, if needed, may continue for approximately 16 years after final judicial approval. Payments to the settlement funds in 2000 and 1999 were $383,000,000 and $75,000,000, respectively. The settlement provides opportunities during three different time periods for claimants to opt out of the settlement. Under certain circumstances, the Company will receive credits for future settlement payments to claimants who opt out of the settlement. Approximately 50,000 diet drug users exercised the initial opt out right afforded by the nationwide, class action settlement and, therefore, are not part of the settlement. As of January 2001, the Company had agreed to settle the claims of approximately 80%, or 40,000 of these individuals. The claims of approximately 10,000 opt outs remain unresolved. In the 2000 fourth quarter, the Company recorded a $7,500,000,000 ($5,375,000,000 after-tax or $4.11 per share-diluted) litigation charge for the estimated final amount required to resolve all diet drug litigation, including all anticipated payments in connection with the nationwide, class action settlement, payments to the approximately 40,000 opt out claimants with whom the Company has agreed to settle, and all anticipated payments to resolve the claims of the remaining approximately 10,000 opt outs and any PPH claimants, as well as all legal fees and other costs. The Company recorded the initial litigation charge of $4,750,000,000 ($3,287,500,000 after-tax or $2.51 per share-diluted), net of insurance, related to the diet drug matters in the 1999 third quarter. At December 31, 2000, $8,165,574,000 of the total litigation accrual remained; $5,900,000,000 and $2,265,574,000 were included in Accrued expenses and Other noncurrent liabilities, respectively. At December 31, 1999, $4,632,419,000 of the initial litigation accrual remained; $1,400,000,000 and $3,232,419,000 were included in Accrued expenses and Other noncurrent liabilities, respectively. The amount of the reserve is based upon, among other things, the assumption that the settlement will receive final judicial approval. Payments to the nationwide, class action settlement funds, individual settlement payments, legal fees and other items were $3,966,845,000 and $117,581,000 in 2000 and 1999, respectively. The Company is a defendant in cases that have been consolidated in federal district court in Illinois as Brand Name Prescription Drugs Antitrust Litigation (MDL 997) relating to claims made by certain retail pharmacies against the Company and other pharmaceutical manufacturers. The Company and other pharmaceutical manufacturers also are defendants in similar litigation brought on behalf of consumers and in some cases on behalf of pharmacies in various state courts. The Company has settled the class action case in MDL 997 and certain other cases but remains as a defendant in other cases. The Company believes it has complied with the antitrust laws and other applicable laws and has settled these cases in order to avoid the costs and risks of litigation. The settlement agreements are not admissions of any violation of law. The Company is self-insured against ordinary product liability risks and has liability coverage, in excess of certain limits and subject to certain policy ceilings, from various insurance carriers. In the opinion of the Company, although the outcome of any legal proceedings cannot be predicted with certainty, the ultimate liability of the Company in connection with its legal proceedings will not have a material adverse effect on the Company's financial position but could be material to the results of operations and cash flows in any one accounting period. The Company leases certain property and equipment for varying periods under operating leases. Future minimum rental payments under non-cancelable operating leases from continuing operations with terms in excess of one year in effect at December 31, 2000 are as follows:
(In thousands) - -------------------------------------------------------------------------------- 2001 $115,161 2002 111,323 2003 107,045 2004 101,347 2005 100,462 Thereafter 99,294 -------- Total rental commitments $634,632 ========
Rental expense from continuing operations for all operating leases was $128,232,000, $135,144,000 and $118,558,000 in 2000, 1999 and 1998, respectively. 47 11. COMPANY DATA BY OPERATING AND GEOGRAPHIC SEGMENT The Company has three reportable segments: Pharmaceuticals, Consumer Health Care, and Corporate and All Other. The Company's Pharmaceuticals and Consumer Health Care reportable segments are strategic business units that offer different products and services. The reportable segments are managed separately because they manufacture, distribute and sell distinct products and provide services, which require various technologies and marketing strategies. The Company is not dependent on any single customer or major group of customers for its sales (see Note 1). The Pharmaceuticals segment manufactures, distributes and sells branded and generic human ethical pharmaceuticals, biologicals, nutritionals, and animal biologicals and pharmaceuticals. Principal products include women's health care products, infant nutritionals, cardiovascular products, neuroscience therapies, gastroenterology drugs, anti-infectives, vaccines, biopharmaceuticals, oncology therapies, musculoskeletal therapies and transplantation products. Principal animal health products include vaccines, pharmaceuticals, endectocides and growth implants. The Consumer Health Care segment manufactures, distributes and sells over-the-counter health care products whose principal products include analgesics, cough/cold/allergy remedies, nutritional supplements, herbal products, and hemorrhoidal, antacid, asthma and other relief items. Corporate is responsible for the treasury, tax and legal operations of the Company's businesses and maintains and incurs certain assets, liabilities, expenses, gains and losses related to the overall management of the Company which are not allocated to the other reportable segments. All Other consists of the Sherwood-Davis & Geck medical devices business, which the Company divested in February 1998. The accounting policies of the segments described above are the same as those described in the Summary of Significant Accounting Policies in Note 1. The Company evaluates the performance of the Pharmaceuticals and Consumer Health Care reportable segments based on income from continuing operations before taxes which includes goodwill amortization, gains on the sales of non-corporate assets and certain other items. Corporate and All Other includes special charges, interest expense and interest income, gains on the sales of investments and other corporate assets, including the sale of Immunex common stock, the Warner-Lambert Company termination fee, certain litigation provisions, including the Redux and Pondimin litigation charges, goodwill impairment, the gain on the sale of the Sherwood-Davis & Geck medical devices business and other miscellaneous items. Company Data by Operating Segment
(In millions) YEARS ENDED DECEMBER 31, 2000 1999 1998 - -------------------------------------------------------------------------------- NET REVENUE FROM CUSTOMERS - -------------------------------------------------------------------------------- Pharmaceuticals $10,797.6 $ 9,505.9 $ 8,901.8 Consumer Health Care 2,465.2 2,375.3 2,174.7 Corporate and All Other -- -- 192.1 --------------------------------------- Consolidated Total $13,262.8 $11,881.2 $11,268.6 ======================================= INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES(1) - -------------------------------------------------------------------------------- Pharmaceuticals $ 2,930.0 $ 2,554.6 $ 2,488.3 Consumer Health Care 616.1 578.6 509.7 Corporate and All Other(2) (4,647.1) (5,040.5) 91.9 --------------------------------------- Consolidated Total $(1,101.0) $(1,907.3) $ 3,089.9 ======================================= DEPRECIATION AND AMORTIZATION EXPENSE - -------------------------------------------------------------------------------- Pharmaceuticals $ 458.8 $ 465.6 $ 443.8 Consumer Health Care 61.0 57.3 52.3 Corporate and All Other 15.2 18.3 15.5 --------------------------------------- Consolidated Total $ 535.0 $ 541.2 $ 511.6 ======================================= TOTAL ASSETS - -------------------------------------------------------------------------------- Pharmaceuticals $12,388.6 $11,101.4 $11,158.2 Consumer Health Care 1,697.2 1,864.4 1,809.6 Net assets -- discontinued business held for sale -- 4,192.3 4,078.7 Corporate and All Other 7,006.7 5,965.7 3,177.7 --------------------------------------- Consolidated Total $21,092.5 $23,123.8 $20,224.2 ======================================= EXPENDITURES FOR LONG-LIVED ASSETS - -------------------------------------------------------------------------------- Pharmaceuticals $ 1,720.1 $ 1,038.9 $ 571.3 Consumer Health Care(3) 38.4 66.8 100.3 Corporate and All Other 55.0 31.4 20.5 --------------------------------------- Consolidated Total $ 1,813.5 $ 1,137.1 $ 692.1 =======================================
48 COMPANY DATA BY GEOGRAPHIC SEGMENT
(In millions) YEARS ENDED DECEMBER 31, 2000 1999 1998 NET REVENUE FROM CUSTOMERS(4) - -------------------------------------------------------------------------------- United States $ 8,007.6 $ 7,229.0 $ 6,791.1 United Kingdom 898.1 745.1 623.1 Other International 4,357.1 3,907.1 3,854.4 --------------------------------------- Consolidated Total $13,262.8 $11,881.2 $11,268.6 ======================================= LONG-LIVED ASSETS AT DECEMBER 31(4), - -------------------------------------------------------------------------------- United States $ 6,228.8 $ 6,379.7 $ 6,083.6 International 3,074.8 2,824.8 2,889.6 --------------------------------------- Consolidated Total $ 9,303.6 $ 9,204.5 $ 8,973.2 =======================================
(1) Income (loss) from continuing operations before taxes included goodwill amortization for 2000, 1999 and 1998 as follows: Pharmaceuticals -- $147.8, $154.3 and $158.2, and Consumer Health Care -- $31.8, $32.7 and $22.6, respectively, and Corporate and All Other -- $0.9 in 1998. (2) 2000 and 1999 Corporate and All Other included litigation charges of $7,500.0 and $4,750.0, respectively, relating to the litigation brought against the Company regarding the use of the diet drug products Redux or Pondimin. The charges provide for all anticipated payments in connection with the nationwide, class action settlement, payments to the approximately 40,000 opt out claimants with whom the Company has agreed to settle, and all anticipated payments to resolve the claims of the remaining approximately 10,000 opt outs and any PPH claimants, as well as all legal fees and other costs, net of insurance (see Note 10). The charges related to the Pharmaceuticals operating segment. 2000 Corporate and All Other included: - Income of $1,709.4 resulting from the receipt of a $1,800.0 termination fee provided for under the merger agreement with Warner-Lambert Company offset, in part, by certain related expenses (see Note 3). - Income of $2,061.2 relating to the Company selling a portion of its investment in Immunex common stock in a joint public equity offering with Immunex (see Note 2). The transaction related to the Pharmaceuticals operating segment. - Goodwill impairment of $401.0 related to the goodwill associated with generic pharmaceuticals and the Solgar consumer health care product line. The charge related to the operating segments as follows: Pharmaceuticals -- $231.0 and Consumer Health Care -- $170.0 (see Note 3). - A special charge of $80.0 related to the voluntary ceasing of production and subsequent market withdrawal of products containing PPA (see Note 3). The charge related to the Consumer Health Care operating segment. - A special charge of $267.0 related to costs associated with certain product discontinuations (see Note 3). The charge related to the Pharmaceuticals operating segment. 1999 Corporate and All Other included a special charge of $82.0 related to the suspension of shipments and the voluntary market withdrawal of RotaShield, the Company's rotavirus vaccine (see Note 3). The charge related to the Pharmaceuticals operating segment. 1998 Corporate and All Other included a special charge for restructuring and related asset impairments of $321.2 (see Note 3). The charge related to the operating segments as follows: Pharmaceuticals -- $294.9 and Consumer Health Care -- $26.3. 1998 Corporate and All Other included the gain on the sale of the Sherwood-Davis & Geck medical devices business of $592.1 (see Note 2). (3) 1998 expenditures for long-lived assets for Consumer Health Care excluded $408.6 of expenditures for goodwill and long-lived assets acquired in purchase business combinations. (4) Other than the United States and the United Kingdom, no other country in which the Company operates had net revenue greater than 5% of the respective consolidated total. Other than the United States, no country in which the Company operates had long-lived assets greater than 5% of the respective consolidated total. The basis for attributing net revenue to geographic areas is the location of the customer. Long-lived assets consist of property, plant and equipment, goodwill and other intangibles, and other assets, excluding deferred taxes, net investments in equity companies and other investments. 49 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of American Home Products Corporation: We have audited the accompanying consolidated balance sheets of American Home Products Corporation (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. 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 financial position of American Home Products Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP New York, New York January 25, 2001 MANAGEMENT REPORT ON FINANCIAL STATEMENTS Management has prepared and is responsible for the Company's Consolidated Financial Statements and related notes. They have been prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts based on judgments and estimates made by management. All financial information in this Annual Report is consistent with the financial statements. The Company maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and are properly recorded, and that accounting records may be relied upon for the preparation of financial statements and other financial information. The design, monitoring and revision of internal accounting control systems involve, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures. The Company also maintains an internal auditing function, which evaluates and formally reports on the adequacy and effectiveness of internal accounting controls, policies and procedures. The Company's financial statements have been audited by independent public accountants who have expressed their opinion with respect to the fairness of these statements. The Audit Committee of the Board of Directors, composed of non-employee directors, meets periodically with the independent public accountants and internal auditors to evaluate the effectiveness of the work performed by them in discharging their respective responsibilities and to assure their independent and free access to the Committee. John R. Stafford Robert Essner Kenneth J. Martin Chairman and President and Senior Vice President Chief Executive Chief Operating and Chief Financial Officer Officer Officer
50 QUARTERLY FINANCIAL DATA(6)
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER (In thousands except per share amounts) 2000 2000 2000 2000 - -------------------------------------------------------------------------------------------------------------------- Net revenue(1) $3,206,871 $3,040,657 $ 3,509,414 $ 3,505,812 Gross profit(1) 2,424,879 2,269,615 2,664,155 2,634,687 Income (loss) from continuing operations(2)(3) 1,746,009 412,734 762,100 (3,821,883) Diluted earnings (loss) per share from continuing operations(2)(3)(5) 1.32 0.31 0.58 (2.91) Net income (loss)(2)(3) 276,362 412,734 762,100 (3,821,883)
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER (In thousands except per share amounts) 1999 1999 1999 1999 - -------------------------------------------------------------------------------------------------------------------- Net revenue $2,858,049 $2,743,164 $ 3,191,040 $ 3,088,943 Gross profit 2,157,743 2,007,105 2,384,162 2,309,630 Income (loss) from continuing operations(3)(4) 538,140 294,334 (2,642,435) 602,718 Diluted earnings (loss) per share from continuing operations(3)(4)(5) 0.40 0.22 (2.02) 0.46 Net income (loss)(3)(4) 654,918 398,673 (2,873,944) 593,232
(1) First, Second and Third Quarters 2000 were restated to reflect the accounting for Immunex on an equity basis, assuming Immunex was an equity investment as of January 1, 2000. Excluding alliance revenue in 2000, gross profit from product sales was $2,388,949, $2,227,358, $2,615,179 and $2,573,543 for the First, Second, Third and Fourth Quarters, respectively. (2) First Quarter 2000 included income of $1,111,097 after-tax and $0.84 per share-diluted resulting from the receipt of a $1,800,000 termination fee provided for under the merger agreement with Warner-Lambert Company offset, in part, by certain related expenses. (3) Fourth Quarter 2000 and Third Quarter 1999 included litigation charges of $5,375,000 and $3,287,500 after-tax and $4.10 and $2.51 per share-diluted, respectively, in connection with litigation brought against the Company regarding the use of the diet drugs Redux or Pondimin. Fourth Quarter 2000 included: - Income of $1,414,859 after-tax and $1.08 per share-diluted related to the Company selling a portion of its investment in Immunex common stock in a joint public equity offering with Immunex. - Goodwill impairment of $341,000 after-tax and $0.26 per share-diluted related to the goodwill associated with generic pharmaceuticals and the Solgar consumer health care product line. - A special charge of $52,000 after-tax and $0.04 per share-diluted related to the voluntary ceasing of production and subsequent voluntary market withdrawal of products containing PPA. - A special charge of $173,000 after-tax and $0.13 per share-diluted related to costs associated with certain product discontinuations. (4) Second Quarter 1999 included a special charge of $53,000 after-tax and $0.04 per share-diluted related to the suspension of shipments and the voluntary market withdrawal of RotaShield, the Company's rotavirus vaccine. (5) The weighted average common shares outstanding for diluted loss per share for the Fourth Quarter 2000 and Third Quarter 1999 did not include common share equivalents, as the effect would have been antidilutive. In addition, the sum of the 2000 and 1999 diluted earnings (loss) per share from continuing operations for each quarter did not equal the full year 2000 and 1999 diluted loss per share from continuing operations, respectively, for the same reason. (6) In the 2000 First Quarter, the Company reflected the Cyanamid Agricultural Products business, which was sold on June 30, 2000, as a discontinued operation, and recorded a loss on disposal of such business of $1,572,993, net of tax charges of $855,248. All prior periods presented were restated. MARKET PRICES OF COMMON STOCK AND DIVIDENDS
2000 RANGE OF PRICES* 1999 RANGE OF PRICES* ---------------------------------- ------------------------------ DIVIDENDS DIVIDENDS HIGH LOW PER SHARE HIGH LOW PER SHARE - -------------------------------------------------------------------------------------------------- First quarter $56.25 $39.38 $0.23 $68.19 $51.19 $0.225 Second quarter 61.63 50.94 0.23 70.25 51.00 0.225 Third quarter 60.13 50.38 0.23 58.44 38.50 0.225 Fourth quarter 65.25 53.50 0.23 58.00 36.50 0.230
* Prices are those of the New York Stock Exchange -- Composite Transactions. 51 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following commentary should be read in conjunction with the "Consolidated Financial Statements and Notes to Consolidated Financial Statements" on pages 32 to 49. RESULTS OF OPERATIONS Management's discussion and analysis of results of operations for 2000 and 1999 are presented on an as-reported basis, except for Net revenue variation explanations for 2000, which are presented on an as-reported and pro forma basis. Effective January 1, 2000, the financial results of certain pharmaceutical subsidiaries in Japan and India, which previously were included on an equity basis, were consolidated in the financial results of the Company. The financial results of Immunex, which previously were consolidated in the financial results of the Company, were deconsolidated and included on an equity basis, retroactive to January 1, 2000, within the pharmaceuticals segment. Accordingly, alliance revenue was recorded in 2000 for co-promotion agreements between the Company and Immunex. The 2000 pro forma net revenue percentage changes reflect the respective consolidation and deconsolidation of these subsidiaries and include alliance revenue from Immunex, assuming all transactions occurred as of January 1, 1999. Neither the consolidation nor the deconsolidation of these subsidiaries had any effect on income from continuing operations in 2000. Worldwide net revenue increased 12% to $13.3 billion for 2000 on an as-reported basis. After adjusting for the consolidation and deconsolidation of the subsidiaries identified above, and including alliance revenue from Immunex, pro forma worldwide net revenue increased 13% due primarily to higher worldwide sales of pharmaceuticals. Worldwide net revenue increased 7% to $11.9 billion for 1999 after adjusting for the sale of the Sherwood-Davis & Geck medical devices business, which was sold effective February 27, 1998. The increase in 1999 was due primarily to higher worldwide sales of pharmaceuticals and U.S. sales of consumer health care products. Including net revenue of the Sherwood-Davis & Geck medical devices business prior to its sale, worldwide net revenue increased 5% for 1999. The following table sets forth 2000, 1999 and 1998 worldwide net revenue results by operating segment together with the percentage changes in "As-Reported" and "Pro Forma" (where applicable) worldwide net revenue from prior years:
2000 VS. 1999 1999 VS. 1998 -------------------------- -------------- YEARS ENDED DECEMBER 31, AS-REPORTED (Dollar amounts in millions) ---------------------------------- AS-REPORTED PRO FORMA % INCREASE NET REVENUE 2000 1999 1998 % INCREASE % INCREASE (DECREASE) - ----------------------------------------------------------------------------------------------------------------------------------- Operating Segment: Pharmaceuticals $10,797.6 $ 9,505.9 $ 8,901.8 14% 15% 7% Consumer Health Care 2,465.2 2,375.3 2,174.7 4% 4% 9% ---------------------------------- ------------------------------------------- 13,262.8 11,881.2 11,076.5 12% 13% 7% Corporate and All Other* -- -- 192.1 -- -- (100)% ---------------------------------- ------------------------------------------- Consolidated Net Revenue $13,262.8 $11,881.2 $11,268.6 12% 13% 5% ================================== ===========================================
* Corporate and All Other, as-reported, for 1998 included the net revenue of the Company's divested medical devices business discussed above. 52 Worldwide pharmaceutical net revenue increased 14% on an as-reported basis and 15% (primarily human pharmaceuticals) on a pro forma basis for 2000. Excluding the negative impact of foreign exchange, pro forma worldwide pharmaceutical net revenue increased 19% for 2000. Pro forma U.S. pharmaceutical net revenue increased 22% for 2000 due primarily to higher sales of Prevnar (introduced in the 2000 first quarter), Effexor XR (as a result of higher volume and market share of new prescriptions, and expanded indications), Protonix (introduced in the 2000 second quarter), Premarin products, animal health products and alliance revenue offset, in part, by lower sales of Lodine (due to generic competition) and factor VIII. Pro forma international pharmaceutical net revenue increased 7% for 2000 due primarily to higher sales of Meningitec (introduced in the United Kingdom in the 1999 fourth quarter), Effexor XR (as a result of higher volume and market share of new prescriptions, and expanded indications) and ReFacto (introduced in the 1999 second quarter). Worldwide pharmaceutical net revenue increased 7% (9% for human pharmaceuticals) for 1999. Excluding the negative impact of foreign exchange, worldwide pharmaceutical net revenue increased 8% for 1999. U.S. pharmaceutical net revenue increased 7% for 1999 due primarily to higher sales of Enbrel (introduced in 1998), Effexor XR (due to increased selling efforts and expanded indications), Premarin products and Zosyn, which were offset, in part, by lower sales of animal health products, Naprelan and Verelan (divested in 1998), oral contraceptives and Cordarone (due to generic competition). Lower sales of animal health products were due primarily to customers reducing consumption of livestock-related animal health products, in part, as a result of continuing commodity price declines in the livestock markets. International pharmaceutical net revenue increased 6% for 1999 due primarily to higher sales of Effexor XR (due to increased selling efforts and expanded indications), Meningitec (introduced in the United Kingdom in the 1999 fourth quarter), ReFacto (introduced in the 1999 second quarter), Tazocin, HibTITER and Zoton. Worldwide consumer health care net revenue increased 4% on an as-reported and pro forma basis for 2000. Excluding the negative impact of foreign exchange, worldwide consumer health care net revenue increased 6% for 2000. U.S. consumer health care net revenue increased 4% for 2000 due primarily to higher sales of Centrum products (including Centrum Performance, which was launched in the United States in the 1999 fourth quarter), cough/cold/allergy products, Chap Stick and Flexagen (introduced in the United States in the 2000 second quarter). International consumer health care net revenue increased 3% for 2000 due primarily to higher sales of Centrum products and Caltrate offset, in part, by lower sales of Anacin. Worldwide consumer health care net revenue increased 9% for 1999. Excluding the negative impact of foreign exchange, worldwide consumer health care net revenue increased 11% for 1999. U.S. consumer health care net revenue increased 10% for 1999 due primarily to higher sales of Solgar products (acquired in 1998), Centrum products, cough/cold/allergy products, Chap Stick and Caltrate. Solgar products contributed 3% to the U.S. sales increase for 1999. International consumer health care net revenue increased 7% for 1999 due primarily to higher sales of Centrum products, Caltrate, Solgar products (acquired in 1998) and Advil. Solgar products contributed 3% to the international sales increase for 1999. The following table sets forth the percentage changes in pro forma worldwide net revenue by operating and geographic segment compared with the prior year, including the effect volume, price and foreign exchange had on these percentage changes:
% INCREASE (DECREASE) % INCREASE (DECREASE) YEAR ENDED DECEMBER 31, 2000(1) YEAR ENDED DECEMBER 31, 1999(2) ------------------------------------------- -------------------------------------------- FOREIGN TOTAL FOREIGN TOTAL VOLUME PRICE EXCHANGE NET REVENUE VOLUME PRICE EXCHANGE NET REVENUE - ----------------------------------------------------------------------------------------------------------------------------------- PHARMACEUTICALS United States 15% 7% -- 22% 4% 3% -- 7% International 14% -- (7)% 7% 7% 3% (4)% 6% -------------------------------------------------------------------------------------------- Total 15% 4% (4)% 15% 5% 3% (1)% 7% ============================================================================================ CONSUMER HEALTH CARE(3) United States 3% 1% -- 4% 9% 1% -- 10% International 5% 3% (5)% 3% 8% 5% (6)% 7% ------------------------------------------------------------------------------------------- Total 4% 2% (2)% 4% 9% 2% (2)% 9% ============================================================================================ TOTAL United States 12% 6% -- 18% 5% 3% -- 8% International 13% 1% (7)% 7% 7% 3% (4)% 6% -------------------------------------------------------------------------------------------- Total 13% 3% (3)% 13% 6% 3% (2)% 7% ============================================================================================
(1) Effective January 1, 2000, the financial results of certain subsidiaries in Japan and India, which previously were included on an equity basis, were consolidated in the results of the Company. Also effective January 1, 2000, the financial results of Immunex, which previously were consolidated in the results of the Company, were deconsolidated and included on an equity basis. Accordingly, alliance revenue was recorded in 2000 for co-promotion agreements between the Company and Immunex. The 2000 pro forma net revenue percentage changes reflect the respective consolidation and deconsolidation of these subsidiaries and include alliance revenue from Immunex, assuming all transactions occurred as of January 1, 1999. Neither the consolidation nor the deconsolidation of these subsidiaries, nor the inclusion of alliance revenue from Immunex, had any effect on income from continuing operations in 2000. (2) Net revenue results are presented after adjusting for the sale of the Sherwood-Davis & Geck medical devices business (effective February 27, 1998). (3) Solgar products contributed 3% to the U.S., international and total net revenue volume increases for 1999. 53 Cost of goods sold, as a percentage of Net revenue, decreased slightly to 24.7% for 2000 compared with 25.4% for 1999. Excluding alliance revenue, cost of goods sold, as a percentage of sales, for 2000 was 25.0%, a 0.4% decrease from 1999. A favorable mix of higher margin products in the pharmaceuticals segment was offset, in part, by an increase in royalty expenses and costs associated with improving the production and supply chain processes at certain international sites. Cost of goods sold, as a percentage of Net revenue, increased slightly to 25.4% for 1999 compared with 25.2% for 1998 due primarily to an unfavorable product mix in both operating segments. Selling, general and administrative expenses, as a percentage of Net revenue, increased to 37.9% for 2000 compared with 36.9% for 1999. Higher selling, general and administrative expenses were due primarily to increased selling and marketing expenses supporting higher field sales headcount and salaries, promotional efforts for recent product launches and rapid growth products, and direct-to-consumer programs. The increase in the ratio of these expenses, as a percentage of Net revenue, was offset, in part, by deconsolidating Immunex in 2000 as these expenses carried a higher expense ratio, and consolidating Japan and India in 2000 as their expense ratio was lower than the Company overall. Selling, general and administrative expenses, as a percentage of Net revenue, decreased to 36.9% for 1999 compared with 37.4% for 1998. The expense ratio decreased as a result of the divestiture of the Sherwood-Davis & Geck medical devices business, as this business was more cost intensive. The decrease was offset, in part, by higher selling expenses related to certain pharmaceutical and consumer health care product launches in late 1998 and in 1999, pre-launch marketing costs for certain pharmaceutical products launched in 2000 and increased headcount to support new product initiatives. Research and development expenses increased 6% for 2000 due primarily to certain advancements and ongoing clinical trials of pharmaceuticals in several therapeutic categories, as well as additional payments for existing licensing agreements offset, in part, by lower costs as a result of deconsolidating Immunex in 2000. Research and development expenses increased 8% for 1999 due primarily to higher pharmaceutical research and development expenditures as a result of advanced clinical trials, discovery initiatives and license payments. Pharmaceutical research and development expenditures accounted for 96%, 95% and 94% of total research and development expenditures in 2000, 1999 and 1998, respectively. Pharmaceutical research and development expenses, as a percentage of worldwide pharmaceutical net revenue, exclusive of infant nutritional sales and alliance revenue, were 16%, 17% and 17% in 2000, 1999 and 1998, respectively. Interest expense, net decreased 73% for 2000 due primarily to an increase in interest income as a result of higher cash and cash equivalents, as well as lower debt resulting from the payoff of the $1,000.0 million of 7.70% notes on February 15, 2000. In addition, on June 30, 2000, the Company used a portion of the proceeds from the sale of the Cyanamid Agricultural Products business to pay down a substantial portion of the outstanding commercial paper borrowings. Interest expense, net increased 3% for 1999 due primarily to increased borrowings of commercial paper to finance purchases of common stock for treasury as part of the Company's common stock repurchase program offset, in part, by higher interest income and a reduction in long-term debt from the proceeds of the divestiture of the Sherwood-Davis & Geck medical devices business during the 1998 first quarter. Weighted average debt outstanding during 2000 and 1999 was $3,853.0 million and $4,889.0 million, respectively. Other income, net decreased 37% for 2000 due primarily to payments for various pharmaceutical collaborations, costs associated with a consent decree (described below), lower gains on the sales of non-strategic assets and costs related to a product discontinuation offset, in part, by insurance recoveries of environmental costs, higher equity income (due to the deconsolidation of Immunex) and lower Year 2000 conversion costs. In conjunction with the consent decree identified above, the Company recorded a pre-tax charge of $56.1 million which included payments to the U.S. government and charges associated with actions required by the FDA based on an inspection of the Marietta, Pennsylvania, and Pearl River, New York, facilities. Pursuant to the consent decree, the Company will have a comprehensive inspection performed by expert consultants to determine compliance with current Good Manufacturing Practices. Other income, net decreased 11% for 1999 due primarily to lower gains on the sales of non-strategic assets, including certain non-core product rights offset, in part, by lower non-recurring charges and lower unfavorable foreign exchange results. 2000, 1999 and 1998 Unusual Transactions - ---------------------------------------- During the 2000 first quarter, the Company and Warner-Lambert Company terminated their merger agreement. The Company recorded income of $1,709.4 million ($1,111.1 million after-tax or $0.85 per share-diluted) in income from continuing operations resulting from the receipt of a $1,800.0 million termination fee provided for under the merger agreement offset, in part, by certain related expenses (see Note 3 to the Consolidated Financial Statements). In November 2000, Immunex and the Company completed a joint public equity offering allowing the Company to sell 60.5 million shares of Immunex common stock. Proceeds to the Company were $2,404.9 million resulting in a gain on the sale of $2,061.2 million ($1,414.9 million after-tax or $1.08 per share-diluted). The Company used the net proceeds from the sale of its Immunex common stock to reduce outstanding commercial paper and for other general corporate purposes (see Note 2 to the Consolidated Financial Statements). In November 2000, in accordance with an FDA request, the Company immediately ceased global production and shipments of any products containing PPA and voluntarily withdrew any such products from customer warehouses and retail store shelves. As a result, the Company recorded a special charge of $80.0 million ($52.0 million after-tax or $0.04 per share-diluted) to provide primarily for product returns and the write-off of inventory (see Note 3 to the Consolidated Financial Statements). During the 2000 fourth quarter, the Company recorded a special charge of $267.0 million ($173.0 million after-tax or $0.13 per share-diluted) related to the discontinuation of certain products. The special charge provided for fixed asset impairments, inventory write-offs, severance obligations, idle plant costs and contract termination costs (see Note 3 to the Consolidated Financial Statements). At December 31, 2000, the Company performed goodwill and other intangible reviews and noted that projected profitability and future cash flows associated with generic pharmaceuticals and the Solgar consumer health care product line would not be sufficient to recover the remaining goodwill related to these product lines. As a result, the Company recorded a charge of $401.0 million ($341.0 54 million after-tax or $0.26 per share-diluted) to write down the carrying value of goodwill related to these product lines, to fair value, representing discounted future cash flows (see Note 3 to the Consolidated Financial Statements). During the 2000 fourth quarter, the Company recorded a charge of $7,500.0 million ($5,375.0 million after-tax or $4.11 per share-diluted) relating to the litigation brought against the Company regarding the use of the diet drugs Redux or Pondimin (see Note 10 to the Consolidated Financial Statements). An initial litigation charge of $4,750.0 million ($3,287.5 million after-tax or $2.51 per share-diluted) was recorded in the 1999 third quarter. The combination of these two charges represents the estimated total amount required to settle all diet drug litigation, including all anticipated payments in connection with the nationwide, class action settlement, payments to the approximately 40,000 opt out claimants with whom the Company has agreed to settle, and all anticipated payments to resolve the claims of the remaining approximately 10,000 opt outs and any PPH claimants, as well as all legal fees and other costs, net of insurance (see Note 10 to the Consolidated Financial Statements and the "Liquidity, Financial Condition and Capital Resources" section for further discussion relating to the Company's additional financing requirements for the future settlement payments). During the 1999 second quarter, the Company recorded a special charge aggregating $82.0 million ($53.0 million after-tax or $0.04 per share-diluted) for estimated costs associated with the suspension of shipments and the voluntary market withdrawal of RotaShield, the Company's rotavirus vaccine (see Note 3 to the Consolidated Financial Statements). In December 1998, the Company recorded a special charge for restructuring and related asset impairments of $321.2 million ($224.8 million after-tax or $0.17 per share-diluted) to recognize the costs of the reorganization of the pharmaceutical and nutritional supply chains (primarily in the Asian-Pacific and Latin American regions), the reorganization of the U.S. pharmaceutical and consumer health care distribution systems, and a reduction in personnel from the globalization of certain business units (see Note 3 to the Consolidated Financial Statements). In February 1998, the Company sold the Sherwood-Davis & Geck medical devices business (see Note 2 to the Consolidated Financial Statements) for approximately $1,770.0 million, resulting in a pre-tax gain of $592.1 million ($330.8 million after-tax or $0.25 per share-diluted). Income (Loss) from Continuing Operations before Taxes - ----------------------------------------------------- The following table sets forth worldwide income (loss) from continuing operations before taxes by operating segment together with the percentage changes from the comparable periods in the prior year on an as-reported basis:
2000 VS. 1999 1999 VS. 1998 YEARS ENDED DECEMBER 31, -------------- ------------- (Dollar amounts in millions) ----------------------------------- % INCREASE INCOME (LOSS)FROM CONTINUING OPERATIONS BEFORE TAXES(1) 2000 1999 1998 (DECREASE) % INCREASE - --------------------------------------------------------------------------------------------------------------------------------- Operating Segment: Pharmaceuticals $ 2,930.0 $ 2,554.6 $2,488.3 15% 3% Consumer Health Care 616.1 578.6 509.7 6% 14% ----------------------------------- --------------------------- 3,546.1 3,133.2 2,998.0 13% 5% Corporate and All Other(2) (4,647.1) (5,040.5) 91.9 (8)% -- ----------------------------------- --------------------------- Total(3) $ (1,101.0) $(1,907.3) $3,089.9 (42)% -- =================================== ===========================
(1) Income (loss) from continuing operations before taxes included goodwill amortization for 2000, 1999 and 1998 as follows: Pharmaceuticals -- $147.8, $154.3 and $158.2, and Consumer Health Care -- $31.8, $32.7 and $22.6, respectively, and Corporate and All Other -- $0.9 in 1998. (2) 2000 and 1999 Corporate and All Other included litigation charges of $7,500.0 and $4,750.0, respectively, relating to the litigation brought against the Company regarding the use of the diet drugs Redux or Pondimin. The charges provide for all anticipated payments in connection with the nationwide, class action settlement, payments to the approximately 40,000 opt out claimants with whom the Company has agreed to settle, and all anticipated payments to resolve the claims of the remaining approximately 10,000 opt outs and any PPH claimants, as well as all legal fees and other costs, net of insurance. 2000 Corporate and All Other included: - Income of $1,709.4 resulting from the receipt of a $1,800.0 termination fee provided for under the merger agreement with Warner-Lambert Company offset, in part, by certain related expenses. - Income of $2,061.2 related to the Company selling a portion of its investment in Immunex common stock in a joint public equity offering with Immunex. - Goodwill impairment of $401.0 related to the goodwill associated with generic pharmaceuticals and the Solgar consumer health care product line. - A special charge of $80.0 related to the voluntary ceasing of production and subsequent market withdrawal of products containing PPA. - A special charge of $267.0 related to costs associated with certain product discontinuations. 1999 Corporate and All Other included a special charge of $82.0 related to the suspension of shipments and the voluntary market withdrawal of RotaShield, the Company's rotavirus vaccine. 1998 Corporate and All Other included a special charge for restructuring and related asset impairments of $321.2. 1998 Corporate and All Other included the gain on the sale of the Sherwood-Davis & Geck medical devices business of $592.1. Excluding the 2000 termination fee, 2000 and 1999 litigation charges, 2000 gain on the sale of Immunex common stock, 2000 goodwill impairment, 2000, 1999 and 1998 special charges, and 1998 gain on the sale of the Sherwood-Davis & Geck medical devices business from 2000, 1999 and 1998 results, Corporate and All Other expenses, net decreased 19% for 2000 and increased 16% for 1999. (3) Excluding the 2000 termination fee, 2000 and 1999 litigation charges, 2000 gain on the sale of Immunex common stock, 2000 goodwill impairment, 2000, 1999 and 1998 special charges, and 1998 gain on the sale of the Sherwood-Davis & Geck medical devices business from 2000, 1999 and 1998 results, total income from continuing operations before taxes increased 15% for 2000 and 4% for 1999. 55 The following explanations of changes in income (loss) from continuing operations before taxes, by operating segment, for 2000 compared with 1999, and 1999 compared with 1998, exclude items listed in footnote (2) to the table above: Worldwide pharmaceutical income from continuing operations before taxes increased 15% (11% for human pharmaceuticals) for 2000 due primarily to higher worldwide net revenue (including alliance revenue) offset, in part, by higher selling, general and administrative expenses, research and development expenses, and other expenses (primarily collaboration payments and costs for a consent decree). Higher selling, general and administrative expenses were due primarily to increased media and promotional expenses to support product launches and existing product lines through increased headcount. Worldwide pharmaceutical income from continuing operations before taxes increased 3% (9% for human pharmaceuticals) for 1999 due primarily to higher worldwide sales offset, in part, by higher selling, general and administrative expenses, higher research and development expenses, lower gains on the sales of non-strategic assets and an unfavorable product mix. Higher selling, general and administrative expenses for worldwide pharmaceuticals for 1999 were the result of higher selling expenses related to certain product launches in late 1998 and in 1999, pre-launch marketing costs for certain products expected to be launched in 2000 and increased headcount to support new product initiatives. Worldwide consumer health care income from continuing operations before taxes increased 6% for 2000 due primarily to higher worldwide sales. Worldwide consumer health care income from continuing operations before taxes increased 14% for 1999 due primarily to higher worldwide sales, which were offset, in part, by higher selling, general and administrative expenses. Corporate and All Other expenses, net decreased 19% for 2000 due primarily to lower interest expense, net and increased current year insurance recoveries related to environmental costs offset, in part, by lower gains on sales of non-strategic assets, higher general and administrative expenses, and costs related to a product discontinuation. Corporate and All Other expenses, net increased 16% for 1999 due primarily to higher general and administrative expenses, the loss of the Sherwood-Davis & Geck medical devices business operating profit and lower gains on sales of non-strategic assets, which were offset, in part, by lower one-time charges. The effective tax rate for 2000, excluding the effect of the 2000 termination fee, 2000 gain on the sale of Immunex common stock, and the 2000 and 1999 litigation charges, was 25.9% which is comparable to the 26.8% effective tax rate for 1999. The effective tax rate, excluding the effect of the 1999 litigation charge, for 1999 was 26.8% compared with 30.3% for 1998. The effective tax rate decreased in 1999 due primarily to an increased benefit from products manufactured in lower taxed jurisdictions and basis differences for tax and financial reporting purposes, primarily goodwill, on the sale of the Sherwood-Davis & Geck medical devices business and sales of certain other non-core assets in 1998. Income (Loss) and Diluted Earnings (Loss) per Share from - -------------------------------------------------------- Continuing Operations - --------------------- Loss and diluted loss per share from continuing operations in 2000 were $901.0 million and $0.69, respectively, compared with $1,207.2 million and $0.92 in 1999, respectively. Income and diluted earnings per share from continuing operations in 1998 were $2,152.3 million and $1.61, respectively. The income (loss) from continuing operations for 2000, 1999 and 1998 included the following unusual items:
INCOME (LOSS) DILUTED EARNINGS (LOSS) PER (In millions except per share amounts) FROM CONTINUING OPERATIONS SHARE FROM CONTINUING OPERATIONS --------------------------------------- -------------------------------- YEARS ENDED DECEMBER 31, 2000 1999 1998 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before unusual items and including the dilutive effect of common share equivalents (CSE) $ 2,514.0 $ 2,133.3 $ 2,046.3 $ 1.90 $ 1.61 $ 1.53 Dilutive effect of CSE * -- -- -- 0.02 0.02 -- --------- --------- --------- --------- --------- --------- $ 2,514.0 $ 2,133.3 $ 2,046.3 $ 1.92 $ 1.63 $ 1.53 Warner-Lambert Company termination fee 1,111.1 -- -- 0.85 -- -- Gain on sale of Immunex common stock 1,414.9 -- -- 1.08 -- -- Gain on sale of Sherwood-Davis & Geck medical devices business -- -- 330.8 -- -- 0.25 Redux and Pondimin diet drug litigation charges (5,375.0) (3,287.5) -- (4.11) (2.51) -- Goodwill impairment (341.0) -- -- (0.26) -- -- Special charges: Voluntary market withdrawals (52.0) (53.0) -- (0.04) (0.04) -- Product discontinuations (173.0) -- -- (0.13) -- -- Restructuring charge -- -- (224.8) -- -- (0.17) --------- --------- --------- --------- --------- --------- Income (loss) from continuing operations $ (901.0) $(1,207.2) $ 2,152.3 $ (0.69) $ (0.92) $ 1.61 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
* The $0.02 per share benefit represents the impact on income from continuing operations of excluding the dilutive effect of CSE. 56 For further details related to the items listed in the table above, refer to the discussion of "2000, 1999 and 1998 Unusual Transactions," herein. Excluding all unusual items listed in the table above and including the $0.02 per share dilutive effect of common share equivalents in 2000 and 1999 results, both income and diluted earnings per share from continuing operations in 2000 increased 18% compared with 1999. The increases were due primarily to additional worldwide sales of pharmaceuticals and lower interest expense offset, in part, by higher selling, general and administrative expenses and research and development expenses. Excluding all unusual items listed in the table above in 1999 and 1998 and including the $0.02 per share dilutive effect of common share equivalents in 1999 results, income and diluted earnings per share from continuing operations for 1999 increased 4% and 5%, respectively, compared with 1998. The increases were due primarily to increased sales of pharmaceuticals and consumer health care products offset, in part, by higher pharmaceutical research and development expenses and the loss of the Sherwood-Davis & Geck medical devices business operating profit. Discontinued operations: On June 30, 2000, the Company announced that it had completed the sale of the Cyanamid Agricultural Products business to BASF. Under the terms of the definitive agreement, BASF paid the Company $3,800.0 million in cash and assumed certain debt. As a result, the Company recorded an after-tax loss on the sale of this business of $1,573.0 million or $1.20 per share-diluted and reflected this business as a discontinued operation beginning in the 2000 first quarter and restated all prior periods presented (see Note 2 to the Consolidated Financial Statements). EURO CURRENCY As of January 1, 2001, 12 of the 15 member countries of the European Union adopted the Euro as a new common legal currency. However, the legacy currencies of the member countries are scheduled to remain legal tender as sub-denominations of the Euro between January 1, 1999 and January 1, 2002 (the transition period). Critical areas impacted by the conversion to the Euro have been identified and appropriate strategies developed, which currently are being implemented to facilitate the adoption of the Euro and to facilitate business transactions during the transition period. The costs related to the Euro conversion and transition period will not have a material adverse effect on the Company's financial position, results of operations or cash flows. However, the conversion to the Euro may have competitive implications on the Company's pricing and marketing strategies, the total impact of which is not known at this time. COMPETITION The Company operates in the highly competitive pharmaceutical and consumer health care industries. The Company is not dependent on any one patent-protected product or line of products for a substantial portion of its net revenues or results of operations. Premarin, the Company's principal conjugated estrogens product manufactured from pregnant mare's urine, and related products Prempro and Premphase (which are single tablet combinations of the conjugated estrogens in Premarin and the progestin medroxyprogesterone acetate), are the leaders in their categories and contribute significantly to net revenue and results of operations. Premarin's natural composition is not subject to patent protection (although Prempro has patent protection). The principal uses of Premarin, Prempro and Premphase are to manage the symptoms of menopause and to prevent osteoporosis, a condition involving a loss of bone mass in postmenopausal women. Estrogen-containing products manufactured by other companies have been marketed for many years for the treatment of menopausal symptoms, and several of these products also have an approved indication for the prevention of osteoporosis. During the past several years, other manufacturers have introduced products for the treatment and/or prevention of osteoporosis. New products containing different estrogens than those found in Prempro and Premphase and having many forms of the same indications have also been introduced. Some companies have attempted to obtain approval for generic versions of Premarin. These products, if approved, would be routinely substitutable for Premarin and related products under many state laws and third-party insurance payer plans. In May 1997, the FDA announced that it would not approve certain synthetic estrogen products as generic equivalents of Premarin given known compositional differences between the active ingredient of these products and Premarin. Although the FDA has not approved any generic equivalent to Premarin to date, Premarin will continue to be subject to competition from existing and new competing estrogen and other products for its approved indications and may be subject to generic competition from either synthetic or natural conjugated estrogens products in the future. At least one other company has announced that it is in the process of developing a generic version of Premarin from the same natural source, and the Company currently cannot predict the timing or outcome of these or any other efforts. LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES Cash and cash equivalents increased $751.6 million in 2000 to $2,644.3 million. Cash flows from operating activities of $554.9 million (which included a termination fee, net of certain related expenses, received from Warner-Lambert Company of $1,709.4 million and payments related to the Redux and Pondimin litigation of $3,966.8 million), proceeds from the sale of the Cyanamid Agricultural Products business of $3,800.0 million, proceeds from the sale of Immunex common stock of $2,404.9 million, proceeds from exercises of stock options of $410.9 million, proceeds from the sales and maturities of marketable securities of $384.3 million, and proceeds from the sales of assets of $256.2 million were used principally for net repayments of debt of $3,080.4 million, capital expenditures of $1,681.9 million, dividend payments of $1,201.5 million, purchases of marketable securities of $677.8 million and purchases of common stock for treasury of $393.1 million. 57 Capital expenditures were significant in 2000 due primarily to strategic investments in manufacturing facilities worldwide, and the expansion of the Company's research and development facilities to support new product franchises (primarily biotechnology based) and the expansion of existing brand products. This level of capital expenditures is expected to continue in 2001. At December 31, 2000, the carrying value of cash equivalents approximated fair value due to the short-term, highly liquid nature of cash equivalents, which have original maturities of three months or less. Interest rate fluctuations would not have a significant effect on the fair value of cash equivalents held by the Company. As discussed in Note 10 to the Consolidated Financial Statements, on October 7, 1999, the Company announced a nationwide, class action settlement to resolve litigation brought against the Company regarding the use of the diet drugs Redux or Pondimin. As of December 31, 2000, the Company had recorded charges totaling $12,250.0 million to provide for all anticipated payments in connection with the nationwide, class action settlement, payments to the approximately 40,000 opt out claimants with whom the Company has agreed to settle, and all anticipated payments to resolve the claims of the remaining approximately 10,000 opt outs and any PPH claimants, as well as all legal fees and other costs, net of insurance. Payments to the nationwide, class action settlement funds, individual settlement payments, legal fees and other costs were $3,966.8 million and $117.6 million for 2000 and 1999, respectively. Payments to provide settlement benefits, if needed, may continue for approximately 16 years after final judicial approval. Payments made to date and future payments related to the diet drug litigation are anticipated to be financed through existing cash resources, cash flows from operating activities, additional commercial paper borrowings supported by expanded credit facilities obtained in March 2001, as well as term debt financings and international earnings remitted back to the United States, if necessary. On February 15, 2000, the Company repaid its $1,000.0 million of 7.70% notes. Throughout 2000, the Company used portions of the Warner-Lambert Company termination fee and proceeds from the sale of the Cyanamid Agricultural Products business and sale of Immunex common stock to reduce outstanding term debt and commercial paper. The $2,000.0 million five-year credit facility, which has a maturity date of July 31, 2002, had no outstanding balance at December 31, 2000. In March 2001, the Company obtained new revolving credit facilities totaling $6,000.0 million to support its commercial paper program. The credit facilities are composed of a $3,000.0 million 364-day facility with an option to extend the term of any borrowings, under the facility, for an additional year and a $3,000.0 million 364-day bridge facility to capital markets, which will be terminated upon the issuance of term debt by the Company during 2001. The Company has outstanding $1,000.0 million of 7.90% notes due February 2005. The Company also has outstanding $250.0 million of 6.50% notes due October 2002 and $250.0 million of 7.25% debentures due March 2023. These non-callable notes and debentures are unsecured and unsubordinated. The Company has a common stock repurchase program under which the Company is authorized, at December 31, 2000, to repurchase 6,492,460 additional shares in the future. Depending upon market conditions, among other things, the Company may make limited repurchases of its common stock to offset stock issuances in connection with exercises of stock options during 2001. Management is confident that cash flows from operating activities and available debt financing resources, including the expanded credit facilities obtained in March 2001, will be adequate to fund the Company's operations, pay opt out settlement payments and the nationwide, class action settlement relating to the Redux and Pondimin litigation, pay dividends, maintain its ongoing programs of capital expenditures, including the amount already committed at December 31, 2000 of $894.0 million, and to repay both the principal and interest on its outstanding obligations, without requiring the disposition of any significant strategic core businesses. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in foreign currency exchange rates and interest rates that could impact its financial condition, results of operations and cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company uses derivative financial instruments as risk management tools and not for trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage the Company's exposure to non-performance on such instruments. Foreign Currency Risk Management: The Company generates a portion of Net revenue from sales to customers located outside the United States, principally in Europe. International sales are made mostly from international subsidiaries in the local countries and are typically denominated in the local currency of the respective country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, most international subsidiaries use the local currency as their functional currency. International business, by its nature, is subject to risks including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, future results could be adversely impacted by changes in these or other factors. The Company has established programs to protect against adverse changes in exchange rates due to foreign currency volatility. At December 31, 2000, the fair value of the $558.8 million notional amount of foreign exchange forward contracts was a net receivable of $3.4 million. If the value of the U.S. dollar were to increase or decrease by 10% in relation to all hedged foreign currencies, the net receivable would decrease or increase by approximately $35.5 million. 58 The Company believes that the foreign currency risks to which it is exposed are not reasonably likely to have a material adverse effect on the Company's financial position, results of operations or cash flows due to the high concentration of sales in the United States. No single foreign currency accounted for more than 5% of 2000 or 1999 worldwide net revenue, except for the British Pound, which accounted for 7% and 6% of 2000 and 1999 worldwide net revenue, respectively. As previously discussed, 12 member countries of the European Union adopted the Euro as a new common legal currency. However, the legacy currencies of the member countries are scheduled to remain legal tender as sub-denominations of the Euro until January 1, 2002. Collectively, these countries accounted for 11% and 13% of 2000 and 1999 worldwide Net revenue, respectively. Interest Rate Risk Management: The fair value of the Company's fixed-rate long-term debt is sensitive to changes in interest rates. Interest rate changes would result in gains/losses in the market value of this debt due to differences between the market interest rates and rates at the inception of the debt obligation. At December 31, 2000, the fair value of the Company's outstanding debt was $2,506.6 million. If interest rates were to increase or decrease by one percentage point, the fair value of the outstanding debt would decrease or increase by approximately $72.7 million. Management does not expect any significant changes in its exposure to interest rate fluctuations or in how such exposure is managed in the near future. ENBREL SUPPLY Although the market demand for Enbrel is increasing, the sales growth is currently constrained by limits on the existing source of supply. This is expected to continue until the retro fitting of a Rhode Island facility is completed and approved, which is expected to occur in 2002. If the market demand continues to grow, there may be further supply constraints even after the Rhode Island facility begins producing Enbrel. The current plan for the longer term includes a new manufacturing facility, which is being constructed in Ireland. CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION This Annual Report, including management's discussion and analysis set forth above, contains certain forward-looking statements, including, among other things, statements regarding the Company's results of operations, Euro currency, competition, liquidity, financial condition and capital resources, Enbrel supply, foreign currency and interest rate risk, the nationwide, class action settlement relating to Redux and Pondimin, and additional litigation charges related to Redux and Pondimin including those for opt outs. These forward-looking statements are based on current expectations. Certain factors which could cause the Company's actual results to differ materially from expected and historical results have been identified by the Company in Exhibit 99 to the Company's 1999 Annual Report on Form 10-K and the Company's 2000 Annual Report on Form 10-K, which will be filed by April 2, 2001. 59 BOARD OF DIRECTORS John R. Stafford (1) Chairman and Chief Executive Officer Clifford L. Alexander, Jr. (2)(4) President, Alexander & Associates, Inc. Frank A. Bennack, Jr. (1)(3)(5) President and Chief Executive Officer, The Hearst Corporation Richard L. Carrion(3)(5) Chairman, President and Chief Executive Officer, Popular, Inc. and Banco Popular de Puerto Rico Robert Essner (1) President and Chief Operating Officer John D. Feerick (2)(3) Dean, Fordham University School of Law John P. Mascotte (2)(3)(5) President and Chief Executive Officer, Blue Cross and Blue Shield of Kansas City, Inc. Mary Lake Polan, M.D., Ph.D. (2)(4) Chairman and Professor, Department of Gynecology and Obstetrics, Stanford University School of Medicine Ivan G. Seidenberg (1)(4)(5) President and Co-Chief Executive Officer, Verizon Communications, Inc. Walter V. Shipley (3)(5) Retired Chairman of the Board, The Chase Manhattan Corporation John R. Torell III (2)(4) Senior Managing Partner, Conifer Capital Group DIRECTORS EMERITI John W. Culligan Retired -- Former Chairman of the Board William F. Laporte Retired -- Former Chairman of the Board PRINCIPAL CORPORATE OFFICERS John R. Stafford (6)(7)(8) Chairman and Chief Executive Officer Robert Essner (6)(7)(8) President and Chief Operating Officer Louis L. Hoynes, Jr. (6)(7)(8) Executive Vice President and General Counsel L. Patrick Gage, Ph.D. (7) Senior Vice President -- Science and Technology Kenneth J. Martin (6)(7)(8) Senior Vice President and Chief Financial Officer David M. Olivier (6)(7) Senior Vice President Bernard J. Poussot (7) Senior Vice President John B. Adams Vice President -- Corporate Development Egon E. Berg Vice President and Associate General Counsel Thomas G. Cavanagh Vice President -- Investor Relations Bruce Fadem Vice President -- Corporate Information Services and Chief Information Officer Leo C. Jardot Vice President -- Government Relations Paul J. Jones (6)(7) Vice President and Comptroller Rene R. Lewin (6)(8) Vice President -- Human Resources Thomas M. Nee (6)(8) Vice President -- Taxes Jack M. O'Connor Vice President and Treasurer Marily H. Rhudy Vice President -- Public Affairs Lawrence V. Stein Vice President and Deputy General Counsel Steven A. Tasher Vice President -- Environmental Affairs and Facilities Operations, and Associate General Counsel Justin R. Victoria Vice President -- Investor Relations Eileen M. Lach Secretary and Associate General Counsel -- International PRINCIPAL DIVISION AND SUBSIDIARY OFFICERS Fort Dodge Animal Health Division E. Thomas Corcoran (7) President Specialty Pharmaceuticals Division David G. Strunce President Whitehall International, Inc. Bruce I. Macphail (7) President Whitehall-Robins Healthcare David M. Olivier (6)(7) Senior Vice President, AHP Wyeth-Ayerst Global Pharmaceuticals Bernard J. Poussot (7) President Wyeth-Ayerst Global Pharmaceuticals -- Europe, Middle East and Africa Robert N. Power (7) President Wyeth-Ayerst Global Pharmaceuticals -- Intercontinental Region Mark M. Larsen (7) President Wyeth-Ayerst Global Pharmaceuticals -- North America Joseph M. Mahady (7) President Wyeth-Ayerst Research L. Patrick Gage, Ph.D. (7) President Wyeth Vaccines and Nutrition Kevin L. Reilly President 1 Executive Committee 2 Audit Committee 3 Compensation and Benefits Committee 4 Corporate Issues Committee 5 Nominating and Governance Committee 6 Finance Committee 7 Operations Committee 8 Retirement Committee 60 PRINCIPAL PRODUCTS ETHICAL PHARMACEUTICALS, NUTRITIONALS AND VACCINES HEMOPHILIA BeneFIX ReFacto IMMUNOLOGY & ONCOLOGY Mylotarg Neumega Rapamune INFECTIOUS DISEASES Minocin Minomycin Pipracil Suprax Tazocin Zosyn INTERNAL MEDICINE Altace (2) Cordarone I.V. Protonix Zebeta Ziac Zoton MUSCULOSKELETAL Enbrel (1) Seltouch Synvisc NEUROSCIENCE Efexor Effexor Effexor XR Sonata NUTRITIONALS Materna Nursoy Progress Promil Promise SMA SMA Gold S-26 S-26 Gold VACCINES FluShield HibTITER Meningitec Pnu-Imune 23 Prevenar Prevnar WOMEN'S HEALTH CARE Alesse Harmonet Lo/Ovral Minesse Minulet Premarin Premphase Prempro Totelle Tri-Minulet Trinordiol Triphasil CONSUMER HEALTH CARE ANALGESICS Advil Anacin Anadin Children's Advil Robaxin Spalt COUGH/COLD/ALLERGY Advil Cold & Sinus Dimetapp Dristan Robitussin Robitussin Honey Products NUTRITIONAL SUPPLEMENTS Caltrate Centrum Centrum Focused Formulas Centrum Jr. Centrum Kids Centrum Performance Centrum Select Centrum Silver Solgar OTHER PRODUCTS Anbesol Chap Stick Denorex FiberCon Preparation H Primatene ANIMAL HEALTH CARE Bursine Cydectin Duramune EtoGesic Fel-O-Vax Fluvac LymeVax Polyflex Poulvac ProHeart PYRAMID Quest ToDAY ToMORROW Torbugesic Triangle (1) Co-promoted with Immunex Corporation (2) Co-promoted with King Pharmaceuticals, Inc. The above principal products are identified as trademarks used by American Home Products Corporation and its subsidiaries. 61 CORPORATE DATA EXECUTIVE OFFICES American Home Products Corporation Five Giralda Farms Madison, NJ 07940 (973) 660-5000 STOCK TRADING INFORMATION American Home Products stock is listed on the New York Stock Exchange (ticker symbol: AHP). INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP 1345 Avenue of the Americas New York, NY 10105 ANNUAL MEETING The Annual Meeting of Stockholders will be held on Thursday, April 26, 2001, at the Headquarters Plaza Hotel in Morristown, New Jersey. STOCKHOLDER ACCOUNT INFORMATION Mellon Investor Services LLC is the transfer agent, registrar, dividend disbursing agent and dividend reinvestment agent for the Company. Stockholders of record with questions about lost certificates, lost or missing dividend checks, or notification of change of address should contact: Mellon Investor Services LLC Overpeck Center 85 Challenger Road Ridgefield Park, NJ 07660 (800) 565-2067 For the hearing impaired: (800) 231-5469 (TDD) Internet address: www.mellon-investor.com FORM 10-K A copy of the Company's Annual Report on Form 10-K may be obtained by any stockholder without charge through Mellon Investor Services LLC. INVESTOR SERVICES PROGRAM The program provides stockholders of record and new investors with a convenient way to make cash purchases of the Company's common stock and to automatically reinvest dividends. Inquiries should be directed to Mellon Investor Services LLC. EQUAL EMPLOYMENT OPPORTUNITY Our established affirmative action and equal employment programs demonstrate our long-standing commitment to provide job and promotional opportunities for all qualified persons regardless of age, color, disability, national origin, race, religion, sex, sexual orientation, status as a Vietnam-era veteran or a special disabled veteran, or any military uniformed services obligation. POLICY ON HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION Copies of the Company's "Policy on Health, Safety and Environmental Protection" and "2000 Environmental and Safety Report" may be obtained upon written request to: American Home Products Corporation Department of Environment and Safety Five Giralda Farms Madison, NJ 07940 AHP ON THE INTERNET American Home Products' Internet address is: www.ahp.com TRADEMARKS Product designations appearing in differentiated type are trademarks. 62 [PHOTO OMITTED] [AHP LOGO] (R) American Home Products Corporation Five Giralda Farms Madison, New Jersey 07940 American Home Products Corporation Annual Report 2000 STRONG AND GROWING DELIVERING INNOVATIVE THERAPIES THROUGH BIOTECHNOLOGY American Home Products Corporation Annual Report 2000 [PHOTO OF DAMIEN GONZALES] [AHP LOGO] A PIPELINE FOR GROWTH AHP's extensive investments in biopharmaceutical research and technology are reflected in a strong product pipeline across a broad array of therapeutic areas. The chart on the following pages shows some of the new products and new indications for which AHP currently is conducting post-Phase I clinical trials or that have been submitted for regulatory approval. These products address some of the world's most critical health needs and provide a solid foundation for the Company's future growth. On the cover: Damien Gonzales, ReFacto patient 2 Message to Stockholders 7 Biotechnology at AHP 11 AHP's Therapeutic Franchises 29 Financial Section 60 Directors and Officers 61 Principal Products 62 Corporate Data AHP's Pharmaceutical Pipeline
PHASE II PHASE III REGULATORY REVIEW Women's Health Care ALESSE(R) Acne labeling PREMARIN(R) LOW DOSE Menopausal symptoms Osteoporosis PREMARIN(R)/MPA LOW DOSE Menopausal symptoms Osteoporosis TOTELLE(R) Hormone replacement therapy (EU) TRIMEGESTONE/17 (BETA)-ESTRADIOL Hormone replacement therapy (EU) PREMARIN(R)/TRIMEGESTONE Hormone replacement therapy TRIMEGESTONE/ETHINYL ESTRADIOL Oral contraceptive TSE-424 Postmenopausal osteoporosis [Insert Graphic] Neuroscience Therapies EFFEXOR(R)/EFFEXOR(R) XR Prevention of relapse/recurrence of depression Social anxiety disorder RETIGABINE Anti-epileptic Vaccines/Infectious Diseases FLUMIST(TM) INTRANASAL INFLUENZA VACCINE Frozen formulation Liquid formulation PREVNAR(R) Otitis media 9-VALENT PNEUMOCOCCAL CONJUGATE VACCINE 9-VALENT PNEUMOCOCCAL CONJUGATE-MENINGOCOCCAL GROUP C CONJUGATE VACCINE RSV SUBUNIT VACCINE Prevention of RSV infections ZOSYN(R) Nosocomial pneumonia q6h GAR-936 Antibiotic for serious infections HCI-436 Treatment for hepatitis C Musculoskeletal Therapies ENBREL(R) Disease modification in early stage RA (EU) rhBMP-2 Orthopaedic trauma (long-bone fractures requiring surgery) Spinal fusion Dental/craniofacial Osteonecrosis ANTI-IL-12 Rheumatoid arthritis (joint with Abbott Laboratories)
PHASE II PHASE III REGULATORY REVIEW Internal Medicine PROTONIX(R) ORAL Maintenance of erosive esophagitis (U.S.) Zollinger-Ellison Syndrome (U.S.) PROTONIX(R) I.V. Erosive esophagitis (U.S.) Zollinger-Ellison Syndrome (U.S.) AMIODARONE AQUEOUS Recurrent ventricular fibrillation and unstable ventricular tachycardia ENBREL(R) Congestive heart failure PTP-112 Type II diabetes* rPSGL-IG Acute myocardial infarction [Insert Graphic] Immunology and Oncology RAPAMUNE(R) Renal transplantation - liquid (EU) Maintenance (U.S.) Renal transplantation - tablets (EU) Liver transplantation rhil-11 Subcutaneous therapy for Crohn's disease MYLOTARG(R) Relapsed acute myeloid leukemia (EU) Induction/consolidation in acute myeloid leukemia CCI-779 Various solid tumors ERA-923 Breast cancer PHASE II: PHASE III: REGULATORY Determination Determination REVIEW: of safe and of overall Evaluation of effective dosage benefit/risk safety for an experimental ratio for an and efficacy medicine, generally experimental data by conducted in medicine, governmental hundreds of generally regulatory patients conducted in agencies thousands of patients
* Scheduled to enter Phase II in 2001 Design: Arnold Saks Associates Cover and Major Photography: Mark Tuschman EX-21 9 0009.txt EXHIBIT 21 SUBSIDIARIES OF THE COMPANY --------------------------- DECEMBER 31, 2000 ----------------- State or Country Name of Incorporation ---- ---------------- Domestic - -------- A H Investments Ltd. Delaware Ayerst-Wyeth Pharmaceuticals Incorporated Delaware Cyanamid International Corporation Limited Delaware Genetics Institute, Inc. Delaware Greenwich Holdings Inc. Delaware MDP Holdings, Inc. Delaware Route 24 Holdings, Inc. Delaware American Cyanamid Company Maine Wyeth-Ayerst International Inc. New York Wyeth-Ayerst Pharmaceuticals, Inc. New York Wyeth-Ayerst Lederle, Inc. Puerto Rico Wyeth-Whitehall Pharmaceuticals, Inc. Puerto Rico Berdan Insurance Company Vermont Foreign - ------- Laboratorios Wyeth-Whitehall Ltda. Brazil Wyeth-Ayerst Canada Inc. Canada John Wyeth & Brother Limited England Wyeth-Lederle France Wyeth-Pharma GmbH Germany AHP Finance Ireland Limited Ireland Wyeth Lederle S.p.A. Italy Wyeth Lederle Japan, Ltd. Japan Wyeth S.A. de C.V. Mexico AHP Manufacturing B.V. Netherlands Wyeth Philippines, Inc. Philippines Wyeth Lederle Portugal (Farma), Lda. Portugal Wyeth Nutritionals (Singapore) Pte. Ltd. Singapore Wyeth Pharmaceuticals (Singapore) Pte. Ltd. Singapore Cyanamid Iberica, S.A. Spain Wyeth Lederle Nordiska A.B. Sweden Dimminaco AG Switzerland Cyanamid Taiwan Corporation Taiwan There have been omitted from the above list the names of subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 10 0010.txt EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated January 25, 2001 included in American Home Products Corporation's (the Company) Annual Report to Stockholders for the year ended December 31, 2000. Furthermore, we consent to the incorporation of our reports dated January 25, 2001 included in or made part of this Form 10-K, into the Company's previously filed Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456, 333-15509 and 333-76939). ARTHUR ANDERSEN LLP New York, New York March 16, 2001 EX-99 11 0011.txt EXHIBIT 99 Exhibit 99 to the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2000 Cautionary Statements Regarding "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The Company may from time to time make written or verbal forward-looking statements. Forward-looking statements may appear in periodic reports filed with the Securities and Exchange Commission (including the Company's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q), in press releases, in the Company's Annual Report to Stockholders and other reports to stockholders, and in other communications made by the Company. These forward-looking statements can be identified by their use of words such as "anticipates," "expects," "is confident," "plans," "could," "will," "believes," "estimates," "forecasts," "projects" and other words of similar meaning. These forward-looking statements address various matters including the Company's results of operations, Euro Currency, competition, liquidity, financial condition and capital resources, ENBREL supply, foreign currency and interest rate risk, the nationwide, class action settlement relating to REDUX and PONDIMIN and additional litigation charges related to REDUX and PONDIMIN including those for opt outs, market position and product development. These forward-looking statements are based on current expectations. The Company undertakes no obligation to update any forward-looking statements, but investors are advised to consult any further disclosures by the Company on these forward-looking statements in its subsequent filings pursuant to the Securities Exchange Act of 1934. As permitted by the Private Securities Litigation Reform Act of 1995, the Company is hereby filing the following cautionary statements identifying important factors which, among others, could cause the Company's actual results to differ materially from expected and historical results: Competitive implications on the Company's pricing and marketing strategies due to the conversion to the Euro. Competitive factors including managed care groups, institutions and government agencies seeking price discounts; technological advances attained by competitors; patents granted to competitors; potential generic competition for PREMARIN and for other health care products as such products mature. In the United States, among other developments, consolidation among managed care organizations may increase price pressure and may result in managed care organizations having greater influence over prescription decisions through formulary decisions and other policies. Government laws and regulations affecting U.S. and international operations, including trade, monetary and fiscal policies, taxes (including the phasing out of the Section 936 income tax credit), price controls, changes in governments and legal systems, as well as actions affecting approvals of products and licensing. Uncertainties of the FDA approval process and possible regulatory action and the regulatory approval processes and possible regulatory action of other non-U.S. countries, including, without limitation, delays in approval of new products or business interruptions related to regulatory action. Governmental factors including laws, regulations and judicial decisions at the state and federal level related to Medicare, Medicaid and health care reform; and laws and regulations affecting pricing and pharmaceutical reimbursement. Inherent uncertainty of pharmaceutical research, difficulties or delays in product development and commercialization including, but not limited to, the inability to identify viable new chemical compounds, successfully complete clinical trials, and gain and maintain market acceptance of approved products. Difficulties or delays in product development can also affect the Company's other businesses. New product candidates that appear promising in development may fail to reach market for numerous reasons. They may be found to be ineffective or to have harmful side effects in clinical or pre-clinical testing. Changes in inventory levels maintained by pharmaceutical wholesalers can cause reported sales for a particular period to differ significantly from underlying prescriber demand. Difficulties or delays in product manufacturing or marketing, including but not limited to, the inability to build up production capacity commensurate with demand, the ability of our suppliers to provide raw material, or the failure to predict market demand for or to gain market acceptance of approved products could affect future results. Unexpected safety or efficacy concerns arising with respect to marketed products, whether or not scientifically justified, leading to product recalls, withdrawals or declining sales. Growth in costs and expenses, including changes in product mix, and the impact of any acquisitions or divestitures, restructuring and other unusual items that could result from evolving business strategies, impairments in asset carrying values, and changing organizational structures. Product liability litigation related to the Company's health care and other products including, without limitation, litigation associated with the Company's antiobesity products, REDUX and PONDIMIN. Other legal factors include, without limitation, antitrust litigation, environmental concerns, changes in intellectual property legal protections and remedies, and patent disputes with competitors, any of which could preclude commercialization or negatively affect the profitability of existing products or products in development. Changes in accounting standards promulgated by the Financial Accounting Standards Board, the Securities and Exchange Commission, and the American Institute of Certified Public Accountants, which are adverse to the Company. Continued consolidation in the health care industry could affect the Company's competitive position. Changing economic conditions including inflation and fluctuations in interest rates and foreign currency exchange rates. This list should not be considered an exhaustive statement of all potential risks and uncertainties. -----END PRIVACY-ENHANCED MESSAGE-----