-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, E90q4LxNvJIFMTe01kDDJJcS4in2+KKUWLi7zVgzfwdjOp6nC86jyxWp31dY0ydb ZZWWa/2bGA3292kniOqdcg== 0000005187-94-000005.txt : 19940325 0000005187-94-000005.hdr.sgml : 19940325 ACCESSION NUMBER: 0000005187-94-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940324 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOME PRODUCTS CORP CENTRAL INDEX KEY: 0000005187 STANDARD INDUSTRIAL CLASSIFICATION: 2834 IRS NUMBER: 132526821 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-01225 FILM NUMBER: 94517686 BUSINESS ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 BUSINESS PHONE: 201-660-5000 10-K 1 AMERICAN HOME PRODUCTS CORPORATION FORM 10-K 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, 1993 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 incorporation or organization) Identification Number) Five Giralda Farms, Madison, NJ 07940-0874 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (201) 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, $.33 - 1/3 par value New York Stock Exchange 6 - 7/8% Notes due April 15, 1997 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. 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 1, 1994 - $18,564,584,755 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date (applicable only to corporate registrants). Outstanding at March 1, 1994 Common Stock, $.33 - 1/3 par value 310,035,743 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) 1993 Annual Report to Shareholders - In Parts I, II and IV (2) Proxy Statement filed March 17, 1994 - In Parts III and IV (3) 1993 Genetics Institute, Inc. Annual Report to Shareholders - In Part I PART I ITEM 1. DESCRIPTION OF BUSINESS General American Home Products Corporation (the "Company"), a Delaware corporation organized in 1926, is a leading manufacturer and marketer of health care products (in- cluding pharmaceuticals, consumer health care products, medical supplies and diagnostic products) and food products. Unless stated to the contrary, or unless the context otherwise requires, references to the Company in this report include American Home Products Corporation, its divisions and subsidiaries. Information relating to acquisitions and certain other transactions is set forth in Note 2 of the Notes to Consolidated Financial Statements in the Company's 1993 Annual Report to Shareholders, and is incorporated herein by reference. Industry Segments Financial information, by geographic location and by the industry segments of the Company, for the three years ended December 31, 1993 is set forth on page 38 of the Company's 1993 Annual Report to Shareholders and is incorporated herein by reference. The Company is not dependent on any single or major group of customers for its sales. The Company currently manufactures, distributes and sells a diversified line of products in two business segments(*): 1. HEALTH CARE PRODUCTS - Pharmaceuticals - This sector includes a wide variety of ethical pharmaceuticals and biological products for human and veterinary use which are promoted and sold worldwide primarily to wholesalers, pharmacies, hospitals and doctors. Some of these sales are made through large buying groups representing certain of these customers. Principal product categories for human use include female health care products, infant nutritionals, cardiovascular and metabolic disease therapies, mental health products, anti-inflammatory products, anti-infectives and vaccines. Principal veterinary product categories include vaccine products, antibiotics and analgesics. The Company manufactures these products in the United States and Puerto Rico, and in eighteen foreign countries. *The product designations appearing in differentiated type herein are trademarks. Except for the female health care category, no single category of products accounted for more than 10% of Health Care Products segment sales in 1993. Within the female health care category, no single product or line of products accounted for more than 10% of Health Care Products segment sales in 1993. The operating income from the female health care category in the aggregate, and PREMARIN, individually, accounted for more than 10% of the Company's consolidated operating income before and after taxes. Consumer health care - The Company's over-the-counter health care products include analgesics, cough/cold/allergy remedies, hemorrhoidal and asthma relief items, oral health care and in-home diagnostic test products. These products are generally sold to wholesalers and retailers, and are primarily promoted to consumers through advertising. These products are manufactured in the United States and Puerto Rico, and in seven foreign countries. No single consumer health care product or line of products accounted for more than 10% of Health Care Products segment sales in 1993. Medical supplies and diagnostic products - Principal products in this segment include medical supplies, medical and diagnostic instrumentation, disposable laparoscopic and endoscopic surgical instruments and other hospital products which are promoted and sold principally to doctors, hospi- tals, other health care institutions and wholesalers. Buying groups also represent certain of these customers. In addi- tion to the United States, these products are manufactured in five foreign countries. No single product or line of products in this sector accounted for more than 10% of Health Care Products segment sales in 1993. Further information regarding the principal products in the Health Care Products segment and the principal markets served therein is included in the text on pages 13 through 23 of the Company's 1993 Annual Report to Shareholders, which is incorporated herein by reference. 2. FOOD PRODUCTS - Products in this segment include prepared pastas and specialty food, condiments, snack products, and jams, which are promoted to consumers through advertising and generally sold directly to wholesalers and retailers. Product line sales in 1993 under the CHEF BOYARDEE trademark exceeded 10% of Food Products segment sales but did not exceed 10% of total consolidated sales. Further information regarding the principal products in the Food Products segment and the principal markets served therein is included on page 24 of the Company's 1993 Annual Report to Shareholders, which is incorporated herein by reference. 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 financial position or results of operations. 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 pharmaceuticals area, substantially all of the Company's major products are no longer patent protected. The oral contraceptive brand TRIPHASIL lost its patent protection in the United States in May 1993 as did SECTRAL and CORDARONE. The non-steroidal anti-inflammatory ("NSAID") LODINE remains under patent protection in the United States until early 1997. Other prescription products, such as the cardiovasculars INDERAL LA and INDERIDE LA remain patent protected until early 1996. EFFEXOR, a recently approved antidepressant, will have patent protection into 2007. Sales in the consumer health care and medical supplies and diagnostic products businesses are largely supported by the Company's trademarks and brand names, as are food product sales. 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 the Competition section of this Annual Report regarding generic and store brands competition in the consumer health care business. Seasonality Sales of consumer health care products are affected by seasonal demand for cold/flu season products. On a comparable basis, second quarter results have historically been lower than results in other quarters due primarily to the lower demand for cold/flu season products. Competition Each of the industry segments in which the Company is engaged is highly competitive. The Health Care Products segment faces competitive pressures in the United States from branded and generic forms of both prescription and non-prescription products, as well as new product introductions. For prescription products, the growth of generic substitutes is further promoted by legislation, regulation and various incentives enacted and promulgated in both the public and private sectors. The growth of managed care organizations, such as health maintenance organizations ("HMOs") and pharmaceutical benefit management companies, has resulted in further competitive pressures on health care products. While naturally sourced PREMARIN no longer has patent pro- tection, it is not presently subject to generic competition in the United States. The Company cannot presently predict the timing of regulatory approval of generic conjugated estrogens products and their potential impact on the market. However, the FDA has issued a bioequivalence guidance to facilitate the development of such generic products. While it is very likely that some generic companies are attempting to develop and obtain approval of such products, information on the status of drugs (including generic drugs) under FDA's approval processes is not publicly available prior to approval being obtained. In addition, PREMARIN has been subject to increased competition from certain synthetic estrogen products (though not conjugated estrogens products) that have been approved for many of the same uses as PREMARIN. The growth of consumer health care generic and store brands continued to impact some of the Company's branded product line categories in 1993. The debate regarding U.S. health care reform and its uncertainty continued during 1993. The proposals by the Clinton Administration have been formalized and were presented to Congress in October 1993. Other health care reform proposals from members of Congress are being introduced with varied agendas on issues such as Medicaid and Medicare rebates, price controls, governmental alliances and other matters. Similarly, in international markets, health care spending is subject to increasing governmental scrutiny, much of which is focused on pharmaceutical prices. While we cannot predict the impact proposed health care legislation will have on the Company's worldwide results of operations, we believe 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. However, it is expected that global market forces will continue to constrain price growth regardless of the outcome of health care reform. A federal law that became effective in January 1991 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 to Pharmaceutical Assistance to the Elderly programs and other strategies, to contain the cost of pharmaceutical products. Federal and state rebate programs as well as infant nutritional products rebates under the federally sponsored Women, Infants and Children program are expected to continue. Other significant competitive factors in the Health Care Products segment are scientific and technological advances, product quality, price and effective communication of product information to physicians, pharmacists, hospitals and trade customers. Competition is particularly severe in the hospital supply industry, principally in the needle and syringe business and in the generic hospital injectable products business. In the Food Products segment, product quality, price and relevance to contemporary family needs are important competitive factors. 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, to the trade and to consumers. Research and Development Worldwide research and development activities are focused on developing and bringing to market new drugs to treat and/or prevent some of the most serious health care problems. The Company employs over 5,600 professionals worldwide who are committed to this effort. Research and development expend- itures totaled $662,689,000 in 1993, $552,450,000 in 1992 and $430,519,000 in 1991, with approximately 85% of these expenditures in the ethical pharmaceutical area. The Company received FDA approval in 1993 for EFFEXOR, ORUVAIL and LODINE 400 mg tablets. The Company's Wyeth-Ayerst Laboratories Division currently has three New Drug Applications ("NDA") filed with the FDA for review and 23 active Investigational New Drug applications pending. In addition, in 1993 a NDA to switch a lower dose of ORUDIS to a non-prescription status was filed. During 1993, several major collaborative research and development arrangements continued with other pharmaceutical and biotechnology companies. Research and development projects continued at Genetics Institute, Inc. and at the Company's other health care operations. It is not anticipated, however, that the products from these activities will contribute significantly to revenues and operating profit in the near future. The extent, if any, of subsequent contributions cannot presently be predicted. Regulation The Company's various health care and food 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 (the "Act"), including several recent amendments to the Act, regulates the Company's human and animal pharmaceuticals, consumer health care, medical supplies and diagnostic products and food products businesses. FDA's powers include the imposition of criminal and civil sanctions against companies, including seizures of regulated products and criminal sanctions against individuals. To facilitate compliance, the Company from time to time may institute voluntary compliance actions such as product recalls when it believes it advisable 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 require- ments continue to increase the amount of time, testing and documentation needed for approval, resulting in a corres- ponding increase in the cost of new product introductions. FDA has exercised its enforcement powers more aggressively in recent years, increasing both the number and intensity of its factory inspections. The Company'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. The Company devotes significant resources to dealing with the extensive federal and state regulatory requirements applicable to its products. With respect to the Company's food products, the Nutrition Labeling and Education Act of 1990 and FDA regulations issued thereunder will, in the future, affect the consumer nutritional information and any health claims appearing on the labels of the Company's food products. 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"). (See Item 3. Legal Proceedings.) The Company provides for the estimated costs of remediation for all known environ- mental liabilities. Employees At the end of 1993, the Company had 51,399 employees world- wide, with 29,028 employed in the United States including Puerto Rico. Financial Information about the Company's Foreign and Domestic Operations Financial information about foreign and domestic operations for the three years ended December 31, 1993, as set forth on page 38 of the Company's 1993 Annual Report to Shareholders, is incorporated herein by reference. ITEM 2. PROPERTIES In the fourth quarter of 1993, the Company relocated its executive offices and the headquarters for its domestic consumer health care and food products businesses to a new facility in Giralda Farms, Madison, New Jersey. The former headquarters facility, a 31-story office building located at 685 Third Avenue, New York, New York, is being marketed for sale or lease. The Company's domestic and international pharmaceutical operations and its international consumer health care business are headquartered in three executive/administrative buildings in Radnor and St. Davids, Pennsylvania. Sherwood, the Company's principal medical supplies and diagnostic operation, maintains its headquarters in St. Louis, Missouri. The following are the principal domestic manufacturing plants (M) and research laboratories (R) of the Company's operating units: Floor Area INDUSTRY SEGMENT (Sq. Ft.) Health Care Products: Deland, Florida (M) 342,000 Fort Dodge, Iowa (M,R) 498,000 Andover, Massachusetts (M,R) 270,000 Cambridge, Massachusetts (M,R) 220,000 Mason, Michigan (M) 299,000 Norfolk, Nebraska (M) 204,000 Hammonton, New Jersey (M,R) 467,000 Monmouth Junction, New Jersey (R) 285,000 Rouses Point, New York (M,R) 833,000 Malvern, Pennsylvania (M) 816,000 Marietta, Pennsylvania (M,R) 225,000 Radnor, Pennsylvania (R) 418,000 West Chester, Pennsylvania (M) 421,000 Guayama, Puerto Rico (M) 1,079,000 Georgia, Vermont (M) 288,000 Richmond, Virginia (M) 273,000 Richmond, Virginia (M) 321,000 Food Products: Vacaville, California (M,R) 527,000 Milton, Pennsylvania (M,R) 1,020,000 Fort Worth, Texas (M) 205,000 All of the above properties are owned except the land and a 757,000 sq. ft. facility in Guayama, Puerto Rico, which are under lease expiring in 2007 with options for renewal and purchase, 105,000 sq. ft. facility in Georgia, Vermont which is under lease expiring in 2006, and 177,000 sq. ft. in Cambridge, Massachusetts, which is under leases expiring in 1999 and 2009. The Company also owns or leases a number of other smaller properties in the United States which are used for manufacturing, warehousing and office space. During 1993, the Company's St. Joseph, Missouri manufacturing facility (224,000 sq. ft.) was severely damaged by floods. Production from this facility was shifted to other plants and this facility was closed. In addition to the domestic properties, foreign subsidiaries and affiliates of the Company, which generally own their properties, have manufacturing facilities in nineteen countries outside the United States, the principal facilities of which are located in Ireland, Italy, Germany, Brazil, Mexico and the United Kingdom. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal proceedings, including product liability suits of a nature considered normal to its business. There are approximately 1,700 cases pending, predominantly in the United Kingdom, based primarily on alleged dependence on the tranquilizer ATIVAN. Substantially all of the cases in the United Kingdom have been supported by governmental legal aid funding. The Legal Aid Board in England, where more than 1,100 cases are pending, has determined to discontinue funding of these cases. If this decision is upheld on appeal, these cases will be dismissed and the other legally- aided cases in Scotland and Northern Ireland (approximately 340 cases) may be discontinued as well. The Company is self-insured against ordinary product liability risks and, other than for the years 1986 to 1988, has liability coverage in excess of certain limits from various insurance carriers. As discussed in Item 1, the Company is a party to a number of proceedings brought under CERCLA and similar state laws. These proceedings seek to require the owners or operators of facilities at which hazardous wastes are alleged to have been disposed, transporters of waste to the sites and generators of hazardous waste disposed of at the sites, to clean up the sites or to reimburse the government for cleanup costs. Although joint and several liability is alleged in these cases where multiple entities have been named as responsible parties, these proceedings are frequently resolved on the basis of the quantity of hazardous waste disposed of at the site by the generator. 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. In 1992, the New York Department of Environmental Conservation imposed a $750,000 penalty on the Company relating to air emissions at a New York State facility. The Company appealed the amount of the penalty to the Supreme Court of New York, claiming that the maximum penalty permitted under New York law is $97,000. The Supreme Court affirmed the penalty and an appeal to the Appellate Division of the New York Supreme Court, Third Department, is pending. The United States Environmental Protection Agency ("USEPA") filed an action against Ekco Housewares ("Ekco"), a former subsidiary of the Company, in the U.S. District Court for the Northern District of Ohio alleging violation of federal and state financial assurance regulations in connection with the required closure of a lagoon at Ekco's Massillon, Ohio facility. AHPC assumed the defense of the action pursuant to an indemnification agreement. On January 28, 1994, the court entered judgment against Ekco in the amount of $4,606,000, concluding that Ekco had violated regulations governing the posting of financial assurance for closure, post-closure and liability coverage. An appeal will be filed and pursued vigorously, with judgment stayed during the pendency of the appeal. The Company has been involved in various antitrust suits and government investigations relating to its marketing and sale of infant formula. The antitrust lawsuits, which were commenced in various federal and state courts, allege in general that the Company conspired with one or more of its competitors to fix prices of infant formula and to monopolize the market for infant formula products. The Company has settled most of the cases as well as a Federal Trade Commission proceeding. Each of these settlements was entered into by the Company in order to avoid the burden and expense of protracted litigation and did not involve any admission of wrongdoing by the Company. The Company is currently a defendant in litigation brought in federal court by the State of Louisiana and in purported class actions in Alabama and Texas (under the Texas Deceptive Trade Practices Act) state courts on behalf of indirect purchasers of infant formula in those states. In addition to the Federal Trade Commission, the government agencies that have been conducting investigations of pricing and marketing practices in the infant formula industry include three state attorneys general. The Company has been advised that two other state attorneys general have terminated their investigations of the Company without any action. In addition, the Bureau of Competition Policy in Canada is conducting an investigation of infant formula pricing and marketing practices in Canada. On October 14, 1993, Rite Aid Corporation, Revco D.S. Inc. and other retail drug chains and retail pharmacies filed an action in the U.S. District Court for the Middle District of Pennsylvania against the Company, other pharmaceutical manufacturers and a pharmacy benefit management company. The complaint alleges 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 alleges 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 are purported class actions brought on behalf of retail pharmacies and retail drug and grocery chains, were filed in various federal courts and in various California state courts against the Company as well as other pharmaceutical manufacturers and wholesalers. These cases make one or more similar allegations of violations of federal or state antitrust or unfair competition laws. All of the federal actions have been consolidated for pretrial purposes in the U.S. District Court for the Northern District of Illinois. The above actions seek treble damages, injunctive and other relief. For information concerning certain litigation involving Genetics Institute, Inc., see Part I, Item 3 of Genetics Institute, Inc's. Annual Report on Form 10-K for the fiscal year ended November 30, 1993, which Item is incorporated herein by reference. 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 or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 24, 1994 Each officer is elected to hold office until his successor is chosen or until his earlier removal or resignation. None of the executive officers is related to another: Elected to Name Age Offices and Positions Office John R. Stafford 56 Chairman of the Board, December 1986 President and Chief Executive Officer, Chairman of Executive, Finance and Operations Committees Business Experience: 1989 to date, Chairman of the Board, President and Chief Executive Officer (President to May 1990 and from February 1994) Robert G. Blount 55 Executive Vice President, August 1987 Director, Member of Finance and Operations Committees Business Experience: 1989 to date, Executive Vice President Stanley F. Barshay 54 Senior Vice President August 1987 Member of Finance and Oper- ations Committees Business Experience: 1989 to date, Senior Vice President Joseph R. Bock 64 Senior Vice President February 1990 Member of Finance and Operations Committees Business Experience: 1989 to February 1990, Vice President - Industrial Relations February 1990 to date, Senior Vice President Elected to Name Age Offices and Positions Office Louis L. Hoynes, Jr. 58 Senior Vice President and November 1990 General Counsel Member of Finance and Operations Committees Business Experience: 1989 to 1990, Partner, Willkie Farr & Gallagher November 1990 to date, Senior Vice President and General Counsel Joseph J. Carr 51 Senior Vice President May 1993 Member of Finance and Oper- ations Committees Business Experience: To November 1989, Executive Vice President - Operations, Wyeth-Ayerst Laboratories Division November 1989 to April 1991, Vice President April 1991 to May 1993, Group Vice President May 1993 to date, Senior Vice President Fred Hassan 48 Senior Vice President May 1993 Member of Finance and Oper- ations Committees Business Experience: February 1989 to March 1993, President of Wyeth-Ayerst Laboratories Division March 1993 to May 1993, Group Vice President, May 1993 to date, Senior Vice President John R. Considine 43 Vice President - Finance February 1992 Member of Finance and Oper- ations Committees Business Experience: To February 1989, Vice President and Comptroller February 1989 to February 1992, Vice President and Treasurer February 1992 to date, Vice President - Finance Elected to Name Age Offices and Positions Office Thomas M. Nee 54 Vice President - Taxes May 1986 Member of Finance Committee Business Experience: 1989 to date, Vice President - Taxes PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER 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 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 shown on page 40 of the Company's 1993 Annual Report to Shareholders, are incorporated herein by reference. There were 72,422 holders of record of the Company's common stock as of March 1, 1994. 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 26 and 27 of the Company's 1993 Annual Report to Shareholders, 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 41 through 43 of the Company's 1993 Annual Report to Shareholders, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and Notes on pages 28 through 38 of the Company's 1993 Annual Report to Share- holders, the Report of Independent Public Accountants and the Management Report on Financial Statements on page 39, and Quarterly Financial Data on page 40, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Information relating to the Company's directors is incorporated herein by reference to pages 3 through 7 and page 24 of a definitive proxy statement filed with the Securities and Exchange Commission on March 17, 1994 ("the 1994 Proxy Statement"). (b) Information relating to the Company's executive officers as of March 24, 1994 is furnished in Part I hereof under a separate unnumbered caption ("Executive Officers of the Registrant"). ITEM 11. EXECUTIVE COMPENSATION Information relating to executive compensation is in- corporated herein by reference to pages 11 through 16 of the 1994 Proxy Statement. Information with respect to compensation of directors is incorporated herein by reference to pages 8 and 9 of that proxy statement. Information relating to the Compensation Committee Interlocks and Insider Participation is incorporated by reference to pages 23 and 24 of the 1994 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to security ownership is incorporated by reference to pages 9 and 10 of the 1994 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following Consolidated Financial Statements, related Notes and Report of Independent Public Accountants, included on pages 28 through 39 of the Company's 1993 Annual Report to Shareholders, are incorporated herein by reference. Pages Consolidated Balance Sheets as of December 31, 1993 and 1992 28 Consolidated Statements of Income for the years ended December 31, 1993, 1992 and 1991 29 Consolidated Statements of Retained Earnings and Additional Paid-in Capital for the years ended December 31, 1993, 1992 and 1991 30 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 31 Notes to Consolidated Financial Statements 32-38 Report of Independent Public Accountants 39 (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 Schedules IV-6 For the years ended December 31, 1993, 1992 and 1991: Schedule V - Property, Plant and Equipment IV-7 Schedule VI - Accumulated Depreciation of Property, Plant and Equipment IV-8 Schedule VIII - Valuation and Qualifying Accounts IV-9 ITEM 14. (Continued) Pages Schedule IX - Short-term Borrowings IV-10 Schedule X - Supplementary Income Statement Information IV-11 Schedules other than those listed above are omitted because they are either not applicable or the required information is included through incorporation by reference to pages 28 through 38 of the Company's 1993 Annual Report to Shareholders. (a) 3. Exhibits Exhibit No. Description (3.1) Restated Certificate of Incorporation, as amended to date, is incorporated herein by reference to Exhibit (3.1) of the Registrant's Form 10-K for the year ended December 31, 1990. (3.2) By-Laws, as amended to date is incorporated herein by reference to Exhibit (3.2) of the Registrant's Form 10-K for the year ended December 31, 1992. (4.1) Indenture, dated as of April 10, 1992, between AHPC and Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company), as Trustee, is incorporated by reference to Registrant's Form 8-A dated August 25, 1992. (4.2) Supplemental Indenture, dated October 13, 1992, between AHPC and Chemical Bank (as successor by merger to Manufacturers Hanover Trust Company) as Trustee, incorporated by reference to Registrant's Form 10-Q for the quarter ended September 30, 1992. (10.1) Credit Agreement dated as of April 29, 1993 among Registrant, the Lenders Parties thereto and Chemical Bank. (10.2) * 1978 Stock Option Plan, as amended to date, is incorporated herein by reference to Exhibit (10.2) of the Registrant's Form 10-K for the year ended December 31, 1990. (10.3) * 1980 Stock Option Plan, as amended to date is incorporated by reference to Exhibit (10.3) of the Registrant's Form 10-K for the year ended December 31, 1991. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. ITEM 14. (Continued) (a) 3. Exhibits Exhibit No. Description (10.4) * 1985 Stock Option Plan, as amended to date is incorporated by reference to Exhibit (10.4) of the Registrant's Form 10-K for the year ended December 31, 1991. (10.5) * Management Incentive Plan, as amended to date, is incorporated herein by reference to Exhibit (10.5) of the Registrant's Form 10-K for the year ended December 31, 1990. (10.6) * Supplemental Executive Retirement Plan is incorporated herein by reference to Exhibit (10.6) of the Registrant's Form 10-K for the year ended December 31, 1990. (10.7) * 1990 Stock Incentive Plan is incorporated herein by reference to Exhibit (28) of the Registrant's Form S-8 Registration Statement File No. 33-41434 under the Securities and Exchange Act of 1933, filed June 28, 1991. (10.8) * 1993 Stock Incentive Plan is incorporated herein by reference to Exhibit I of the Registrant's Proxy Statement filed March 17, 1994. (10.9) * 1994 Restricted Stock Plan for Non-Employee Directors is incorporated herein by reference to Exhibit II of the Registrant's Proxy Statement filed March 17, 1994. (10.10)* Form of Deferred Compensation Agreement. (10.11)* American Home Products Savings Plan, as amended, is incorporated herein by reference to Exhibit 99 of the Registrant's Form S-8 Registration Statement File No. 33-50149 under the Securities and Exchange Act of 1933, filed September 1, 1993. (10.12)* American Home Products Corporation Retirement Plan for Outside Directors, as amended on January 27, 1994. (10.13) Sixth Amended and Restated Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code, dated March 28, 1988, among A.H. Robins Company, Incorporated, Registrant and AHP Subsidiary (9) Corporation is incorporated herein by reference to Exhibit (2) of Registrant's Form 8-K dated December 15, 1989, filed December 30, 1989. ITEM 14. (Continued) (a) 3. Exhibits Exhibit No. Description (10.14) Purchase Agreement, dated as of April 6, 1990, between Reckitt & Colman plc and Registrant is incorporated herein by reference to Exhibit (2.1) of Registrant's Form 8-K dated June 29, 1990, filed July 12, 1990. (10.15) First Amendment, dated as of June 28, 1990, to the Purchase Agreement is incorporated herein by reference to Exhibit (2.2) of Registrant's Form 8-K dated June 29, 1990, filed July 12, 1990. (10.16) Second Amendment, dated as of July 3, 1990, to the Purchase Agreement is incorporated herein by reference to Exhibit (2.3) of Registrant's Form 8-K dated June 29, 1990, filed July 12, 1990. (10.17) Agreement and Plan of Merger dated as of September 19, 1991 among Genetics Institute, Inc. ("G.I."), Registrant, AHP Biotech Holdings, Inc. and AHP Merger Subsidiary Corporation, is incorporated herein by reference to Exhibit (I) of Registrant's Schedule 13D dated January 24, 1992 filed with respect to the common stock of G.I. ("Schedule 13D"). (10.18) Depositary Agreement dated as of January 16, 1992 among Registrant, AHP Biotech Holdings, Inc., G.I. and The First National Bank of Boston, as Depositary, is incorporated herein by reference to Exhibit (II) of the Registrant's Schedule 13D. (10.19) Governance Agreement dated as of January 16, 1992 among Registrant, AHP Biotech Holdings, Inc. and G.I., is incorporated herein by reference to Exhibit (III) of the Registrant's Schedule 13D. (11) Calculation of per share earnings as reported in Note 10 to Consolidated Financial Statements on page 37 of the Company's 1993 Annual Report to Shareholders is incorporated herein by reference. (13) 1993 Annual Report to Shareholders. 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 Registrant. ITEM 14. (Continued) (a) 3. Exhibits Exhibit No. Description (23) Consent of Independent Public Accountants relating to their report dated January 18, 1994, consenting to the incorporation thereof in Registration Statements on Form S-3 (File No. 33-45324) and on Form S-8 (File No., 33-24068, 33-41434, 33-50149 and 33-55456) by reference to the Form 10-K of the Registrant filed for the year ended December 31, 1993. (99) Part I Item 3 of Genetics Institute, Inc.'s Annual Report on Form 10-K (SEC File No. 0-14587) for the year ended November 30, 1993 is incorporated herein by reference. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1993. 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 Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 18, 1994. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the accompanying index are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state 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 & CO. New York, New York January 18, 1994 SCHEDULE V American Home Products Corporation and Subsidiaries Schedule V -- Property, Plant and Equipment For the Years Ended December 31, 1993, 1992 and 1991 (Dollars in thousands) Column A Column B Column C Column D Column E Column F Currency Balance Translation Balance at Adjustment at Beginning Additions Retire- Add End of Classification of Period at Cost ments (Deduct) Period Year Ended 12/31/93: Land $79,881 $17,463 $8,186 $217 $89,375 Buildings 1,292,741 218,779 20,310 (17,797) 1,473,413 Machinery and Equipment 1,460,538 212,716 32,846 (20,872) 1,619,536 Furniture and Fixtures 223,733 68,954 12,542 (2,104) 278,041 ---------- -------- -------- -------- ---------- $3,056,893 $517,912 $73,884 ($40,556) $3,460,365 ========== ======== ======== ======== ========== Year Ended 12/31/92: Land $61,433 $20,338 $683 ($1,207) $79,881 Buildings 1,076,708 276,776 36,606 (24,137) 1,292,741 Machinery and Equipment 1,327,571 218,666 63,652 (22,047) 1,460,538 Furniture and Fixtures 193,520 39,508 6,566 (2,729) 223,733 ---------- -------- -------- -------- ---------- $2,659,232 $555,288 $107,507 ($50,120) $3,056,893 ========== ======== ======== ======== ========== Year Ended 12/31/91: Land $51,787 $11,388 $1,030 ($712) $61,433 Buildings 1,046,677 69,130 26,631 (12,468) 1,076,708 Machinery and Equipment 1,264,319 123,284 47,231 (12,801) 1,327,571 Furniture and Fixtures 170,039 34,336 8,734 (2,121) 193,520 ---------- -------- ------- -------- ---------- $2,532,822 $238,138 $83,626 ($28,102) $2,659,232 ========== ======== ======= ======== ========== SCHEDULE VI American Home Products Corporation and Subsidiaries Schedule VI -- Accumulated Depreciation of Property, Plant and Equipment For the Years Ended December 31, 1993, 1992 and 1991 (Dollars in thousands) Column A Column B Column C Column D Column E Column F Additions Currency Balance Charged Translation Balance at to Costs Adjustment at Beginning and Retire- Add End of Description of Period Expenses ments (Deduct) Period Year Ended 12/31/93: Buildings $378,776 $50,091 $14,499 ($3,085) $411,283 Machinery and Equipment 774,893 108,103 29,745 (9,466) 843,785 Furniture and Fixtures 125,433 32,722 11,457 (1,186) 145,512 ---------- -------- ------- -------- ---------- $1,279,102 $190,916 $55,701 ($13,737) $1,400,580 ========== ======== ======= ======== ========== Year Ended 12/31/92: Buildings $354,574 $49,805 $20,325 ($5,278) $378,776 Machinery and Equipment 723,762 105,485 43,048 (11,306) 774,893 Furniture and Fixtures 104,055 28,291 5,424 (1,489) 125,433 ---------- -------- ------- -------- ---------- $1,182,391 $183,581 $68,797 ($18,073) $1,279,102 ========== ======== ======= ======== ========== Year Ended 12/31/91: Buildings $332,841 $34,730 $8,652 ($4,345) $354,574 Machinery and Equipment 671,207 95,968 36,022 (7,391) 723,762 Furniture and Fixtures 91,384 22,248 8,293 (1,284) 104,055 ---------- -------- ------- -------- ---------- $1,095,432 $152,946 $52,967 ($13,020) $1,182,391 ========== ======== ======= ======== ========== Rates of depreciation range from 2 to 20 percent for buildings, 6 2/3 to 33 1/3 percent for machinery and equipment and 5 to 33 1/3 percent for furniture and fixtures. SCHEDULE VIII American Home Products Corporation and Subsidiaries Schedule VIII -- Valuation and Qualifying Accounts For the Years Ended December 31, 1993, 1992 and 1991 (Dollars in thousands) Column A Column B Column C Column D Column E Additions Balance Charged Balance at to Costs at Beginning and Deductions End of Description of Period Expenses (A) Period Year ended 12/31/93: Valuation and qualifying accounts - Allowance for doubtful accounts $23,702 $7,101 $5,172 $25,631 Allowance for cash discounts 15,203 148,013 142,898 20,318 Allowance for deferred tax assets 101,324 -- 9,961 91,363 ---------- -------- -------- ---------- $140,229 $155,114 $158,031 $137,312 ========== ======== ======== ========== Liability for loss contin- gencies and additional taxes $511,679 $41,899 $138,050 $415,528 Liability for self-insurance claims 269,413 38,284 38,302 269,395 Accrued postretirement benefit obligation 250,355 37,754 23,556 264,553 ---------- -------- -------- ---------- $1,031,447 $117,937 $199,908 $949,476 ========== ======== ======== ========== Year ended 12/31/92: Valuation and qualifying accounts - Allowance for doubtful accounts $25,865 $5,147 $7,310 $23,702 Allowance for cash discounts 11,554 132,227 128,578 15,203 Allowance for deferred tax assets -- 101,324(B) -- 101,324 ---------- -------- -------- ---------- $37,419 $238,698 $135,888 $140,229 ========== ======== ======== ========== Liability for loss contin- gencies and additional taxes $550,734 $90,295 $129,350 $511,679 Liability for self-insurance claims 258,436 32,129 21,152 269,413 Accrued postretirement benefit obligation 129,084 121,271(C) -- 250,355 ---------- -------- -------- ---------- $938,254 $243,695 $150,502 $1,031,447 ========== ======== ======== ========== cont'd Column A Column B Column C Column D Column E Additions Balance Charged Balance at to Costs at Beginning and Deductions End of Description of Period Expenses (A) Period Year ended 12/31/91: Valuation and qualifying accounts - Allowance for doubtful accounts $26,591 $7,066 $7,792 $25,865 Allowance for cash discounts 7,657 119,839 115,942 11,554 ---------- -------- -------- ---------- $34,248 $126,905 $123,734 $37,419 ========== ======== ======== ========== Liability for loss contin- gencies and additional taxes $458,628 $157,304 $65,198 $550,734 Liability for self-insurance claims 268,449 21,984 31,997 258,436 Accrued postretirement benefit obligation 103,500 25,584 -- 129,084 ---------- -------- -------- ---------- $830,577 $204,872 $97,195 $938,254 ========== ======== ======== ========== (A) Represents amounts used for the purposes for which the accounts were created and reversal of amounts no longer required. (B) Established upon the adoption of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" as disclosed in Note 9 on pages 36 and 37 of the Company's 1993 Annual Report to Shareholders. (C) Includes the cumulative effect of adopting SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" as disclosed in Note 4 on pages 33, 34 and 35 of the Company's 1993 Annual Report to Shareholders. SCHEDULE IX American Home Products Corporation and Subsidiaries Schedule IX -- Short-term Borrowings For the Years Ended December 31, 1993, 1992 and 1991 (Dollars in thousands) Column A Column B Column C Column D Column E Column F Average Weighted Maximum Amount Average Amount Out- Interest Category Out- standing Rate of Weighted standing During During Aggregate Balance Average During the the Short-term at End Interest the Period Period Borrowings Of Period Rate Period (A) (B) Commercial Paper 1993 $0 -- -- -- -- 1992 0 -- $159,500 $17,361 3.2% 1991 0 -- 665,157 214,695 5.9% (A) Average daily amount outstanding. (B) Weighted as to principal amount and days outstanding. SCHEDULE X American Home Products Corporation and Subsidiaries Schedule X -- Supplementary Income Statement Information For the Years Ended December 31, 1993, 1992 and 1991 (Dollars in thousands) Item Charged to Costs and Expenses 1993 1992 1991 Maintenance and repairs $159,630 $153,001 $142,939 ======== ======== ======== Amortization of intangible assets, pre-operating costs and similar deferrals (A) * $246,632 * ======== ======== ======== Taxes, other than payroll and income taxes * * * ======== ======== ======== Royalties $94,475 $97,499 $84,708 ======== ======== ======== Advertising costs $613,576 $601,798 $553,641 ======== ======== ======== *Less than 1% of sales (A) Amortization of intangible assets in 1992 reflects the special charge of $220,000 discussed in Note 2 on page 32 of the Company's 1993 Annual Report to Shareholders. 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 24, 1994 By /S/ Robert G. Blount Robert G. Blount Executive Vice President 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, President March 24, 1994 John R. Stafford and Chief Executive Officer Principal Financial Officer: /S/ Robert G. Blount Executive Vice President March 24, 1994 Robert G. Blount and Director Principal Accounting Officer: /S/ John R. Considine Vice President - Finance March 24, 1994 John R. Considine A Majority of Directors: /S/ Clifford L. Alexander, Jr. Director March 24, 1994 Clifford L. Alexander, Jr. /S/ Frank A. Bennack, Jr. Director March 24, 1994 Frank A. Bennack, Jr. /S/ K. Roald Bergethon Director March 24, 1994 K. Roald Bergethon SIGNATURES (continued) Signatures Title Date /S/ John W. Culligan Director March 24, 1994 John W. Culligan /S/ Robin Chandler Duke Director March 24, 1994 Robin Chandler Duke /S/ John D. Feerick Director March 24, 1994 John D. Feerick /S/ Edwin A. Gee Director March 24, 1994 Edwin A. Gee /S/ William F. Laporte Director March 24, 1994 William F. Laporte /S/ Robert W. Sarnoff Director March 24, 1994 Robert W. Sarnoff /S/ John R. Torell III Director March 24, 1994 John R. Torell III /S/ William Wrigley Director March 24, 1994 William Wrigley EXHIBIT (21) SUBSIDIARIES OF THE REGISTRANT DECEMBER 31, 1993 State or Country of Name Incorporation Domestic AH Investments Ltd. Delaware A.H. Robins Company, Inc. Virginia A.H. Robins International Company Nevada AHP Subsidiary Holding Corporation Delaware AHP Subsidiary (10) Corporation Delaware American Home Food Products, Inc. Delaware Ayerst Laboratories Incorporated New York Ayerst-Wyeth Pharmaceuticals Inc. Delaware Corometrics Medical Systems, Inc. Delaware Genetics Institute, Inc. Delaware Quinton Instrument Company Washington Route 24 Holdings, Inc. Delaware Sherwood Medical Company Delaware Symbiosis Corp. Florida Vermont Whey Company Vermont Viobin Corporation Illinois Whitehall Laboratories Inc. Delaware Wyeth-Ayerst International Inc. New York Wyeth Laboratories Inc. New York Wyeth Nutritionals Inc. Delaware Wyeth-Ayerst (Asia) Limited Delaware Foreign AHP Holdings B.V. Netherlands American Drug Corporation Panama American Home Investments (Hong Kong) Limited Hong Kong Ayerst International S.A. France Brenner-EFEKA Pharma G.m.b.H. Germany Whitehall Italia SpA Italy Laboratorios Wyeth Whitehall Ltda. Brazil Much Pharma A.G. Germany Sherwood Medical Industries Limited England Sherwood Medical Industries of Ireland Ltd. Ireland Whitehall Laboratories Limited England Whitehall-Robins Canada, Inc. Canada Wyeth (Japan) Corporation Japan John Wyeth & Brother Limited England Wyeth-Ayerst Canada, Inc. Canada Wyeth Hong Kong, Ltd. Hong Kong Wyeth-Pharma G.m.b.H. Germany Wyeth Pharmaceuticals Pty. Limited Australia Wyeth S.A. de C.V. Mexico Wyeth S.p.A. Italy Wyeth-Philippines Inc. Philippines 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-10.1 2 EX-10.1 AHPC CREDIT AGREEMENT $1,000,000,000 CREDIT AGREEMENT among AMERICAN HOME PRODUCTS CORPORATION, THE LENDERS PARTIES HERETO and CHEMICAL BANK, as Agent Dated as of April 29, 1993 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS. ............................. 1 1.1 Defined Terms.............................. 1 1.2 Other Definitional Provisions.............. 14 SECTION 2. THE COMMITTED RATE LOANS; THE BID LOANS; AMOUNT AND TERMS......................... 14 2.1 The Committed Rate Loans................... 14 2.2 The Bid Loans.............................. 15 2.3 Denomination of Committed Rate Loans....... 19 2.4 Fees....................................... 19 2.5 Changes of Commitments..................... 20 2.6 Optional Prepayments....................... 20 2.7 Minimum Principal Amount of Tranches and Maximum Number of Tranches................ 20 2.8 Committed Rate Loan Interest Rates and Payment Dates............................. 20 2.9 Conversion Options..........................21 2.10 Computation of Interest and Fees........... 22 2.11 Pro Rata Treatment and Payments............ 23 2.12 Non-Receipt of Funds by the Agent.......... 24 2.13 Inability to Determine Interest Rate....... 25 2.14 Illegality................................. 26 2.15 Requirements of Law........................ 26 2.16 Indemnity.................................. 29 2.17 Taxes.......................................29 2.18 Extension of Termination Date, Replacement of Exiting Lender......................... 31 SECTION 3. REPRESENTATIONS AND WARRANTIES............. 32 3.1 Financial Condition........................ 32 3.2 No Change.................................. 32 3.3 Corporate Existence; Compliance with Law... 32 3.4 Corporate Power; Authorization; Enforceable Obligations............................... 33 3.5 No Legal Bar; No Default................... 33 3.6 No Material Litigation..................... 33 3.7 Investment Company Act..................... 34 3.8 Federal Regulations ....................... 34 3.9 ERISA...................................... 34 3.10 Environmental Matters...................... 34 3.11 Purpose of Loans........................... 35 SECTION 4. CONDITIONS PRECEDENT........................36 4.1 Conditions to Initial Loans................ 36 4.2 Conditions to All Loans.................... 36 4.3 Conditions to All Committed Rate Loans..... 38 SECTION 5. AFFIRMATIVE COVENANTS...................... 38 5.1 Financial Statements....................... 38 5.2 Certificates; Other Information............ 39 5.3 Payment of Obligations..................... 39 5.4 Conduct of Business and Maintenance of Existence................................. 39 5.5 Maintenance of Property; Insurance......... 40 5.6 Inspection of Property; Books and Records; Discussions............................... 40 5.7 Notices.................................... 40 5.8 Environmental Laws......................... 41 SECTION 6. EVENTS OF DEFAULT.......................... 42 SECTION 7. THE AGENT.................................. 45 7.1 Appointment................................ 45 7.2 Delegation of Duties....................... 45 7.3 Exculpatory Provisions..................... 45 7.4 Reliance by Agent.......................... 46 7.5 Notice of Default.......................... 46 7.6 Non-Reliance on Agent, Other Lenders and CBASC..................................... 47 7.7 Indemnification............................ 47 7.8 Agent in Its Individual Capacity........... 48 7.9 Successor Agent............................ 48 SECTION 8. MISCELLANEOUS.............................. 48 8.1 Amendments and Waivers..................... 48 8.2 Removal of a Lender by the Borrower........ 49 8.3 Notices.................................... 49 8.4 No Waiver; Cumulative Remedies............. 50 8.5 Survival of Representations and Warranties. 50 8.6 Payment of Expenses and Taxes.............. 50 8.7 Successors and Assigns; Participations; Purchasing Lenders.........................51 8.8 Adjustments; Set-off....................... 55 8.9 Table of Contents and Section Headings..... 56 8.10 Counterparts............................... 56 8.11 Severability............................... 57 8.12 Integration.................................57 8.13 Governing Law...............................57 8.14 Consent to Jurisdiction and Service of Process; Waivers.......................... 57 8.15 Confidentiality............................ 58 8.16 Acknowledgements........................... 58 8.17 Waivers of Jury Trial...................... 59 PAGE EXHIBITS Exhibit A Form of Committed Rate Note Exhibit B Form of Grid Bid Loan Note Exhibit C Form of Individual Bid Loan Note Exhibit D Form of Borrowing Notice Exhibit E Form of Bid Loan Request Exhibit F-1 Form of Bid Loan Offer - Absolute Bid Loans Exhibit F-2 Form of Bid Loan Offer - Index Rate Bid Loans Exhibit G Form of Bid Loan Confirmation Exhibit H Form of Bid Loan Assignment Exhibit I Form of Commitment Transfer Supplement Exhibit J Form of Certificate of Secretary of the Borrower Exhibit K Form of Opinion of Counsel to the Borrower Exhibit L Form of Acknowledgment and Release (subsection 2.15(d)) Exhibit M Form of Acknowledgment and Release (subsection 2.18) Exhibit N Form of Acknowledgment and Release (subsection 8.2) SCHEDULES Schedule 3.6 Material Litigation PAGE CREDIT AGREEMENT, dated as of April 29, 1993, among AMERICAN HOME PRODUCTS CORPORATION, a Delaware corporation (the "Borrower"), the several banks and other financial institutions from time to time parties to this Agreement (collectively, the "Lenders"; individually, a "Lender") and CHEMICAL BANK, a New York banking corporation, as agent for the Lenders hereunder (in such capacity, the "Agent"). W I T N E S S E T H : WHEREAS, the Borrower has requested the Lenders to make loans to it in an amount up to $1,000,000,000 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). "Affiliate": as to any Person, any other Person (other than a Subsidiary) 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 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 (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD 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 Chemical 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 CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD 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 CD 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, 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 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 Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Agent shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate, or both, for any reason, including the inability or failure of the 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 CD 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": the Applicable Margin shall be the rate per annum set forth below for each Type of Loan: Alternate Eurodollar C/D Base Rate Loans Rate Loans Loans .125% .250% 0% "Bid Loan": each Bid Loan made pursuant to subsection 2.2; the aggregate amount advanced by a Bid Loan Lender pursuant to subsection 2.2 on each Bid Loan Date shall constitute one or more Bid Loans, as specified by such Bid Loan Lender pursuant to subsection 2.2(b)(viii). "Bid Loan Assignees": as defined in subsection 8.7(c). "Bid Loan Assignment": a Bid Loan Assignment, substantially in the form of Exhibit H. "Bid Loan Confirmation": each confirmation by the Borrower of its acceptance of Bid Loan Offers, which Bid Loan Confirmation shall be substantially in the form of Exhibit G and shall be delivered to the 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 Borrower by written notice to the Agent (which notice the 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 F-1, in the case of an Absolute Rate Bid Loan Request, or F-2, in the case of an Index Rate Bid Loan Request, and shall be delivered to the Agent by facsimile transmission or by telephone immediately confirmed by facsimile transmission. "Bid Loan Request": each request by the Borrower 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 E and shall be delivered to the Agent by facsimile transmission or by telephone immediately confirmed by facsimile transmission. "Bid Notes": the collective reference to the Grid Bid Loan Notes and the Individual Bid Loan Notes; individually, a "Bid Note". "Borrowing Date": in respect of any Committed Rate Loan, the date such Committed Rate Loan is made. "Business": as defined in subsection 3.10. "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. "CBASC": Chemical Bank Agency Services Corporation. "C/D Assessment Rate": for any day, the net annual assessment rate (rounded upward to the nearest 1/100th of 1%) determined by Chemical 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 Chemical in the United States. "C/D Base Rate": with respect to each day during each Interest Period pertaining to a C/D Rate Loan, the rate of interest per annum determined by the Agent to be the arithmetic average (rounded upward to the nearest 1/16th of 1%) of the respective rates notified to the Agent by each of the Reference Lenders as the average rate bid at 9:00 A.M., New York City time, or as soon thereafter as practicable, on the first day of such Interest Period by a total of three certificate of deposit dealers of recognized standing selected by such Reference Lender for the purchase at face value from such Reference Lender of its certificates of deposit in an amount comparable to the C/D Rate Loan of such Reference Lender to which such Interest Period applies and having a maturity comparable to such Interest Period. "C/D Rate": with respect to each day during each Interest Period pertaining to a C/D Rate Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): C/D Base Rate + C/D Assessment Rate 1.00 - C/D Reserve Percentage "C/D Rate Loans": Committed Rate Loans that bear interest at an interest rate based on the C/D Rate. "C/D Reserve Percentage": for any day as applied to any C/D Rate Loan, 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 maturity comparable to the Interest Period for such C/D Rate Loan and in an amount of $100,000 or more. "Chemical": Chemical Bank. "Closing 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. "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 Borrower hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on the signature pages 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, at any time after the Commitments shall have expired or terminated, 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 Closing 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 I. "Committed Rate Loans": Loans made pursuant to subsection 2.1. "Committed Rate Note": as defined in subsection 2.1(c); collectively, the "Committed Rate Notes". "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "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. "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. "Dollars" and "$": dollars in lawful currency of the United States of America. "Domestic Lending Office": initially, the office of each Lender designated as such Lender's Domestic Lending Office under such Lender's name on the signature pages hereof; thereafter, such other office of such Lender as such Lender may from time to time specify to the Agent and the Borrower as the office of such Lender at which the C/D Rate Loans and Alternate Base Rate Loans of such Lender are to be made. "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 Lending Office": initially, the office of each Lender designated as such Lender's Eurodollar Lending Office under such Lender's name on the signature pages hereof; thereafter, such other office of such Lender as such Lender may from time to time specify to the Agent and the Borrower as the office of such Lender at which the Eurodollar Loans of such Lender are to be made. "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 average (rounded upward to the nearest 1/16th of 1%) of the respective rates notified to the 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 customarily 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. "Existing Facility": the Credit Agreement, dated as of April 29, 1988, as amended, among the Borrower, the Banks party thereto and Chemical (as successor by merger to Manufacturers Hanover Trust Company) as agent. "Facility Fee": as defined in subsection 2.4. "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. "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. "Grid Bid Loan Note": as defined in subsection 2.2(b)(vii); collectively, the "Grid Bid Loan Notes". "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 Borrower 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. "Individual Bid Loan Note": as defined in subsection 2.2(b)(vii); collectively, the "Individual Bid Loan Notes". "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, (b) as to any Eurodollar Loan having an Interest Period of three months or less and any C/D Rate Loan having an Interest Period of 90 days or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan or C/D Rate Loan having an Interest Period longer than three months or 90 days, respectively, each day which is three months or 90 days, respectively, 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 Borrower in its 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 Borrower by irrevocable notice to the Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; (b) with respect to any C/D Rate Loan, (i) initially, the period commencing on the Borrowing Date or conversion date, as the case may be, with respect to such C/D Rate Loan and ending 30, 60, 90 or 180 days thereafter, as selected by the Borrower in its 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 C/D Rate Loan and ending 30, 60, 90 or 180 days thereafter, as selected by the Borrower by irrevocable notice to the Agent not less than two Business Days prior to the last day of the then current Interest Period with respect thereto; and (c) 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 Borrower 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 C/D Rate Loan or 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 Borrower shall fail to give notice as provided above, the Borrower shall be deemed to have selected an Alternate Base Rate Loan to replace the affected Eurodollar Loan or the affected C/D Rate Loan, as the case may be; (E) any Interest Period in respect of a Bid Loan that would otherwise extend beyond the Termination Date shall end on the Termination Date; and (F) any Interest Period in respect of a Committed Rate Loan that would otherwise extend beyond the Maturity Date for such Committed Rate Loan shall end on such Maturity Date. "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, Lenders whose Commitment Percentages aggregate at least 50.1%. "Material Adverse Effect": a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform its obligations under this Agreement or any of the Notes or (c) the validity or enforceability of this Agreement or any of the Notes or the rights or remedies of the Agent or the Lenders hereunder or thereunder. "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": as to any Eurodollar Loan or C/D Rate Loan which shall be outstanding on the Termination Date, the first anniversary of the date immediately preceding the first day of the then current Interest Period with respect thereto; as to any Alternate Base Rate Loan which shall be outstanding on the Termination Date, the first anniversary of the date immediately preceding the Termination Date. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Notes": the collective reference to the Committed Rate Notes and the Bid Notes. "Participant": as defined in subsection 8.7(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "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 Borrower 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 8.7(d). "Reference Lenders": initially, Chemical Bank, J.P. Morgan Delaware and Commerzbank A.G., Grand Cayman Branch. "Register": as defined in subsection 8.7(e). "Release": an Acknowledgment and Release (i) substantially in the form of Exhibit L if delivered pursuant to subsection 2.15(d), (ii) substantially in the form of Exhibit M if delivered pursuant to subsection 2.18 and (iii) substantially in the form of Exhibit N if delivered pursuant to subsection 8.2. "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. "Reportable Event": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty-day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "Required Lenders": at any time, Lenders whose Commitment Percentages aggregate at least 66-2/3%. "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": as to the Borrower, the Executive Vice President, the Vice President - Finance, the Treasurer, the Comptroller, the Assistant Comptroller, the Deputy Treasurer or any Assistant Treasurer of the Borrower. "Significant Subsidiary": any Subsidiary other than Genetics Institute, Inc. that satisfies the requirements of Rule 1-02(v) 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. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which 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 Borrower. "Termination Date": the earlier of (a) the date 364 days after the date hereof, as such date may be extended in accordance with the terms of subsection 2.18 and (b) the date on which the Commitments shall terminate in accordance with the provisions of this Agreement. "Tranche": the collective reference to Eurodollar Loans, C/D Rate Loans or Alternate Base Rate Loans whose Interest Periods begin and end on the same day. A Tranche may be a "C/D Rate Tranche", a "Eurodollar Tranche" or an "Alternate Base Rate Tranche". "Transferees": as defined in subsection 8.7(g). "Transfer Effective Date": as defined in each Commitment Transfer Supplement and each Bid Loan Assignment. "Type": as to any Loan, its nature as a Alternate Base Rate Loan, Eurodollar Loan or C/D Rate Loan, as the case may be. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Borrower 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 Borrower from time to time in an aggregate principal amount at any one time outstanding not to exceed such Lender's Commitment, provided that no Committed Rate Loan shall be made hereunder which would result in the Aggregate Loans being in excess of the aggregate amount of the Commitments then in effect. During the Commitment Period, the Borrower may use the Commitments by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof. (b) The Committed Rate Loans may be (i) Eurodollar Loans, (ii) Alternate Base Rate Loans, (iii) C/D Rate Loans or (iv) a combination thereof. Eurodollar Loans shall be made by each Lender at its Eurodollar Lending Office, and Alternate Base Rate and C/D Rate Loans shall be made by each Lender at its Domestic Lending Office. (c) Committed Rate Loans made by each Lender shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit A with appropriate insertions (a "Committed Rate Note"), payable to the order of such Lender and representing the obligation of the Borrower to pay the lesser of (a) the amount of the initial Commitment of such Lender and (b) the aggregate unpaid principal amount of all Committed Rate Loans made by such Lender. Each Lender is hereby authorized to record the date, Type and amount of each Committed Rate Loan made by such Lender, the maturity date thereof, the date and amount of each payment or prepayment of principal thereof and the interest rate with respect thereto on the schedule annexed to and constituting a part of its Committed Rate Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure to make any such recordation shall not affect the obligations of the Borrower hereunder or under such Committed Rate Note. Each Committed Rate Note shall (i) be dated the Closing Date, (ii) be stated to mature on the Maturity Date with respect to each Committed Rate Loan evidenced thereby, and (iii) bear interest on the unpaid principal amount thereof from time to time outstanding at the applicable interest rate per annum determined as provided in subsections 2.8 and 2.10. Interest on each Committed Rate Note shall be payable as specified in subsections 2.8 and 2.10. (d) The Borrower may borrow Committed Rate Loans on any Business Day; provided, however, that the Borrower shall give the Agent irrevocable notice thereof (which notice must be received by the 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, (ii) prior to 12:00 Noon, New York City time, two Business Days prior to the requested Borrowing Date in the case of C/D Rate Loans and (iii) 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 D (with appropriate insertions) or shall be given by telephone (specifying the information set forth in Exhibit D) promptly confirmed by notice given by facsimile transmission substantially in the form of Exhibit D (with appropriate insertions). On the day of receipt of any such notice from the Borrower, the Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its share of each borrowing available to the Agent for the account of the Borrower at the office of the Agent set forth in subsection 8.3 at 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 Borrower in funds immediately available to the Agent as the Agent may direct. The proceeds of all such Committed Rate Loans will then be made available to the Borrower by the Agent at the office of the Agent specified in subsection 8.3 by crediting the account of the Borrower on the books of such office of the Agent with the aggregate of the amount made available to the Agent by the Lenders and in like funds as received by the Agent. 2.2 The Bid Loans. (a) The Borrower may borrow Bid Loans from time to time on any Business Day during the period from the Closing Date until the date occurring 7 days prior to the Termination Date in the manner set forth in this subsection and in amounts such that the Aggregate Loans at any time outstanding shall not exceed the aggregate amount of the 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 Borrower shall request Bid Loans by delivering a Bid Loan Request to the 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 $10,000,000 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 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 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 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 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 Agent shall advise the Borrower 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 Agent in its capacity as a Bid Loan Lender shall, in its sole discretion, elect to make any such offer, it shall advise the Borrower 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 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 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 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 Agent shall advise the Borrower 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 Agent in its capacity as a Bid Loan Lender shall, in its sole discretion, elect to make any such offer, it shall advise the Borrower 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 Borrower shall before 11:30 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 10:30 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 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 Agent (immediately confirmed by delivery to the 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 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 Borrower 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 Borrower 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 Borrower 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 Borrower 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 Borrower notifies the Agent that a Bid Loan Request is cancelled pursuant to clause (iv)(A) above, the 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 Borrower accepts pursuant to clause (iv)(B) above one or more of the offers made by any Bid Loan Lender or Bid Loan Lenders, the 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 Agent at its office set forth in subsection 8.3 the amount of Bid Loans to be made by such Bid Loan Lender, in immediately available funds. The Agent will make such funds available to the Borrower as soon as practicable on such date at the Agent's aforesaid address. As soon as practicable after each Bid Loan Date, the Agent shall notify each Lender of the aggregate amount of Bid Loans advanced on such Bid Loan Date and the respective Interest Periods therefor. (viii) Bid Loans made by each Bid Loan Lender shall be evidenced by a promissory note of the Borrower substantially in the form of Exhibit B with appropriate insertions (a "Grid Bid Loan Note") or (pursuant to the terms of subsection 2.2(b)(viii) below), by a promissory note of the Borrower in the form of Exhibit C with appropriate insertions (an "Individual Bid Loan Note"). Each Grid Bid Loan Note shall represent the obligation of the Borrower to pay the lesser of (i) the aggregate Commitments and (ii) the aggregate unpaid principal amount of all Bid Loans made by such Bid Loan Lender (other than those evidenced by an Individual Bid Loan Note). Each Bid Loan Lender is hereby authorized to record the date and amount of each Bid Loan made by such Bid Loan Lender, the maturity date thereof, the date of payment thereof and the interest rate with respect thereto on the schedule annexed to and constituting a part of its Grid Bid Loan Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded; provided, however, that the failure to make any such recordation shall not affect the obligations of the Borrower hereunder or under such Grid Bid Loan Note. Each Grid Bid Loan Note shall be dated the Closing Date. (viii) Amounts advanced by a Bid Loan Lender on a Bid Loan Date which have the same Interest Period and interest rate shall be deemed to constitute one Bid Loan so long as such amounts remain evidenced by the Grid Bid Loan Note of such Bid Loan Lender. Any such Bid Loan Lender that wishes such amounts to constitute more than one Bid Loan and to have each such Bid Loan evidenced by an Individual Bid Loan Note shall notify the Agent and the Borrower by facsimile transmission of the respective principal amounts of the Bid Loans (which principal amounts shall not be less than $10,000,000 for any of such Bid Loans) to be evidenced by each such Individual Bid Loan Note. Not later than three Business Days after receipt of such notice, the Borrower shall deliver to such Bid Loan Lender an Individual Bid Loan Note payable to the order of such Bid Loan Lender in the principal amount of each such Bid Loan and otherwise conforming to the requirements of this Agreement. Upon receipt of such Bid Loan Note, such Bid Loan Lender shall endorse on the schedule attached to its Grid Bid Loan Note the transfer of such Bid Loan from such Grid Bid Loan Note to such Individual Bid Loan Note. Within the limits and on the conditions set forth in this subsection, the Borrower may from time to time borrow under this subsection, repay pursuant to paragraph (d) below, and reborrow under this subsection. (d) The Borrower shall repay to the Agent for the account of each Bid Loan Lender which has made a Bid Loan (or the Bid Loan Assignee in respect thereof, as the case may be) on the last day of the Interest Period for each Bid Loan (such Interest Period being that specified by the Borrower for repayment of such Bid Loan in the related Bid Loan Request) the then unpaid principal amount of such Bid Loan. The Borrower shall not have the right to prepay any principal amount of any Bid Loan. (e) The Borrower shall pay interest on the unpaid principal amount of each Bid Loan 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 Borrower for such Bid Loan in the related Bid Loan Request as provided in the Bid Note evidencing such Bid Loan. 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 pursuant to the Bid Note evidencing such Bid Loan until the scheduled maturity date with respect thereto as set forth in the Bid Note evidencing such Bid Loan, 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 $10,000,000 in excess thereof. 2.4 Fees. The Borrower agrees to pay to the Agent, for the ratable benefit of the Lenders, a facility fee (the "Facility Fee") of .05% per annum of the aggregate Commitments from and including the date of this Agreement to but excluding the Termination Date and .05% per annum of the average principal amount of Committed Rate Loans outstanding from and after the Termination Date, payable quarterly in arrears on the last day of each March, June, September and December and, as the case may be, (a) on the Termination Date (in respect of the fee relating to the aggregate Commitments) and (b) on the date on which the Committed Rate Loans are fully repaid (in respect of the fee relating to outstanding Committed Rate Loans). Such quarterly payment made hereunder shall be a payment in consideration for holding open the availability of the Commitments for the quarterly period completed on the date payment is due. 2.5 Changes of Commitments. (a) The Borrower 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 five Business Days' prior notice to the 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 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 amount of the Commitments then in effect. (b) The Commitments once terminated or reduced pursuant to this subsection may not be reinstated. 2.6 Optional Prepayments. The Borrower may, upon five Business Days' irrevocable notice to the Agent (which shall notify the Lenders thereof as soon as practicable), prepay Committed Rate Loans. If any Committed Rate Loan shall be prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall, on the date of such payment, also pay all interest accrued on such 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 and Maximum Number 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 $10,000,000 in excess thereof, and there shall be no more than ten Tranches outstanding at any one time. 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 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, Alternate Base Rate Loans and C/D Rate Loans may be converted as provided herein, provided that (i) no Loan may be converted into a Eurodollar Loan or a C/D Rate Loan when any Default or Event of Default has occurred and is continuing and the Agent or the Required 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 $10,000,000 in excess thereof. (b) Any Eurodollar Loans or C/D Rate Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in subsection 2.9(a); provided, that no Eurodollar Loan or C/D Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, and the Agent or the Required 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 Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a Eurodollar Rate and of a C/D 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, the C/D Assessment Rate or the C/D Reserve Percentage shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate, the C/D Assessment Rate or the C/D Reserve Percentage shall become effective. The Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations given by the Reference Lenders and the computations used by the 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 Agent (after consultation with the Borrower and the Lenders) shall, by notice to the Borrower and the Lenders, designate another Lender as a Reference Lender 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 Agent as contemplated hereby. If any of the Reference Lenders shall be unable or otherwise fails to supply such rates to the 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 and Payments. Except as expressly provided in subsections 2.15(d), 2.18 or 8.2, as the case may be, each borrowing by the Borrower 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 Borrower under this Agreement or any Note shall be applied, first, to any fees then due and owing pursuant to subsection 2.4, second, to interest then due and owing in respect of the Notes and, third, to principal then due and owing hereunder and under the Notes. Each payment by the Borrower on account of any fees pursuant to subsection 2.4 shall be made pro rata in accordance with the respective amounts due and owing. Except as expressly provided in subsections 2.15(d), 2.18 or 8.2, as the case may be, each payment (other than prepayments) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective amounts due and owing. Each prepayment on account of principal of the Loans shall be applied, first, to such of the Committed Rate Loans as the Borrower 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. All payments (including prepayments) to be made by the Borrower on account of principal, interest and fees shall be made without defense, set-off or counterclaim and shall be made to the Agent for the account of the Lenders at the Agent's office specified in subsection 8.3 in Dollars and in immediately available funds. The 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) 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 Bid Loan made pursuant to an Index Rate Bid Loan Request 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. 2.12 Non-Receipt of Funds by the Agent. (a) Unless the Agent shall have been notified by a Lender prior to the date 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 Agent, the Agent may assume that such Lender has made such proceeds available to the Agent on such date, and the Agent may in reliance upon such assumption (but shall not be required to) make available to the Borrower a corresponding amount. If such amount is made available to the Agent on a date after such Borrowing Date, such Lender shall pay to the 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 Agent and the denominator of which is 360. A certificate of the Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If such Lender's Commitment Percentage is not in fact made available to the Agent by such Lender within three Business Days of such Borrowing Date, the 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 Borrower. (b) Unless the Agent shall have been notified by the Borrower prior to the date on which any payment is due from it hereunder (which notice shall be effective upon receipt) that the Borrower does not intend to make such payment, the Agent may assume that the Borrower has made such payment when due, and the 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 Borrower has not in fact made such payment to the Agent, such Lender shall, on demand, repay to the Agent the amount made available to such Lender. If such amount is repaid to the Agent on a date after the date such amount was made available to such Lender, such Lender shall pay to the 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 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 Agent by such Lender and become immediately available to the Agent and the denominator of which is 360. (c) A certificate of the Agent submitted to the Borrower 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 Agent determines that no Reference Lender is, for any reason whatsoever, quoting a rate referred to 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 quoted by the Reference Lenders 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 Borrower has requested be outstanding as a Eurodollar Tranche during such Interest Period, the Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Borrower and the Lenders at least two Business Days prior to the first day of such Interest Period. Unless the Borrower shall have notified the 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 Agent, no further Loans shall be made as, continued as, or converted into, Eurodollar Loans. (b) Notwithstanding any other provision of this Agreement, if (i) the Agent determines that no Reference Lender is, for any reason whatsoever, quoting a rate referred to in the definition of C/D Base Rate for any Interest Period or (ii) the Majority Lenders shall determine (which determination shall be conclusive) that the rates quoted by the Reference Lenders for the purpose of computing the C/D Rate do not adequately and fairly reflect the cost to such Lenders of funding C/D Rate Loans that the Borrower has requested be outstanding as a C/D Rate Tranche during such Interest Period, the Agent shall forthwith give telephone notice of such determination to the Borrower and the Lenders on or before the first day of such Interest Period. Unless the Borrower shall have notified the Agent after receipt of such telephone notice that it wishes to rescind or modify its request regarding such C/D Rate Loans, any Loans that were requested to be made as C/D Rate Loans shall be made as Alternate Base Rate Loans and any Loans that were requested to be converted into or continued as C/D Rate Loans shall be converted into Alternate Base Rate Loans. Until such notice has been withdrawn by the Agent, no further Loans shall be made as, continued as, or converted into, C/D Rate Loans. (c) In the event that the Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) 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 Rate Loan to be made pursuant to an Index Rate Bid Loan Request, the Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Borrower 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 Agent, no further Index Rate Bid Loan Requests shall be submitted by the Borrower. 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 the relevant Governmental Authority to any Lender shall make it unlawful for such Lender or its Eurodollar Lending Office to make or maintain Eurodollar Loans as contemplated by this Agreement or to obtain in the interbank eurodollar market through its Eurodollar Lending Office the funds with which to make such Loans, (a) such Lender shall promptly notify the Agent and the Borrower 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 repaid and reborrowed on the Interest Payment Date for such Loans or within such earlier period as required by law as Alternate Base Rate Loans. The Borrower 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 Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including reasonable efforts to change its Eurodollar Lending Office) 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, any Note or any Eurodollar Loan or C/D Rate 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 included in the determination of the C/D Rate hereunder or 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 or under any Note, then, in any such case, the Borrower 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 and C/D Rate Loans. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including reasonable efforts to change its Domestic Lending Office or Eurodollar Lending Office, as the case may be) 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 Borrower agrees to pay to each Lender which requests compensation under this paragraph (b) (by notice to the Borrower), 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 Borrower) 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 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 Borrower 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) In the event that any Lender shall submit a request for reimbursement of additional amounts pursuant to subsection 2.15(a), (b) or (c), the Borrower may (i) provide, with the consent of the Agent (which consent shall not be unreasonably withheld), another financial institution to acquire, pursuant to subsection 8.7(d), the Commitment of such Lender and all amounts owing to such Lender in respect of Committed Rate Loans under this Agreement or (ii) prepay, in accordance with the terms and provisions of the Release to which such Lender shall be party, the outstanding Committed Rate Loans of such Lender in full, (together with all other amounts owing to such Lender hereunder (other than Bid Loans of such Lender), including, without limitation, amounts payable pursuant to subsection 2.16), and upon such prepayment, terminate the Commitment of such Lender. In addition, the Borrower will reimburse any Lender submitting such request for all such additional amounts incurred by such Lender, provided that no such reimbursement shall be required in respect of periods commencing (x) prior to the commencement of the Interest Period in respect of which such reimbursement is sought, in the case of any reimbursement pursuant to subsection 2.15(b), or (y) prior to the date which is 60 days prior to the date of such request, in all other cases. The Borrower will also be required to provide additional reimbursement to such Lender for periods subsequent to such request through the date of such replacement pursuant to clause (i) above or through the date of such prepayment and cancellation pursuant to clause (ii) above, as the case may be. (e) The agreements in this subsection shall survive the termination of this Agreement and payment of the Notes and all other amounts payable hereunder. 2.16 Indemnity. The Borrower hereby agrees to indemnify each Lender and to hold such Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in payment of the principal amount of or interest on any Loan by such Lender in accordance with the terms of subsections 2.2(e) and 2.8(e), as the case may be, (b) default by the Borrower in making a borrowing after the Borrower has given a notice in accordance with subsection 2.1 or 2.2, (c) default by the Borrower in making any prepayment after the Borrower has given a notice in accordance with subsection 2.6 and/or (d) the making by the Borrower of a prepayment of a Committed Rate Loan 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 Agent, to the Borrower shall be conclusive in the absence of manifest error. The agreements in this subsection shall survive termination of this Agreement and payment of the Notes and all other amounts payable hereunder. 2.17 Taxes. (a) All payments made by the Borrower under this Agreement and the Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding, in the case of the Agent and each Lender, net income and franchise taxes (imposed in lieu of net income taxes) imposed on the Agent or such Lender, as the case may be, as a result of a present or former connection between the jurisdiction of the government or taxing authority imposing such tax on the Agent or such Lender (excluding a connection arising solely from the Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced this Agreement or the Notes), or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which such Lender's Domestic Lending Office or Eurodollar Lending Office, as the case may be, is located or any political subdivision or taxing authority thereof or therein (all such non-excluded taxes, levies, imposts, duties, fees, deductions, charges or withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to the Agent or any Lender hereunder or under the Notes, the amounts so payable to the Agent or such Lender shall be increased to the extent necessary to yield to the Agent or such Lender (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by the Borrower, as promptly as practicable thereafter, the Borrower shall send to the Agent, for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Agent or any Lender as a result of any such failure. (b) Prior to the first Interest Payment Date each Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Agent (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Lender which delivers to the Borrower and the Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the immediately preceding sentence further undertakes to deliver to the Borrower and the Agent two further copies of the said letter and Form 1001 or 4224 and Form W-8 or X-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such letter or form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent letter and form previously delivered by it to the Borrower, and such extensions or renewals thereof as may reasonably be requested by the Borrower, certifying in the case of a Form 1001 or 4224 that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any such cases an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such letter or form with respect to it and such Lender advises the Borrower that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. (c) Each Lender agrees to use reasonable efforts (including reasonable efforts to change its Domestic Lending Office or Eurodollar Lending Office, as the case may be) 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) The agreements in this subsection shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. 2.18 Extension of Termination Date, Replacement of Exiting Lender. The Borrower may, at any time prior to the date which is thirty days prior to the then Termination Date, by written notice to the Agent (which notice the Agent shall promptly transmit to each Lender), request that the Termination Date be extended. Each Lender shall respond to such request not earlier than the fifteenth day after the date of the Borrower's notice to the Agent (such fifteenth day, the "First Response Date") and not later than the twenty-ninth day after the date of such notice (the "Last Response Date"), with the failure of any Lender to respond being deemed to be a negative response. If and only if the Majority Lenders respond affirmatively to such request on or before the Last Response Date, the Agent shall so advise the Borrower, whereupon the Borrower shall immediately determine, and so advise the Agent, either (a) not to have the Termination Date extended or (b) to have the Termination Date extended, in which case the Termination Date shall be extended as to those Lenders that have agreed to such extension until the date which is 364 days after the First Response Date. In the event that the Majority Lenders agree to extend the Termination Date, but one or more Lenders (each an "Exiting Lender") do not agree to such extension, the Borrower shall, on or before the original Termination Date, either (i) provide, with the consent of the Agent (which consent shall not be unreasonably withheld), another financial institution to acquire, pursuant to subsection 8.7(d), the Commitment of such Exiting Lender and all amounts owing to such Exiting Lender in respect of Committed Rate Loans under this Agreement or (ii) prepay, in accordance with the terms and provisions of the Release to which such Lender shall be party, the outstanding Committed Rate Loans of such Exiting Lender in full, (together with all other amounts owing to such Exiting Lender hereunder (other than Bid Loans of such Exiting Lender), including, without limitation, amounts payable pursuant to subsection 2.16), and upon such prepayment, terminate the Commitment of such Exiting Lender. The Termination Date may be extended for up to four successive periods pursuant to this subsection 2.18. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make the Loans herein provided for, the Borrower hereby represents and warrants to the Agent and to each Lender that: 3.1 Financial Condition. The consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at December 31, 1992 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by Arthur Andersen & Co., copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. 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 Borrower nor any of its consolidated Subsidiaries had, at the date of the balance sheet 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 interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. 3.2 No Change. Since December 31, 1992 there has been no development or event which has had a Material Adverse Effect. 3.3 Corporate Existence; Compliance with Law. Each of the Borrower 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 Borrower 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 of this Agreement by the Borrower. 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 or the Notes by the Borrower or with the validity or enforceability of this Agreement or the Notes against the Borrower. This Agreement has been duly executed and delivered on behalf of the Borrower. This Agreement constitutes a legal, valid and binding obligation of the Borrower enforceable against the Borrower 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). The Borrower has full power and authority and the legal right to make, deliver and perform the Notes and to borrow hereunder and has taken all necessary action to authorize the borrowings contemplated by this Agreement on the terms and conditions of this Agreement and the Notes and to authorize the execution, delivery and performance of the Notes. On the Closing Date, each Committed Rate Note and Grid Bid Loan Note, and on the date of delivery thereof, each Individual Bid Loan Note, will have been duly executed and delivered on behalf of the Borrower and will constitute a legal, valid and binding obligation of the Borrower enforceable against the Borrower 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 and the Notes, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of the Borrower or of any of its 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 Borrower 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. Except as set forth on Schedule 3.6, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the best knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to this Agreement or the Notes 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 Borrower 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 G, T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. 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. 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. Except for the 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 Borrower nor any Commonly Controlled Entity is currently subject to any liability for a complete or partial withdrawal from a Multiemployer Retirement Plan. 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 Borrower, the facilities and properties owned, leased or operated by the Borrower or any of its Subsidiaries (the "Properties") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations which (i) constitute or constituted a violation of, or (ii) could give rise to liability under, any Environmental Law. (b) To the best knowledge of the Borrower, 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 Borrower or any of its Subsidiaries (the "Business"). (c) Neither the Borrower 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 Borrower have knowledge or reason to believe that any such notice will be received or is being threatened. (d) To the best knowledge of the Borrower, 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 Borrower, threatened, under any Environmental Law to which the Borrower 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 Borrower, 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 Borrower 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 by the Borrower for its general corporate and working capital purposes, including, without limitation, additions to working capital, capital expenditures, acquisitions, stock repurchases and commercial paper back-up. This Agreement will replace the Existing Facility. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Initial Loans. The obligation of each Lender to make its initial Loan hereunder is subject to the satisfaction of the following conditions precedent: (a) Execution of Agreement. The Agent shall have received one or more counterparts of this Agreement, executed by a duly authorized officer of each party hereto. (b) Secretary's Certificate of the Borrower. The Agent shall have received, with a counterpart for each Lender, a certificate of the Secretary or Assistant Secretary of the Borrower dated the Closing Date, substantially in the form of Exhibit J with appropriate insertions and attachments. (c) Legal Opinion of Counsel to the Borrower. The Agent shall have received, with a copy for each Lender, an opinion of Louis L. Hoynes, Jr., Senior Vice President and General Counsel of the Borrower, dated the Closing Date and addressed to the Agent and the Lenders, substantially in the form of Exhibit K. Such opinion shall also cover such other matters incident to the transactions contemplated by this Agreement as the Agent shall reasonably require. (d) Fees. The Agent shall have received all fees, if any, owing pursuant to subsection 2.4. (e) Termination of Existing Facility. The Agent shall have received evidence satisfactory to it that all commitments under the Existing Facility have been terminated and all amounts owing thereunder, if any, have been paid in full. (f) Additional Matters. All other documents and legal matters in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the 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 Borrower 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: (i) all conditions set forth in such subsection shall have been satisfied; (ii) the Agent shall have received for the account of each Lender a Grid Bid Loan Note conforming to the requirements hereof and executed by a duly authorized officer of the Borrower, and the Agent shall promptly forward such Notes to the appropriate Lenders; and (iii) the Agent shall have received, with a copy for each Lender, an opinion of the General Counsel of the Borrower, dated the date of making such Loan and addressed to the Agent and the Lenders, which shall cover matters in respect of the execution of the Grid Bid Loan Notes and Individual Bid Loan Notes in accordance with paragraph 3 of Exhibit K hereto and otherwise confirm the opinions rendered in the legal opinion delivered pursuant to subsection 4.1(c) on the Closing Date. (d) Additional Conditions to Committed Rate Loans. If such Loan is made pursuant to subsection 2.1: (i) all conditions set forth in such subsection shall have been satisfied; (ii) the Agent shall have received for the account of each Lender a Committed Rate Note conforming to the requirements hereof and executed by a duly authorized officer of the Borrower, and the Agent shall promptly forward such Notes to the appropriate Lenders; and (iii) the Agent shall have received, with a copy for each Lender, an opinion of the General Counsel of the Borrower, dated the date of making such Loan and addressed to the Agent and the Lenders, which shall cover matters in respect of the execution of the Committed Rate Notes in accordance with paragraph 3 of Exhibit K hereto and otherwise confirm the opinions rendered in the legal opinion delivered pursuant to subsection 4.1(c) on the Closing Date. Each acceptance by the Borrower of a Loan shall be deemed to constitute a representation and warranty by the Borrower as of the date of such Loan that the applicable conditions in paragraphs (a), (b) and (c) of this subsection have been satisfied. 4.3 Conditions to All Committed Rate Loans. The obligation of each Lender to make any Committed Rate Loan to be made by it hereunder (including the initial Committed Rate Loan to be made by it hereunder) is subject to receipt by the Agent of a notice of borrowing from the Borrower in accordance with subsection 2.1. SECTION 5. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitments remain in effect, any Note remains outstanding and unpaid or any other amount is owing to the Agent or any Lender hereunder, the Borrower 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 and 5.8 shall cause each of its Subsidiaries to: 5.1 Financial Statements. Furnish to the Agent (with a sufficient number of copies for each Lender, which the 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 Borrower, a copy of the consolidated balance sheet of the Borrower 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 Borrower 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 & Co. or other 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 Borrower, a copy of the Borrower'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 Responsible Officer, as the case may be, and disclosed therein). 5.2 Certificates; Other Information. Furnish to the Agent (with a sufficient number of copies for each Lender, which the 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 Borrower's second fiscal quarter referred to in subsection 5.1(b) above, a certificate of a Responsible Officer stating that, to the best of such Responsible Officer's knowledge, the Borrower during such period observed or performed all of its covenants and other agreements, and satisfied every material condition, contained in this Agreement and in the Notes 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; (c) within thirty days after the same are sent, copies of all reports (not otherwise provided pursuant to subsection 5.1) and other financial information which the Borrower sends to its stockholders, and within thirty days after the same are filed, copies of all financial statements and reports which the Borrower may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (d) promptly, such additional financial and other information as the 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 Borrower or its Subsidiaries, as the case may be. 5.4 Conduct of Business and Maintenance of Existence. Continue to engage in business of the same general type as now conducted by it and 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. 5.5 Maintenance of Property; Insurance. Keep all 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 each Lender, upon written request, full information as to the insurance carried; provided, however, that the Borrower 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 Agent, the Agent or any Lender 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 Borrower 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 Borrower and its Significant Subsidiaries with officers and employees of the Borrower and its Significant Subsidiaries and with its independent certified public accountants. 5.7. Notices. Promptly give notice to the Agent (which shall promptly transmit such notice to each Lender) of: (a) the occurrence of any material Default or Event of Default; (b) any default or event of default under any Contractual Obligation of the Borrower or any of its Significant Subsidiaries which would reasonably be expected to have a Material Adverse Effect; (c) any litigation, or any investigation or proceeding known to the Borrower, affecting the Borrower or any of its Significant Subsidiaries which would reasonably be expected to have a Material Adverse Effect; (d) the following events, as soon as possible and in any event within 30 days after the Borrower 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 Borrower 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) 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 setting forth details of the occurrence referred to therein and stating what action the Borrower 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 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 Borrower, 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 Notes and all other amounts payable hereunder. SECTION 6 EVENTS OF DEFAULT Upon the occurrence of any of the following events: (a) The Borrower shall fail to pay any principal on any Note when due in accordance with the terms thereof or hereof on the maturity date thereof; or the Borrower shall fail to pay any interest on any Note 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 (b) Any representation or warranty made or deemed made by the Borrower 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 Borrower shall default in any material respect in the observance or performance of any agreement contained in this Agreement (other than as described in paragraph (a) above), and such default shall continue unremedied for a period of 30 days; or (d) The Borrower or any of its Significant Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Notes) in a principal amount outstanding of at least $100,000,000 in the aggregate for the Borrower 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 Borrower 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 Borrower and its Significant Subsidiaries or Guarantee Obligation in a principal amount outstanding of at least $100,000,000 in the aggregate for the Borrower 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 (e) (i) The Borrower 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 Borrower or any such Significant Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower 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 Borrower 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 Borrower 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 Borrower 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 Borrower 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 Borrower 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 Required 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 Borrower, any of its Significant Subsidiaries or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required 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 event or condition shall occur or exist; 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 Borrower or (ii) a majority of the Board of Directors of the Borrower 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 Borrower's Board of Directors and (ii) any new Director whose nomination for election by the Borrower'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, automatically the Commitments shall immediately terminate and the Loans (with accrued interest thereon), and all other amounts owing under this Agreement and the Notes 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 Required Lenders, the Agent may, or upon the request of the Required Lenders, the Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Agent may, or upon the request of the Required Lenders, the Agent shall, by notice of default to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes 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 AGENT 7.1 Appointment. Each Lender hereby irrevocably designates and appoints Chemical Bank as the Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Chemical Bank, as the 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 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 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 Agent. 7.2 Delegation of Duties. The 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 Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Without limiting the foregoing, the Agent may appoint CBASC as its agent to perform the functions of the Agent hereunder relating to the advancing of funds to the Borrower and distribution of funds to the Lenders and to perform such other related functions of the Agent hereunder as are reasonably incidental to such functions. 7.3 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates (including, without limitation, CBASC) 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 Borrower 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 Agent under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or for any failure of the Borrower to perform its obligations hereunder or thereunder. Neither the Agent nor CBASC shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance by the Borrower of any of the agreements contained in, or conditions of, this Agreement (other than the receipt by the Agent of the documents specified in subsection 4.1), or to inspect the properties, books or records of the Borrower. 7.4 Reliance by Agent. Each of the Agent and CBASC shall be entitled to rely, and shall be fully protected in relying, upon any Note, 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 Borrower), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless (a) a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent and (b) the 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 Agent. The 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 Required 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 Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes in accordance with a request of the Required 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 Notes. 7.5 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Lender or the Borrower 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 Agent receives such a notice, the Agent shall give notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, however, that unless and until the Agent shall have received such directions, the 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 Agent, Other Lenders and CBASC. Each Lender expressly acknowledges that neither the 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 Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent and CBASC that it has, independently and without reliance upon the Agent or any other Lender or CBASC, 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 Borrower 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 Agent, CBASC 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 Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the 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 Borrower which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 7.7 Indemnification. The Lenders agree to indemnify each of the Agent and CBASC in their respective capacities hereunder (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower 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 Notes) be imposed on, incurred by or asserted against the Agent or CBASC in any way relating to or arising out of this Agreement, the Notes 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 Agent or CBASC 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 Agent's or CBASC's gross negligence or willful misconduct. The agreements in this subsection shall survive the termination of this Agreement and payment of the Notes and all other amounts payable hereunder. 7.8 Agent in Its Individual Capacity. The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Agent were not the Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the 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 Agent, and the terms "Lender" and "Lenders" shall include the Agent in its individual capacity. 7.9 Successor Agent. The Agent may resign as Agent upon 15 days' notice to the Borrower and the Lenders. If the Agent shall resign as Agent under this Agreement and the Notes, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Borrower, whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon such appointment and approval, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation as 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 Agent under this Agreement. SECTION 8 MISCELLANEOUS 8.1 Amendments and Waivers. Neither this Agreement, any Note, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. The Required Lenders may, or, with the written consent of the Required Lenders, the Agent may, from time to time, (a) enter into with the Borrower written amendments, supplements or modifications hereto and to the Notes for the purpose of adding any provisions to this Agreement or the Notes or changing in any manner the rights of the Lenders or of the Borrower hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the Notes 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 Note or of any installment thereof, or reduce the stated rate of any interest or fee payable hereunder 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 affected thereby, or (ii) amend, modify or waive any provision of this subsection or reduce the percentage specified in the definition of Required Lenders or Majority Lenders, or consent to the assignment or transfer by the Borrower 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 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 Borrower, the Lenders, the Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the Lenders and the Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, 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 Removal of a Lender by the Borrower. The Borrower may at any time, in its sole discretion, elect to remove any Lender (a "Removed Lender") from the syndicate of Lenders under this Agreement by delivering notice thereof to such Lender and the Agent. Any such removal by the Borrower of a Lender shall be effective on the date set forth in such notice, provided that the Borrower shall have either (i) provided, with the consent of the Agent (which consent shall not be unreasonably withheld), another financial institution to acquire, pursuant to subsection 8.7(d), the Commitment of such Removed Lender and all amounts owing to such Removed Lender in respect of Committed Rate Loans under this Agreement or (ii) prepaid, in accordance with the terms and provisions of the Release to which such Lender shall be party, the outstanding Committed Rate Loans of such Removed Lender in full, (together with all other amounts owing to such Removed Lender hereunder (other than Bid Loans of such Removed Lender), including, without limitation, amounts payable pursuant to subsection 2.16), and upon such prepayment, terminated the Commitment of such Removed Lender. 8.3 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 delivered by hand, or 3 Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Borrower and the Agent, and as set forth on the signature pages 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 Notes: The Borrower: American Home Products Corporation 685 Third Avenue New York, New York 10017-9085 Attention: Treasurer Telecopier: (212) 875-5771 Telephone: (212) 878-8649 The Agent: Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Robert Kellas Telecopier: (212) 270-2112 Telephone: (212) 270-3560 CBASC: Chemical Bank Agency Services Corporation 140 East 45th Street New York, New York 10017-3162 Attention: Janet Belden Telecopier: (212) 622-0001 Telephone: (212) 622-0011; provided, however, that any notice, request or demand to or upon the Agent or the Lenders pursuant to subsections 2.1, 2.2, 2.3, 2.5, 2.6 and 2.12 shall not be effective until received. 8.4 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the 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. 8.5 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 Notes and the making of the Loans. 8.6 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the 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 the Notes and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agent, (b) to pay or reimburse each Lender and the Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes and any such other documents, including, without limitation, the fees and disbursements of counsel to the Agent and to the several Lenders, and (c) on demand, to pay, indemnify, and hold each Lender and the 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 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, the Notes and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Agent 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, the Notes and any such other documents (all the foregoing, collectively, the "indemnified liabilities"); provided, however, that the Borrower shall have no obligation hereunder to the Agent or any Lender with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of the Agent or any such Lender, (ii) legal proceedings commenced against the Agent or any such Lender 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 Agent. The agreements in this subsection shall survive repayment of the Notes and all other amounts payable hereunder. 8.7 Successors and Assigns; Participations; Purchasing Lenders. 1. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (a) 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 Note held by 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, such Lender shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The Borrower agrees that if amounts outstanding under this Agreement and the Notes are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have, to the extent permitted by applicable law, the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note; provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in subsection 8.7(a) as fully as if it were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of subsections 2.15, 2.16, 2.17 and 8.6 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. Each Lender agrees that the participation agreement (or any other document) pursuant to which any Participant acquires its participating interest may afford voting rights to such Participant only with respect to matters requiring the consent of all of the Lenders hereunder. (b) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Bid Loan Assignees") any Bid Loan owing to such Lender and any Individual Bid Loan Note held by such Lender evidencing such Bid Loan, pursuant to a Bid Loan Assignment executed by the assignor Lender and the Assignee. Upon such execution, from and after the Transfer Effective Date specified in such Bid Loan Assignment, the Bid Loan Assignee shall, to the extent of the assignment provided for in such Bid Loan Assignment and to the extent permitted by applicable law, be deemed to have the same rights and benefits with respect to such Bid Loans and Individual Bid Loan Note and the same rights of setoff and obligation to share pursuant to subsection 8.8 as it would have had if it were a Lender hereunder; provided, that unless such Bid Loan Assignment shall otherwise specify and a copy of such Bid Loan Assignment shall have been delivered to the Agent for its acceptance and recording in the Register in accordance with subsection 8.7(f), the assignor Lender shall act as collection agent for the Bid Loan Assignee, and the Agent shall pay all amounts received from the Borrower which are allocable to the assigned Bid Loan or Bid Note directly to the assignor Lender without any further liability to the Bid Loan Assignee. The Bid Loan Assignee shall not, by virtue of such Bid Loan Assignment, become a party to this Agreement or have any rights to consent to or refrain from consenting to any amendment, waiver or other modification of any provision of this Agreement or any related document; provided, that (x) the assignor Lender and the Bid Loan Assignee may, in their discretion, agree between themselves upon the manner in which the assignor Lender will exercise its rights under this Agreement and any related document, and (y) if a copy of such Bid Loan Assignment shall have been delivered to the Agent for its acceptance and recording in the Register in accordance with subsection 8.7(f), neither the principal amount of, the interest rate on, nor the maturity date of any Bid Loan or Bid Note assigned to a Bid Loan Assignee will be modified without the written consent of such Bid Loan Assignee. (c) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any Lender or any affiliate thereof and, with the consent of the Borrower, in its absolute discretion, and the Agent (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 and the Notes in minimum amounts of $25,000,000 (or, if less, the entire amount of such Lender's obligations) pursuant to a Commitment Transfer Supplement, 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 Borrower and the Agent), and delivered to the 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 and the Notes. On or prior to the Transfer Effective Date specified in such Commitment Transfer Supplement, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the Committed Rate Note delivered to the Agent pursuant to such Commitment Transfer Supplement a new Committed Rate Note to the order of such Purchasing Lender in an amount equal to the Commitment assumed by it pursuant to such Commitment Transfer Supplement and a new Grid Bid Loan Note to the order of such Purchasing Lender in an amount equal to the aggregate Commitments and, unless the transferor Lender has not retained a Commitment hereunder, a new Committed Rate Note to the order of the transferor Lender in an amount equal to the Commitment retained by it hereunder. Such new Committed Rate Note and Grid Bid Loan Note shall be dated the Closing Date and shall otherwise be in the form of the Committed Rate Note and Grid Bid Loan Note replaced thereby. The Committed Rate Note and Grid Bid Loan Note, if any, surrendered by the transferor Lender shall be returned by the Agent to the Borrower marked "cancelled". (d) The Agent shall maintain at its address referred to in subsection 8.3 a copy of each Bid Loan Assignment and each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of (i) 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, and (ii) with respect to each Bid Loan Assignment delivered to the Agent, the name and address of the Bid Loan Assignee and the principal amount of each Bid Loan owing to such Bid Loan Assignee. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the 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 Borrower or any Lender or Bid Loan Assignee at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a Bid Loan Assignment executed by an assignor Lender and a Bid Loan Assignee, together with payment to the Agent (by the assignor Lender or the Bid Loan Assignee, as agreed between them) of a registration and processing fee of $1,000, the Agent shall (i) accept such Bid Loan Assignment, (ii) record the information contained therein in the Register and (iii) give prompt notice of such acceptance and recordation to the assignor Lender, the Bid Loan Assignee and the Borrower. 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 Borrower and the Agent) together with payment to the Agent (by the transferor Lender or the Purchasing Lender, as agreed between them) of a registration and processing fee of $3,000 for each Purchasing Lender listed in such Commitment Transfer Supplement, and the Notes subject to such Commitment Transfer Supplement, the 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 Borrower. (f) The Borrower authorizes each Lender to disclose to any Participant, Bid Loan Assignee or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Borrower and its Affiliates which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement. (g) If, pursuant to this subsection, any interest in this Agreement or any Note is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Agent and the Borrower) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Borrower or the transferor Lender with respect to any payments to be made to such Transferee in respect of the Loans, (ii) to furnish to the transferor Lender, the Agent and the Borrower either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder), (iii) to furnish to the transferor Lender, the Agent and the Borrower either U.S. Internal Revenue Service Form W-8 or U.S. Internal Revenue Service Form W-9 (wherein such Transferee claims entitlement to complete exemption from U.S. federal backup withholding tax on all interest payments hereunder) and (iv) to agree (for the benefit of the transferor Lender, the Agent and the Borrower) to provide the transferor Lender, the Agent and the Borrower a new Form 4224 or Form 1001 and Form W-8 or Form W-9 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption and such backup withholding tax exemption. (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 Note) to any Federal Reserve Bank in accordance with applicable laws. 8.8 Adjustments; Set-off. (a) Each Lender agrees that if any Lender (a "benefitted 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 subsections 2.15(d), 2.18 or 8.2, as the case may be), such benefitted 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 benefitted 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 benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower 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 Borrower, any such notice being expressly waived by the Borrower 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 Borrower, or any part thereof in such amounts as such Lender may elect, against and on account of the obligations and liabilities of the Borrower to such Lender hereunder and claims of every nature and description of such Lender against the Borrower, in any currency, whether arising hereunder, under the Notes 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 Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of the Borrower, or against anyone else claiming through or against the Borrower 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 Borrower and the 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. 8.9 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. 8.10 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 Borrower and the Agent. 8.11 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. 8.12 Integration. This Agreement and the Notes represent the agreement of the Borrower, the Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent, the Borrower or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the Notes. 8.13 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.14 Consent to Jurisdiction and Service of Process; Waivers. (a) All judicial proceedings brought against the Borrower with respect to this Agreement or any Note 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 Borrower 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 Borrower 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 8.3 or at such other address of which the Agent shall have been notified pursuant thereto, such service being hereby acknowledged by the Borrower to be effective and binding service in every respect. Each of the Borrower, the 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 Borrower in the court of any other jurisdiction. (b) Each of the Borrower, the Agent and the Lenders hereby irrevocably and unconditionally waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. 8.15 Confidentiality. Each of the Lenders agrees that it will use its best efforts not to disclose without the prior consent of the Borrower (other than to its employees, auditors or counsel or to another Lender) any information with respect to the Borrower which is furnished pursuant to this Agreement, the Notes or any documents contemplated by or referred to herein or therein and which is designated by the Borrower 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 Section 8.15, (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 Section 8.7, provided that such prospective transferee shall have been made aware of this Section 8.15 and shall have agreed to be bound by its provisions as if it were a party to this Agreement. 8.16 Acknowledgements. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the Notes; (b) neither the Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement and the relationship between Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith is solely that of debtor and creditor; and (c) no joint venture exists among the Lenders or among the Borrower and the Lenders. 8.17 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES 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:/s/John R. Considine Title: CHEMICAL BANK, as Agent and as a Lender By:/s/ Nancy Mistretta Title:Managing Director $75,000,000 7.5% CHEMICAL BANK Domestic Lending Office: CHEMICAL BANK 270 Park Avenue New York, New York 10017 Attn: Ms. Elizabeth Chow Eurodollar Lending Office: CHEMICAL BANK 270 Park Avenue New York, New York 10017 Attn: Ms. Elizabeth Chow $75,000,000 7.5% CIBC, INC. By:/s/ Illegible Title: Vice President Domestic Lending Office: CIBC, Inc. Two Paces West, 2727 Paces Ferry Road, Suite 1200 Atlanta, Georgia 30339 Attn: Ms. Kim Swink Eurodollar Lending Office: CIBC, Inc. Two Paces West, 2727 Paces Ferry Road, Suite 1200 Atlanta, Georgia 30339 Attn: Ms. Kim Swink Any notice, request or demand in respect of the Bid Loans shall be delivered to: CIBC, Inc. 425 Lexington Avenue New York, New York 10017 Attn: Ms. Carol Kizzia $75,000,000 7.5% COMMERZBANK AG, GRAND CAYMAN BRANCH By:/s/ Illegible Title: Vice President Domestic Lending Office: Commerzbank AG, New York Branch 2 World Financial Center New York, New York 10281-1050 Attn: Mr. Andreas Bremer Eurodollar Lending Office: Commerzbank AG, Grand Cayman Branch 2 World Financial Center New York, New York 10281-1050 Attn: Mr. Andreas Bremer $75,000,000 7.5% J.P. MORGAN DELAWARE By: /s/ David Morris Title: Vice President Domestic Lending Office: J.P. Morgan Delaware 902 Market Street Wilmington, Delaware 19801 Attn: Mr. David J. Morris Eurodollar Lending Office: J.P. Morgan Delaware 902 Market Street Wilmington, Delaware 19801 Attn: Mr. David J. Morris $75,000,000 7.5% WACHOVIA BANK OF GEORGIA, N.A. By:/s/ Illegible Title: Vice President Domestic Lending Office: Wachovia Corporate Services, Inc. Carnegie Hall Tower, 37th Floor 152 W. 57th Street New York, New York 10019 Attn: Ms. Pendleton Gray Whisnant Eurodollar Lending Office: Wachovia Corporate Services, Inc. Carnegie Hall Tower, 37th Floor 152 W. 57th Street New York, New York 10019 Attn: Ms. Pendleton Gray Whisnant $50,000,000 5.0% ABN AMRO BANK N.V. By:/s/ Denise A. Gallegher /s/ Nancy F. Watkins Title: Vice President Group Vice President Domestic Lending Office: ABN AMRO Bank N.V. 500 Park Avenue New York, New York 10022 Attn: Ms. Denise Gallagher Eurodollar Lending Office: ABN AMRO Bank N.V. 500 Park Avenue New York, New York 10022 Attn: Ms. Denise Gallagher $50,000,000 5.0% BANK OF MONTREAL By:/s/ Sharron P. Walsh Title: Director Domestic Lending Office: Bank of Montreal/Harris Bank 115 South LaSalle Street Chicago, Illinois 60603 Attn: Ms. Sharron P. Walsh Eurodollar Lending Office: Bank of Montreal/Harris Bank 115 South LaSalle Street Chicago, Illinois 60603 Attn: Ms. Sharron P. Walsh $50,000,000 5.0% CITIBANK, N.A. By:/s/ Hans F. Horn Title:Vice President Domestic Lending Office: Citibank, N.A. 399 Park Avenue New York, New York 10043 Attn: Mr. Hans Horn Eurodollar Lending Office: Citibank, N.A. 399 Park Avenue New York, New York 10043 Attn: Mr. Hans Horn $50,000,000 5.0% ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. By:/s/ Illegible Title: Vice President Domestic Lending Office: San Paolo Bank 245 Park Avenue New York, New York 10167 Attn: Mr. Wendell Jones Eurodollar Lending Office: San Paolo Bank 245 Park Avenue New York, New York 10167 Attn: Mr. Wendell Jones $50,000,000 5.0% NATIONAL WESTMINSTER BANK PLC By:/s/ Illegible Title: Vice President Domestic Lending Office: National Westminster Bank PLC - New York Branch 175 Water Street, 21st Floor New York, New York 10038-4924 Attn: Mr. Robert Passarello Eurodollar Lending Office: National Westminster Bank PLC - Nassau Branch 175 Water Street, 21st Floor New York, New York 10038-4924 Attn: Mr. Robert Passarello $50,000,000 5.0% THE SUMITOMO BANK, LIMITED By:/s/ Illegible Title:Joint General Manager Domestic Lending Office: The Sumitomo Bank, Limited One World Trade Center Suite 9651 New York, New York 10048 Attn: U.S. Corporate Department Eurodollar Lending Office: The Sumitomo Bank, Limited One World Trade Center Suite 9651 New York, New York 10048 Attn: U.S. Corporate Department $50,000,000 5.0% SWISS BANK CORPORATION, NEW YORK BRANCH By:/s/ Colin T. Taylor Title: Director By:/s/ Illegible Title: Associate Director Domestic Lending Office: Swiss Bank Corporation, New York Branch 10 East 50th Street New York, New York 10022 Attn: Mr. Colin T. Taylor Eurodollar Lending Office: Swiss Bank Corporation, Cayman Islands Branch c/o Swiss Bank Corporation, New York Branch 10 East 50th Street New York, New York 10022 Attn: Mr. Colin T. Taylor $25,000,000 2.5% BANCA DI ROMA - NEW YORK BRANCH By:/s/ Illegible /s/Ralph L. Riehle Title: Vice President F.V.P. Domestic Lending Office: Banca di Roma - New York Branch 100 Wall Street New York, New York 10005 Attn: Mr. Ralph L. Riehle Eurodollar Lending Office: Banca di Roma - New York Branch 100 Wall Street New York, New York 10005 Attn: Mr. Ralph L. Riehle $25,000,000 2.5% THE BOATMAN'S NATIONAL BANK OF ST. LOUIS By:/s/ J. David Kennenbeck Title: Corporate Banking Officer Domestic Lending Office: The Boatman's National Bank of St. Louis 800 Market Street P.O. Box #236 St. Louis, Missouri 63166-0236 Attn: Mr. J. David Kennebeck Eurodollar Lending Office: The Boatman's National Bank of St. Louis 800 Market Street P.O. Box #236 St. Louis, Missouri 63166-0236 Attn: Mr. J. David Kennebeck $25,000,000 2.5% THE CHASE MANHATTAN BANK, N.A. By:/s/ Robert W. Cook Title: Managing Director Domestic Lending Office: The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza New York, New York 10081 Attn: Mr. Robert W. Cook Eurodollar Lending Office: The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza New York, New York 10081 Attn: Mr. Robert W. Cook $25,000,000 2.5% CORESTATES BANK, N.A. By:/s/ James A. Bennett Title: Senior Vice President Domestic Lending Office: CoreStates Bank, N.A. P.O. Box 7618 1345 Chestnut Street Philadelphia, Pennsylvania 19101 Attn: Mr. James A. Bennett Eurodollar Lending Office: CoreStates Bank, N.A. P.O. Box 7618 1345 Chestnut Street Philadelphia, Pennsylvania 19101 Attn: Mr. James A. Bennett $25,000,000 2.5% CREDIT LYONNAIS NEW YORK BRANCH By:/s/ Sebastion Rocco Title: First Vice President Domestic Lending Office: Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Attn: Mr. Michael Moretti CREDIT LYONNAIS CAYMAN ISLAND BRANCH By:/s/ Illegible Title: Eurodollar Lending Office: Credit Lyonnais Cayman Island Branch c/o Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Attn: Mr. Michael Moretti $25,000,000 2.5% CRESTAR BANK By:/s/ Keith A. Hubbard Title:Senior Vice President Domestic Lending Office: Crestar Bank 919 East Main Street Richmond, Virginia 23219 Attn: Mr. Keith A. Hubbard Eurodollar Lending Office: Crestar Bank 919 East Main Street Richmond, Virginia 23219 Attn: Mr. Keith A. Hubbard $25,000,000 2.5% THE DAI-ICHI KANGYO BANK, LTD. By:/s/ Andreas Panteli Title: Vice President Domestic Lending Office: The Dai-ichi Kangyo Bank, Ltd. One World Trade Center, 48th Floor New York, New York 10048 Attn: Mr. Andreas Panteli Eurodollar Lending Office: The Dai-ichi Kangyo Bank, Ltd. One World Trade Center, 48th Floor New York, New York 10048 Attn: Mr. Andreas Panteli $25,000,000 2.5% THE FIRST NATIONAL BANK OF BOSTON By:/s/ William F. Hamilton Title: Vice President Domestic Lending Office: The First National Bank of Boston 100 Federal Street, 1-6-12 Boston, Massachusetts 02110 Attn: Mr. William F. Hamilton Eurodollar Lending Office: The First National Bank of Boston 100 Federal Street, 1-6-12 Boston, Massachusetts 02110 Attn: Mr. William F. Hamilton $25,000,000 2.5% THE FUJI BANK, LIMITED NEW YORK BRANCH By:/s/ Illegible Title:Vice President and Manager Domestic Lending Office: The Fuji Bank, Limited New York Branch Two World Trade Center, 79th Floor New York, New York 10048 Attn: Ms. Chigusa Tada Eurodollar Lending Office: The Fuji Bank, Limited New York Branch Two World Trade Center, 79th Floor New York, New York 10048 Attn: Ms. Chigusa Tada $25,000,000 2.5% THE SANWA BANK LIMITED, NEW YORK BRANCH By:/s/ Joseph E. Leo Title: Vice President Domestic Lending Office: The Sanwa Bank Limited, New York Branch 55 E. 52nd Street New York, New York 10055 Attn: Mr. Joseph Leo Eurodollar Lending Office: The Sanwa Bank Limited, New York Branch 55 E. 52nd Street New York, New York 10055 Attn: Mr. Joseph Leo $25,000,000 2.5% WESTPAC BANKING CORPORATION By:/s/ Pamela L. Atkins Title: Assistant Vice President Domestic Lending Office: Westpac Banking Corporation 335 Madison Avenue (27th Floor) New York, New York 10017 Attn: Ms. Pamela L. Atkins Eurodollar Lending Office: Westpac Banking Corporation 335 Madison Avenue (27th Floor) New York, New York 10017 Attn: Ms. Pamela L. Atkins Schedule 3.6 Material Litigation NONE EX-10.10 3 EX-10.10 FORM OF DEFERRED COMPENSATION AGREEMENT DEFERRED COMPENSATION AGREEMENT between American Home Products Corporation and _______________________________________ AGREEMENT made this ____ day of _____________ (Title) by and between American Home Products Corporation and its subsidiaries (hereinafter referred to as "EMPLOYER") and ____________________________ (hereinafter referred to as "EMPLOYEE"). W I T N E S S E T H: WHEREAS, EMPLOYEE has been _____________________ of EMPLOYER since _____________________________ [and theretofore was employed by EMPLOYER or its subsidiaries in other executive or managerial capacities]; and WHEREAS, it is the wish of EMPLOYER that EMPLOYEE continue in its employ (and in furtherance of such wish the Board of Directors of the EMPLOYER has authorized the EMPLOYER to enter into this Agreement with EMPLOYEE); NOW, THEREFORE, in consideration of the above and in order to induce EMPLOYEE to continue in the employ of EMPLOYER, it is agreed between the parties as follows: PART A - DEFERRAL OF CASH AWARD UNDER THE MANAGEMENT INCENTIVE PLAN ("MIP") 1. The percentage designated on the Attachment Schedule is a percentage of the cash portion of EMPLOYEE'S MIP compensation from EMPLOYER for 1993 and payable in 1994, if any, which shall be deferred and distributed as hereinafter provided (the "Deferred MIP Compensation"). 2. The Deferred MIP Compensation will accrued deemed interest from the date of the award at a deemed rate of interest designated on the Attachment Schedule. Deemed interest payable hereunder will be calculated, accrued and compounded quarterly. Such deemed interest shall accrue up to date of distribution. 3. EMPLOYER shall distribute to EMPLOYEE the total Deferred MIP Compensation, together with deemed interest accrued thereon in accordance with the deferral period and distribution period designated on the Attachment Schedule. PART B - DEFERRAL OF SALARY 1. The percentage designated on the Attachment Schedule is a percentage of the EMPLOYEE'S total 1994 authorized base salary which shall be deferred and distributed as hereinafter provided ("Deferred Salary Compensation"). It is understood that six percent (6%) of such Deferred Salary Compensation will be deferred and be subject to the terms of the American Home Products Corporation Supplemental Employee Savings Plan ("SESP"). 2. The Deferred Salary Compensation not deferred under the SESP will accrue deemed interest from the date such Deferred Salary Compensation would have otherwise been paid at a deemed interest rate designated on the Attachment Schedule. Deemed interest payable hereunder will be calculated, accrued and compounded quarterly. Such deemed interest shall accrue up to date of distribution. The deferral under the provisions of the SESP shall accrue interest/earnings pursuant to the provisions of the SESP. 3. Except for the portion deferred under the SESP, the EMPLOYER shall distribute to the EMPLOYEE the total Deferred Salary Compensation together with deemed interest accrued thereon in accordance with the deferral period and distribution period designated on the Attachment Schedule. The portion deferred under the SESP will be distributed in accordance with the provisions of the SESP. 4. Upon thirty (30) days' written notice to the Vice President - Finance of American Home Products Corporation, EMPLOYEE may prospectively terminate this Agreement as to all future deferrals of authorized base salary pursuant to Section 1 above, it being understood that such termination shall not affect the treatment hereunder of amounts deferred prior to the giving of such written notice. GENERAL PROVISIONS APPLICABLE TO PART A AND PART B 1. In the event EMPLOYEE shall separate from service with the EMPLOYER for reasons other than death, prior to receipt of any or all of the Deferred MIP Compensation and/or Deferred Salary Compensation, such amount shall be distributed to EMPLOYEE together with deemed interest accrued hereunder on such amount through the date of such distribution as designated on the Attachment Schedule. In the event EMPLOYEE shall die prior to the receipt of any or all of the Deferred MIP Compensation and/or Deferred Salary Compensation, such amount shall be distributed to his estate or beneficiary(ies) as designated on the Attachment Schedule within ninety (90) days of death together with deemed interest accrued hereunder on such amount through the date of such distribution. 2. EMPLOYER has no obligation to set aside, earmark or entrust any funds with which to pay its obligation under this Agreement. EMPLOYER'S obligation shall not be secured in any way and EMPLOYEE'S rights are in no way preferred over the general creditors of the EMPLOYER. 3. In the event another company or group of related companies obtains a 50% or more interest in EMPLOYER'S common stock or otherwise obtains effective control of EMPLOYER, all Deferred MIP Compensation and/or Deferred Salary Compensation shall be paid to EMPLOYEE within thirty (30) days together with deemed interest accrued through the date of such payment. 4. Except as concerns matters of compensation expressly dealt with herein, this Agreement will have no effect on the employee-employer relationship between EMPLOYEE and EMPLOYER or EMPLOYEE'S duties to EMPLOYER or any other compensation arrangements between EMPLOYEE and EMPLOYER. The EMPLOYEE'S employment with the EMPLOYER shall remain at will, and the EMPLOYEE is free to resign at any time, and the EMPLOYER may terminate the EMPLOYEE'S employment at any time. 5. At the election of the EMPLOYER, to be ratified by a majority of all non-officer members of the Board of Directors of EMPLOYER, this Agreement may be terminated upon thirty (30) days' notice to EMPLOYEE. If so terminated, such majority will also, as soon as practicable, decide whether the EMPLOYER will distribute all the Deferred MIP Compensation and/or Deferred Salary Compensation and deemed interest accrued through the deferred payment arrangements provided for hereinabove. 6. This Agreement shall be governed by and construed under the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. ______________________ (Employee) American Home Products Corporation By:______________________ Title:______________________ ATTACHMENT SCHEDULE (REGARDING PART A) _______________________________ (Print Name), hereby elects to defer _____ percent of the portion of any Management Incentive Plan Award eligible to be taken in cash which may be awarded in January 1994 for 1993 performance. This election under Part A of the Deferred Compensation Agreement shall be irrevocable upon execution of the Agreement. I. (a) Check a period of deferral: _______ 10 years or __________Until retirement (b) Check a period of distribution: _________ Lump sum (payable within 90 days of termination of the period designated in I(a) above) or _________ 5 annual installments (first installment payment within 90 days of termination of the period designated in I(a) above and remaining installments payable within 90 days of the anniversaries of that termination date) II. Check one of the following deemed investments which will be used to calculate deemed interest which shall be credited on the amounts deferred: _________ The three month Treasury Bill _________ The three year Treasury Note _________ The five year Treasury Note _________ Any Treasury Bill/Note of a duration which corresponds to the remaining period of deferral. For example, if two years and three months remain in a deferred period, a yield available for a U.S. Treasury security with a corresponding maturity will be credited. The election of rates under this Section II may only be changed upon maturity of term selected. In no event may an option be selected whereby its term extends beyond the participant's normal retirement date or the deferral period, whichever is earlier. If notification is not received upon maturity of the term selected, the term selected will be renewed for the same term at the then current rate. III. I designate the following beneficiary(ies) to receive any undistributed amount deferred under this Agreement together with any deemed interest accrued in the event of my death: _____________________________________ Beneficiary(ies) _____________________________________ Contingent Beneficiary(ies) ATTACHMENT SCHEDULE (REGARDING PART A) ___________________________ (Print Name), hereby elects to defer _____ percent of my eligible 1994 base salary with the understanding that 6 percent of such deferred base salary will be deferred under the Supplemental Employee Savings Plan for the year 1994. This election under Part B of the Deferred Compensation Agreement shall be irrevocable upon execution of the Agreement. IV. (a) Check a period of deferral: _______ 10 years or __________Until retirement (b) Check a period of distribution: _________ Lump sum (payable within 90 days of termination of the period designated in IV(a) above) or _________ 5 annual installments (first installment payment within 90 days of termination of the period designated in IV(a) above and remaining installments payable within 90 days of the anniversaries of that termination date) V. Check one of the following deemed investments which will be used to calculate deemed interest which shall be credited on the amounts deferred: _________ The three month Treasury Bill _________ The three year Treasury Note _________ The five year Treasury Note _________ Any Treasury Bill/Note of a duration which corresponds to the remaining period of deferral. For example, if two years and three months remain in a deferred period, a yield available for a U.S. Treasury security with a corresponding maturity will be credited. The election of rates under this Section V may only be changed upon maturity of term selected. In no event may an option be elected whereby its term extends beyond the participant's normal retirement date or the deferral period, whichever is earlier. If notification is not received upon maturity of the term selected, the term selected will be renewed for the same term at the then current rate. VI. I designate the following beneficiary(ies) to receive any undistributed amount deferred under this Agreement together with any deemed interest accrued in the event of my death: Beneficiary(ies) Contingent Beneficiary(ies) __________________________________ ________________________ Signature Date EX-10.12 4 EX-10.12 RETIREMENT PLAN FOR OUTSIDE DIRECTORS AMERICAN HOME PRODUCTS CORPORATION RETIREMENT PLAN FOR OUTSIDE DIRECTORS (the "Plan") (Amended as of February 24, 1994) 1. PURPOSE The purpose of the Plan is to enable American Home Products Corporation (the "Company"), by offering retirement and disability benefits to its Outside Directors, to attract and retain outstanding individuals to serve as Outside Directors of the Company. The Plan is effective July 1, 1987. 2. DEFINITIONS 2.01 Annual Retainer: An amount equal to the annual retainer payable to an Outside Director for serving on the Board of Directors of the Company. 2.02 Beneficiary: The person or persons designated by an Outside Director pursuant to Section 7. 2.03 Board: The Board of Directors of the Company. 2.04 Committee: The AHPC Corporate Retirement Committee. 2.05 Disability: Complete and permanent inability, by reason of illness or accident, to perform the individual's duties as an Outside Director. The determination whether an Outside Director has suffered a Disability shall be made by the Committee based upon such evidence as it deems appropriate. 2.06 Outside Director: A director of the Company who is not presently an employee of the Company or any subsidiary. 2.07 Year of Service: An individual shall be credited with a Year of Service for each full year and any partial year served as an Outside Director. An Outside Director who has served as a director of the Company while employed by the Company shall be credited with a Year of Service for each full year and any partial year served as a director and employee of the Company, provided, however, such Director must have at least 5 years of Service as an Outside Director to be eligible for benefits under the Plan. For the purpose a "year" is the twelve month period commencing with the first day of the individual's service as a director of the Company, or any anniversary thereof. Service shall be credited for service as a director of the Company both before and after July 1, 1987, the effective date of the Plan. 3. ADMINISTRATION The Plan shall be administered by the Committee, which shall have the exclusive authority to take any action necessary or appropriate for the proper administration of the Plan. The Committee's interpretation of the Plan, and all actions taken within the scope of its authority, shall be final and binding on the Company, and its Outside Directors. 4. PARTICIPATION An individual who is an Outside Director as of July 1, 1987 shall participate in the Plan as of that date. Each individual who subsequently becomes an Outside Director shall commence participation in the Plan on the first day of service as an Outside Director. 5. OUTSIDE DIRECTORS RETIREMENTS BENEFITS 5.01(a) Eligibility For Retirement Benefits. Upon any termination of service as an Outside Director due to retirement after the Outside Director has attained age 65 and has ten or more Years of Service, such Outside Director shall be entitled to receive from the Company an annual retirement benefit commencing in the quarter of the calendar year next following the quarter of the calendar year in which the Outside Director's service terminates as set forth below. In the case of an Outside Director who has ten or more Years of Service who has a termination of service for any reason as an Outside Director before age 65, such Outside Director shall be entitled to receive a retirement benefit upon attaining age 65. Upon any termination of service as an Outside Director due to Disability at any time after the Outside Director has completed ten or more Years of Service, an Outside Director shall be entitled to receive from the Company an annual retirement benefit commencing in the next quarter of the calendar year following the quarter of the calendar year in which the Outside Director's service terminates due to Disability as set forth below. Such annual retirement benefit shall continue even through an Outside Director has recovered from a Disability at a future date. If an Outside Director who has completed ten or more Years of Service dies before receiving any retirement benefit under the Plan, his Beneficiary or his estate or his Beneficiary's estate, determined in accordance with Section 7 of the Plan, shall be paid in a lump sum an amount equal to five times the Annual Retainer in the calendar quarter following his date of death. (b) Amount of Retirement Benefit. The annual retirement benefit shall equal the Annual Retainer, and shall be payable to the Outside Director for his life. Each annual retirement benefit shall be payable quarterly by dividing the Annual Retainer into four equal installments. The retirement benefit paid to Outside Directors before January 27, 1994 will be based on the Annual Retainer in effect on the date on which the Outside Director's service as a Director of the Company ceases due to retirement, disability or death. The retirement benefit paid to Outside Directors on or after January 27, 1994 will be based on the then current Annual Retainer in effect for the year for which the payment is made. If the Outside Director dies after becoming eligible for benefits under Section 5.01(a) but prior to receiving five annual retirement benefit payments under the Plan, an amount equal to five times the Annual Retainer, less any annual retirement benefit payments received by the Outside Director, shall be paid in a lump sum to the Outside Director's Beneficiary (or other recipient as provided in Section 7 of the Plan) and no further benefit shall be payable. If the Outside Director dies after receiving five annual retirement benefit payments under the Plan, no further benefit shall be payable, except that if the Outside Director dies between quarterly payments the quarterly annual retirement benefit shall be prorated up to the date of his death and such amount shall be paid to his Beneficiary or to his estate or the Beneficiary's estate in accordance with Section 7. 6. LIMITATION ON RIGHT TO RECEIVE BENEFITS An Outside Director, a Beneficiary and their respective estates shall have no right to receive benefits under the Plan (or to receive additional benefits if benefits have already commenced) if, in the opinion of the Board, the Outside Director has engaged in an act of misconduct or otherwise engaged in conduct contrary to the best interest of the Company. 7. DESIGNATION OF BENEFICIARY An Outside Director may designate a person or persons (the "Beneficiary") to receive, after the Outside Director's death, any remaining benefits payable under the Plan. Such designation shall be made by the Outside Director on a form prescribed by the Committee. The Outside Director may at any time change or revise such designation by filing a new form with the Committee. If the Outside Director does not designate a Beneficiary or the Beneficiary predeceases the Outside Director, any remaining benefits payable under the Plan after the Outside Director's death shall be paid to the Outside Director's estate. If the Beneficiary survives the Outside Director but dies prior to receiving the benefits payable under the Plan, the benefits shall be paid to the Beneficiary's estate. 8. AMENDMENT AND TERMINATION The Board may at any time amend or terminate the Plan. No such amendment or termination shall reduce the amount of an Outside Director's Plan benefits which have accrued prior to the amendment or termination without the consent of the Outside Director (or, in the event of death, the Outside Director's Beneficiary or estate). 9. MISCELLANEOUS PROVISIONS 9.01 Neither the establishment of the Plan, nor any action taken thereunder, shall in any way obligate the Company to nominate an Outside Director for reelection or continue to retain an Outside Director on the Board. 9.02 Except as provided in Section 7, an Outside Director's or Beneficiary's rights under the Plan, including the right of receive moneys due thereunder, may not be assigned or transferred, and any attempted assignment or transfer shall be null and void. 9.03 The Plan shall be unfunded. All benefits payable under the Plan shall be paid from the general assets of the Company, which are subject to the claims of the Company's general creditors. 9.04 The Plan shall be binding upon any successors to the Company by merger, acquisition, consolidation or otherwise. 9.05 The masculine gender shall be deemed to refer to the feminine wherever appropriate. 9.06 The provisions of the Plan shall be governed by the laws of the State of New York. AMERICAN HOME PRODUCTS CORPORATION RETIREMENT PLAN FOR OUTSIDE DIRECTORS (the "Plan") BENEFICIARY DESIGNATION FORM In accordance with Section 7 of the Plan, I hereby designate the following persons as my primary and secondary beneficiaries. Primary Beneficiary Secondary Beneficiary Name __________________________ ________________________ Address _________________________ ________________________ Relationship______________________ _________________________ Soc. Sec. No._____________________ _________________________ The primary beneficiary shall receive after my death any remaining benefits payable under the Plan. If the primary beneficiary does not survive me but the secondary beneficiary does survive me, such benefits shall be paid to the secondary beneficiary. I understand that if neither of the above designated beneficiaries survives me, or if I have not designated a beneficiary as of the date of my death, any remaining benefits payable under the Plan after my death shall be paid to my estate. ________________________________ ________________________________ Date Outside Director EX-13 5 EX-13 AHPC 1993 ANNUAL REPORT TO STOCKHOLDERS 1993 Annual Report American Home Products Corporation Special Report: ---------------------- A Global Commitment to Advancing Medical Therapy American Home Products Corporation American Home Products Corporation is an innovation-driven company focused on discovering and commercializing new, cost-effective products that represent significant therapeutic advances. Our global scientific discovery and clinical program is at the leading edge of medical science in areas of critical need where the quality of life can be improved for millions of people. Our Company's broad lines of prescription drugs, nutritionals, over-the-counter medications, and medical devices, supplies and instru- mentation make an important contribution to health care worldwide. We also are known for quality food brands that are highly regarded by consumers in the United States and Canada. In 1993, American Home Products Corporation achieved record sales and earnings, and the Company increased its dividend for the 42nd consecutive year. On the cover: Lorayne Jenkins, Associate Pharmacologist at Wyeth-Ayerst Research in Princeton, New Jersey, is one of the many dedicated scientists and technicians who contribute to our Company's research and development efforts. Contents 2 Chairman's Report to Shareholders 5 Special Report: A Global Commitment to Advancing Medical Therapy 13 Review of Operations 25 Financial Section 44 Directors and Officers 45 Corporate Data Financial Highlights Net Sales by Segment Pharmaceuticals 57.5% - --------------------------- Consumer Health Care 21.0% - --------------------------- Medical Supplies and Diagnostic Products 10.2% - --------------------------- Food Products 11.3% - --------------------------- [Graph representing earnings per share] [Graph representing dividends per share] [Graph representing net sales] [Graph representing net income] Years Ended December 31, 1993 1992* - -------------------------------------------------------------------------------- (In thousands except per share amounts) Net sales .............................. $8,304,851 $7,873,687 Net income ............................. 1,469,300 1,460,842 Net income per common share ............ 4.73 4.65 Dividends per common share ............. 2.86 2.66 Working capital ........................ 3,223,273 3,059,360 Shareholders' equity ................... 3,876,488 3,562,589 * 1992 net income and net income per common share include $90 million of net income ($.29 per share) related to accounting changes and the charge for acquired research associated with the acquisition of a majority stake in Genetics Institute, Inc. Chairman's Report to Shareholders I am pleased to report that in 1993 American Home Products Corporation achieved another year of record sales and earnings, and the dividend was increased for the 42nd consecutive year. 1993 also was a year in which we added to our broad portfolio of products in the United States and throughout the world while enhancing our focus on the discovery, development and commercialization of new, innovative products. This year's performance was achieved in spite of a very challenging environment for all in the health care industry in the United States and, indeed, throughout the world. The political and economic debate about domestic health care reform has intensified in the past year, leaving the industry subject to unprecedented scrutiny and criticism. Therefore, I will begin this letter by making several points about these reform initiatives and their potential impact upon our Company. There is a clear need for significant health care reform in the United States. We support the availability of affordable health care coverage for all U.S. citizens. We also believe that this country has a social obligation and strong economic interest in preserving the best health care system in the world. The United States has a long-standing history of supporting innovation and rewarding innovators; but that tradition would be jeopardized by reforms which include government price controls. Price controls in this industry are not the solution. We believe that constraining free market forces through government regulation would not only fail to resolve the problem but would significantly impact the funds available for research and development. If innovation is impeded by artificial economic restraints, important and cost-effective therapeutic advances would be undermined. The U.S. pharmaceutical industry would lose its global leadership position at the expense of its citizens and their good health. Our industry is an important part of the solution, not the problem. We believe that the orientation toward government regulation could lead to changes that would impair our ability to conquer disease and lower costs. We strongly urge legislators to consider the following: o Pharmaceuticals prevent, control and cure some of the most devastating and expensive health problems. Within recent memory, polio, smallpox, influenza, diphtheria, whooping cough and measles claimed many millions of lives each year. Pharmaceuticals have all but eradicated these diseases or reduced their death rate to nearly zero. Further, many millions of people suffering from depression, cancer, heart disease, arthritis and other chronic illnesses now can lead productive lives because of effective drug therapy. o Our industry is poised to make an even bigger difference. It invested about $12.6 billion, or 15 cents of each sales dollar, in R&D during 1993. This level of spending, per dollar of sales, is approximately four times higher than the average investment of other research-intensive industries based in the United States. o Our industry is a highly cost-effective component of the health care system. In spite of our industry's enormous investment in R&D, prescription drug costs as a percentage of total U.S. health care costs have fallen from 15% to less than 8% during the past three decades and continue to decline. Drug spending has remained at less than 1% of gross domestic product (GDP) while overall health care spending has risen from 5% to 14% of GDP in the same period. The marketplace already is working to hold down the cost of prescription drugs. Weighted average price increases for our Wyeth-Ayerst U.S. pharmaceuticals have been held at a level approximately equal to the Consumer Price Index in 1992 and 1993, even in light of our additional investments in R&D. The highly competitive U.S. pharmaceutical industry has, in fact, helped keep overall health care cost increases down. Private sector initiatives to control total health care cost are having a substantial impact and should be permitted to continue. We expect to continue to play a positive role in building on the accomplishments of the pharmaceutical industry as an integral part of the health care system. We are committed to solving its problems within the context of real competition and clear and productive incentives for substantial innovation. We now turn to a discussion of financial results and other major operational developments in our Company. Financial Highlights of 1993 - -------------------------------------------------------------------------------- o Net sales increased 5% from last year to $8,304,851,000. o Net income, exclusive of the 1992 accounting changes and the charge for acquired research related to the acquisition of a majority stake in Genetics Institute, Inc., increased 7% to $1,469,300,000 in 1993. o Earnings per share, excluding the effect of the accounting changes and the charge for acquired research, increased 8% to $4.73 per share. 2 o In October 1993, the Board of Directors approved management's recommendation to increase the quarterly dividend to $.73 per share. With this increase, the 1993 dividend was $2.86, an 8% increase over the 1992 dividend of $2.66. [Photograph of John R. Stafford, Chairman, President and Chief Executive Officer] Research and Development - -------------------------------------------------------------------------------- Underscoring the priority we attach to product innovation as the key to our Company's future growth, our R&D expenditures, including those of Genetics Institute, increased to $663 million in 1993. This represents a 20% increase over the prior year. We are focused on areas of critical need where we have significant knowledge based on established products and intensive R&D programs. We also are "fast tracking" product candidates that have the greatest potential. A special report highlighting several of our R&D programs follows this letter. Ethical Pharmaceuticals - -------------------------------------------------------------------------------- A number of positive steps, including important new drug introductions, were taken to strengthen our broad-based pharmaceutical business. We established the Wyeth-Ayerst Women's Health Research Institute in 1993 to build upon our global leadership position in women's health care. Premarin, the most widely prescribed drug in the United States, continued to expand in worldwide markets. A major addition to our U.S. pharmaceutical product line is the structurally novel antidepressant, Effexor, which will be available in the spring of 1994. The approval and introduction of Oruvail and Lodine 400 mg. strengthen Wyeth-Ayerst's position in the important anti-inflammatory market. 1993 also saw the marketing launch of Genetics Institute's Recombinate, the first genetically engineered form of recombinant antihemophilic factor (rAHF), a blood-clotting protein used to treat hemophilia. We continued to enter into collaborative scientific ventures that are using biotechnology and other important emerging technologies to develop new therapies in many areas. Wyeth-Ayerst, in 1993, signed a collaborative agreement with Cygnus Therapeutic Systems, Inc. to develop and market transdermal hormone replacement products on a global basis. Consumer Health Care - -------------------------------------------------------------------------------- The performance of major brands such as Advil, Robitussin and Dimetapp strengthened Whitehall-Robins as a leader in the increasingly competitive nonprescription analgesic and cough/cold/allergy categories in the United States. Our excellent, growing core franchises in the United States place us in a strong position to capture a larger share of the self-medication market worldwide. This market is expected to expand significantly as governments seek to control health care costs and as consumer interest in self-diagnosis and self-treatment increases. We are moving vigorously to capitalize on these trends by extending our core franchises internationally and by building a pipeline of prescription products that are candidates for "switching" to the OTC market. Animal Health Care - -------------------------------------------------------------------------------- Strong growth for Fort Dodge Laboratories in the United States augmented our leadership in key areas of veterinary pharmaceuticals and biologicals. LymeVax, our Lyme disease vaccine, became the single largest dollar volume canine vaccine in the United States. Fort Dodge also began to introduce a wide range of products in Europe. 3 Medical Supplies and Hospital Products - -------------------------------------------------------------------------------- Sherwood Medical Company continued to benefit from manufacturing efficiencies and marketing programs designed to improve competitiveness in an increasingly price-sensitive market. A growing number of value-added products are being developed and marketed that improve therapy and enhance patient and health care worker safety while reducing costs. A contribution to sales growth was made by Symbiosis Corp., a leading developer and manufacturer of disposable instruments for laparoscopic and endoscopic surgery acquired in September 1992. Sales for Symbiosis as well as for our U.S. perinatal monitoring and medical diagnostic businesses continue to be affected by the uncertainty about health care reform. We believe these businesses will regain momentum as the health care system places greater emphasis on early diagnosis and screening of patients to help contain costs. Food Products - -------------------------------------------------------------------------------- The brands of American Home Food Products hold leading positions in several key food categories, including prepared pastas, glazed popcorn and cooking sprays. In 1993, American Home Foods added to its quality line by acquiring M. Polaner, Inc., a leading manufacturer of all-natural spreadable fruit products and wet spices. Changes in Management and Headquarters Relocation - -------------------------------------------------------------------------------- Dr. Bernard Canavan, President of American Home Products, retired early in 1994 after 25 years of exemplary service to our Company. Dr. Canavan's medical background combined with his strong managerial skills and vision were extremely valuable to our Company as we increased our commitment to health care markets and to global R&D programs. We thank Dr. Canavan for his many contributions. In January 1994, William F. Laporte announced that he would not stand for re-election to the Board of Directors. In recognition of his outstanding contributions to our Company, including 37 years of service as a Director, the Board named Mr. Laporte Director Emeritus, effective immediately following the Company's Annual Meeting on April 20, 1994. Joining the Board in 1993 was Clifford L. Alexander, Jr. The Company will benefit greatly from Mr. Alexander's knowledge and experience, which includes serving as Chairman of the Equal Employment Opportunity Commission and Secretary of the Army. In May 1993, Joseph J. Carr and Fred Hassan were elected Senior Vice Presidents of the Company. Also elected to corporate positions in 1993 were John B. Adams, Vice President-Corporate Development; Thomas G. Cavanagh, Vice President-Investor Relations; E. Thomas Corcoran, Vice President; and Roxanne E. Parker, Treasurer. In January 1994, Terrence L. Stecz was named President of Whitehall-Robins. Headquarters personnel of the Corporation as well as Whitehall-Robins and American Home Foods relocated from New York City and Richmond, Virginia, to Madison, New Jersey, in November 1993. Outlook for 1994 and Beyond - -------------------------------------------------------------------------------- The challenges of change continue in our industry. We are committed to seeking solutions to our nation's health care problems that reflect the important contributions the pharmaceutical industry makes to the well-being of all citizens. At the same time, we are determined that our Company will be properly positioned for the new era that is unfolding. We have much to be confident about. Our growing R&D effort holds the promise of innovative therapeutic breakthroughs that can alleviate suffering, prevent illness and help to reduce the burden of health care costs. Our product franchise is among the broadest, most competitively priced and strongest in the industry. With our financial strength, we can continue to make major investments to enhance our growth. The success of our Company ultimately depends on the skill, dedication and hard work of our employees. On behalf of the Board of Directors, I thank them for their outstanding efforts in 1993. I also want to thank the Board for its continued counsel and support. Times of change present unique challenges and opportunities. Working together, we can meet these challenges and make the years ahead the best for American Home Products. John R. Stafford Chairman, President and Chief Executive Officer February 24, 1994 4 Special Report A Global Commitment to Advancing Medical Therapy Research and development are at the center of efforts by the people of American Home Products Corporation to contribute to the quality of life worldwide. Our programs, which represented an investment of more than $650 million in 1993, are focused on areas of critical need, including women's health care, inflammatory disease, central nervous system disorders, cardiovascular and metabolic disease, oncology and infectious disease. This major commitment enabled us to make significant progress during 1993 in bringing important therapeutic advances to the health care community. Approvals to market three new prescription drug products were received in the United States. Wyeth-Ayerst Laboratories entered 1994 with 26 new molecular entities, vaccines or major line extensions in various stages of clinical development. An additional six Investigational New Drug applications are expected to be filed during the year. Genetics Institute, Inc., a major biotechnology company in which we are a majority shareholder, increased its development portfolio from three to five promising product candidates in 1993. Further, we shared expertise and proprietary knowledge in a broad range of therapeutic areas with an expanding number of premier biotechnology companies with which we have collaborative arrangements seeking to develop new therapies. In this special report, we highlight several initiatives within key areas of therapeutic focus that could represent breakthroughs in treating serious health problems. The individuals pictured are members of the team dedicated to each research initiative and are representative of the many talented people throughout our Company and at Genetics Institute. Central Nervous System Disorders Immune System Modulation Oncology Cardiovascular Disease Women's Health Care Infectious Disease Metabolic Disease 5 Central Nervous System Disorders Providing an Important Option for Treating Depression [graph representing total patients treated for depression in the United States] G. Morris Husbands, Ph.D. Research Fellow, Wyeth-Ayerst Research, Princeton, N.J. Depression is a serious and expensive illness that afflicts many millions of people worldwide. If left untreated, it results in prolonged suffering, deterioration of family and work relationships, and a heightened risk of suicide and physical illness. Effexor Effexor (venlafaxine HCl), a product of Wyeth-Ayerst's discovery research program, is expected to be an important option in treating depression. This structurally novel antidepressant received market clearance in the United States in 1993 and is being reviewed by health regulators worldwide. Effexor specifically inhibits both serotonin and norepinephrine reuptake, which play pivotal roles in the cause of depression. In clinical studies, Effexor has demonstrated efficacy and safety, and its side effects are comparable to the leading antidepressants on the market. The annual cost of depression in the United States is estimated to be $43.7 billion. 6 Immune System Modulation Preventing and Treating Organ Transplant Rejection Joseph S. Camardo, M.D. Rapamune Task Force Chairman, Wyeth-Ayerst Research, Radnor, Pa. Kidney and heart transplants enable many thousands of people to live productive, fulfilling lives. However, immunosuppressants are needed to ensure that the transplanted organs are not rejected by the body's immune system. Side effects and transplant rejection occur with all current therapies. Rapamune Rapamune (rapamycin), in contrast to currently marketed immunosuppressant products, has been shown to exert a unique pharmacologic effect on the immune system. In animal models predictive of organ rejection, these properties translated into a superior efficacy and safety profile in the treatment of acute and chronic organ rejection. Studies now are being conducted in humans to determine the utility of Rapamune as first-line chronic therapy for the prevention and treatment of organ rejection. Rapamune reaches a milestone in 1994 when Wyeth-Ayerst reviews plans with the U.S. Food and Drug Administration (FDA) for Phase II/III clinical studies. In 1992, close to 20,000 kidney transplant procedures were performed worldwide [Graph representing organ transplants in the United States] 7 Oncology Enhancing the Safety of Chemotherapy Paul F. Schendel, Ph.D. Project Director, rhIL-11, Genetics Institute, Cambridge, Mass. One of the most common side effects of chemotherapy is the lowering of platelet counts, a condition known as thrombocytopenia. Platelets are the blood cells that help to control bleeding. Platelet transfusion from another individual to the patient can be used when severe platelet reduction occurs so that chemotherapy may continue. However, platelet transfusion is expensive and is associated with risks of transmission of infectious diseases as well as allergic reactions. Neumega Recombinant-Human Interleukin Eleven (rh IL-11) Genetics Institute is developing this novel human regulatory protein using genetic engineering. A Phase I study, completed in 1993, shows that Neumega rhIL-11 can increase platelet production and is well tolerated by patients even through multiple cycles of chemotherapy treatment. A multi-center Phase II study of Neumega rhIL-11 was initiated late in 1993 and is ongoing. In addition, a Phase I/II study of Neumega rhIL-11 in patients undergoing extremely high-dose chemotherapy with bone marrow transplantation was started in 1993. The use of platelet transfusions presents a number of significant medical risks and is costly. [Graph representing Cancer - New Cases and Mortality - 1993, United States] 8 Cardiovascular Disease Leading in Research on Coronary Heart Disease in Women [Graph representing Estimated Cost of Heart Disease by Type of Expenditure] # Hospital/nursing home services $37.2 billion # Physician/nurse services $8.7 billion # Lost output $8.0 billion # Drugs $2.4 billion Betty S. Riggs, M.D. Director of Clinical Research, Wyeth-Ayerst Research, Radnor, Pa. Cardiovascular research has historically focused on men. However, coronary heart disease (CHD) is the most common cause of death among women over 50 years of age. Further, women are more likely than men to suffer pain and disability from angina and to die from myocardial infarction during angioplasty and heart bypass procedures. Heart and Estrogen-Progestin Replacement Study (HERS) HERS is the largest clinical trial ever undertaken to examine the role of hormone replacement therapy (Premarin MPA) as protection against CHD events in postmenopausal women with existing coronary heart disease. This landmark $40 million, multi-center study is being conducted and funded by Wyeth-Ayerst in the United States. HERS ultimately will enroll more than 2,300 women and is scheduled for completion within five years. The study is expected to complement the growing worldwide recognition of Premarin (conjugated estrogens) as a cardioprotection therapy. At older ages, women who have heart attacks are twice as likely as men to die from them within a few weeks. 9 Women's Health Care Focusing on Critical Health Care Needs for Women [Graph representing Annual Diagnosis of Osteoporosis Among Women - United States 1991-93] Andres Negro-Vilar, M.D., Ph.D. Vice-President, Women's Health Research Institute, Wyeth-Ayerst Research, Radnor, Pa. Disorders associated with menopause, such as osteoporosis and cardiovascular disease as well as cancer, reproductive diseases, contraception, infertility and sexually transmitted diseases, are among the most serious health concerns for women worldwide. The at-risk group for disorders related to menopause alone will number more than 500 million by the year 2000. [picture of Women's Health Research Institute] In 1993, Wyeth-Ayerst established the Women's Health Research Institute (WHRI) in Radnor, Pennsylvania, to expand its leadership position in women's health care. The WHRI will foster the discovery of new drugs using basic and clinical research as well as the development of products through external alliances. The Institute's first initiatives are directed at finding new therapies for osteoporosis, endometriosis and contraception and will be expanded to uncover new therapies for menopausal symptoms, reproductive diseases and dysfunctions, and infertility. These efforts build on Wyeth-Ayerst's extensive knowledge as the premier supplier of hormone replacement therapy and oral contraceptives worldwide. In osteoporosis, the density of bone tissues decreases, increasing the brittleness of the bones and the probability of fractures. 10 Infectious Disease Finding a Breakthrough Rotavirus Vaccine William H. Wainwright, Ph.D. Associate Director, Biological Development, Wyeth-Ayerst Research, Marietta, Pa. Nearly 1 million lives are claimed by acute infantile gastroenteritis each year. This disease is the leading cause of death among young children in developing nations. The primary symptom is diarrhea, and the severest cases are caused by the rotavirus. Finding a vaccine is one of the world's top health priorities. Rotavirus Vaccine A Wyeth-Ayerst rotavirus vaccine that could represent a dramatic advance in the prevention of severe childhood diarrhea began final clinical studies in 1994. The vaccine is being tested in concert with the World Health Organization, European government health agencies and the FDA. To date, more than 9,000 subjects worldwide have been studied. The vaccine is administered orally, which facilitates distribution and immunization in geographically remote areas. It is expected to be the first product manufactured in Wyeth-Ayerst's new Biological Development Center, a state-of-the-art facility in Marietta, Pennsylvania, that is dedicated to the development, production and testing of new live virus vaccines. Rotaviruses are the major cause of viral diarrhea in human infants. [Graph representig Cases of Infant Death from Diarrheal Illness in Less- Developed Countries] # Rotavirus 1.0 million # Other causes 3.0 million 11 Metabolic Disease Developing an Innovative Diabetic Therapy [Graph representing Total Economic Cost of Diabetes, 1992 - United States] $91.9 Billion - -------------------------- # Institutional/outpatient care 49.2% # Mortality 29.4% # Long-term morbidity 12.2% # Short-term morbidity 9.2% Thomas Hohman, Ph.D. Research Fellow, Wyeth-Ayerst Research, Princeton, N.J. The complications of diabetes can seriously diminish the quality of life for more than 120 million diabetics worldwide. More than 50% of diabetics eventually will suffer from neuropathy, a degeneration of the nervous system, and retinopathy, a major cause of blindness. Nephropathy, a kidney ailment, also afflicts more than half of all diabetics and is one of the leading causes of death in juvenile diabetics. Alredase Wyeth-Ayerst's Alredase (tolrestat) is the first of a class of drugs known as aldose reductase inhibitors to be commercially available for the management of diabetic complications. It has been approved as a therapy for diabetic neuropathy in 19 countries and is marketed in nine of them. Alredase is in advanced Phase III studies in the United States for the treatment of the diabetic complications of neuropathy, retinopathy and nephropathy. Filing of a New Drug Application for the neuropathy indication is planned in 1994 upon successful completion of multi-center studies in the United States and Canada. Data from these studies, the most expansive of their kind, are expected to have a significant impact on the management of diabetic neuropathy. Each year in the United States, nearly 50,000 people with diabetes have lower limbs amputated because of the complications of neuropathy. 12 Review of Operations Ethical Pharmaceuticals, Vaccines and Nutritionals - -------------------------------------------------------------------------------- The broad product lines of ethical pharmaceuticals, vaccines and nutritionals of Wyeth-Ayerst Laboratories are widely recognized by the medical community and people worldwide. In the United States, Wyeth-Ayerst prescription products are dispensed more often than those of any other research-based pharmaceutical company. Wyeth-Ayerst also has leading products in major therapeutic areas internationally. Global basic and clinical research is concentrated on discovering and developing innovative products where important therapeutic gaps exist. Genetics Institute, Inc., of which the Corporation is a majority shareholder, is in the forefront of the biopharmaceutical industry, focusing on the discovery of protein-based therapies. Women's Health Care - Wyeth-Ayerst, the leader in women's health care, furthered its commitment to remain at the forefront in research and education in women's health care by establishing the Wyeth-Ayerst Women's Health Research Institute in 1993. It is devoted to basic and clinical research in areas of significant need, including hormone replacement therapy, contraception and reproductive diseases and dysfunctions. Work proceeded on the landmark $40 million Heart and Estrogen-Progestin Replacement Study (HERS), which investigates Premarin MPA's use for women with pre-existing coronary artery disease. In addition, Wyeth-Ayerst signed an agreement with the National Institutes of Health (NIH) to provide hormone replacement therapy (both Premarin and Premarin MPA) and placebo for the NIH's "Women's Health Initiative" trial that will examine the causes and prevention of heart disease, cancer and osteoporosis in some 160,000 women aged 50 and over. Wyeth-Ayerst maintained its worldwide position as the largest provider of hormone replacement therapy and hormonal contraceptive products. Premarin (conjugated estrogens), the number-one estrogen replacement therapy, continued to be the most widely prescribed drug in the United States, sustaining several years of growth. Premarin is used to prevent and treat osteoporosis, a debilitating disease that afflicts more than 25 million Americans and has related annual health care costs of approximately $10 billion. Premarin also is a therapy for short-term symptoms of menopause such as hot flashes and vaginal atrophy. Premarin sustained impressive growth in international markets, gaining rapidly in recognition as a treatment for the short-term symptoms of menopause as well as protection from the long-term effects of estrogen deficiency, including osteoporosis and cardiovascular disease. It now is registered in 86 countries and has approvals pending in 18 others. Global registration filings for Premarin MPA were completed in 21 countries, and registration is planned to be completed in the United States in 1994. This combination estrogen and progestin product is indicated for the treatment and prevention of menopausal symptoms and osteoporosis. The database for Premarin MPA contains information on the protective effects of the progestin MPA (medroxyprogesterone acetate) on the endometrium and the positive effects of conjugated estrogens - Premarin - on lipoproteins. Combination products grew in physician and consumer support internationally, including Prempak C (conjugated estrogens and norgestrel), which continued to enjoy strong support in the United Kingdom for treatment of postmenopausal disorders and osteoporosis. In keeping with plans to make available a variety of treatment options for estrogen deficiency, Wyeth-Ayerst entered into a collaborative arrangement with Cygnus Therapeutic Systems, Inc. to develop and market transdermal hormone replacement products worldwide. Cygnus, located in California, is a leader in transdermal patch technology. While oral contraceptive demand has been relatively flat, Wyeth-Ayerst's oral contraceptives were the products of choice in many countries due to their reliability and excellent side-effect profile. Wyeth-Ayerst continues to research and develop promising low-dose contraceptives that are long-acting and have fewer side effects than currently available products. Triphasil (levonorgestrel), marketed internationally under the trademark Trinordiol, remained the second-largest selling oral contraceptive in the United States and was the leading oral contraceptive in Canada. Lo/Ovral (norgestrel) maintained its 13 Review of Operations position as the number-one selling monophasic contraceptive in the United States, and Nordette (levonorgestrel) was widely used in the United States and throughout the world. Patient usage expanded significantly in international markets for gestodene-based oral contraceptive formulations, which have pharmacologic and biochemical profiles similar to natural progesterone. Tri-Minulet (triphasic gestodene) now is approved in 19 countries. Registration is pending in four additional countries. Steady growth continued for Minulet (monophasic gestodene), which is available in 53 countries. European registrations are expected to begin in 1994 for one of two lower-dose monophasic gestodene products currently in Phase III clinical studies. Wyeth-Ayerst continued its U.S. information and instruction programs for the Norplant System (levonorgestrel implants). Since its launch in the United States three years ago, this reversible, five-year progestin-only contraceptive has been used by approximately 900,000 women. The Norplant System was approved in Canada and will be introduced in early 1994. A New Drug Application (NDA) filing is anticipated in 1994 for Norplant II, a three-year implant system. In 1993, sales of Norplant declined after the initial pent up demand for this innovative product had been met. Norplant sales are expected to reflect more normalized levels during 1994. Mental Health Products - Approval was received in the United States for Effexor (venlafaxine HCl), a novel antidepressant characterized by serotonin and norepinephrine reuptake inhibition. Effexor, which is expected to be launched in the United States in the spring of 1994, provides physicians with a significant new option to treat depression. Registrations currently are pending in 23 other countries, and significant approvals are anticipated during 1994. Worldwide leadership, in a declining category, was retained by Ativan (lorazepam) for short-term treatment of anxiety. Loramet (lormetazepam), indicated for anxiety and sleep disorders, continued to grow in many markets. The anti-anxiety agent Serax (oxazepam) and Normison (temazepam), for treatment of sleep disorders, were other key products internationally. Early clinical development continued on a novel anti-anxiety/ antidepressant compound as well as a new anti-anxiety compound. Cardiovascular and Metabolic Disease Therapies - Wyeth-Ayerst ranks number one in sales and prescriptions in the United States for cardiac arrhythmia therapies. The family of agents in this therapeutic area - Cordarone (amiodarone HCl), Sectral (acebutolol HCl) and Quinidex Extentabs (long-acting quinidine sulfate) - can treat arrhythmias ranging from the mildest to the most life-threatening. Cordarone oral continued to register strong sales gains. The recent study "Cardiac Arrest in Seattle: Conventional versus Amiodarone Drug Evaluation," funded by the NIH, shows that Cordarone was more effective than conventional agents in preventing recurrence of fatal or near-fatal arrhythmias in high-risk ventricular fibrillation survivors. In 1994, an NDA is expected to be filed for Cordarone Intravenous, which will be indicated for treatment of life-threatening ventricular tachycardia or ventricular fibrillation. When this dosage form is available, Cordarone is expected to be the only Class III agent with oral and intravenous formulations, providing physicians with the option to continue patients on the same agent when they leave the hospital. 14 Sectral, the only cardioselective beta-blocker to have an indication for premature ventricular contractions, was the subject of a favorable study published in the Journal of the American Medical Association. The study shows that therapy using Sectral and a diuretic together provided a significantly greater improvement in quality of life over newer classes of anti-hypertensive agents. In addition, Wyeth-Ayerst continues to be a leader in a broad range of cardiovascular therapy. Inderal (propranolol) and Inderal LA combined remain as leading beta-blocker agents in the treatment of cardiovascular disease, including hypertension. Verelan (verapamil HCl), a co-promotion venture with Lederle Laboratories, Inc., has successfully penetrated the calcium channel-blocker market by becoming the fastest growing branded verapamil. The emergence of ISMO (isosorbide mononitrate) as a leading branded oral nitrate has further established Wyeth-Ayerst as a leader in nitrate therapy. Approval is anticipated in the United States in 1994 for Normiflo, a low molecular-weight heparin for prevention of venous thromboembolic disease in orthopedic surgery patients. This agent has shown advantages over currently available heparin products, including a longer duration of action with increased absorption. Alredase (tolrestat), the first commercially available aldose reductase inhibitor for management of diabetic complications, gained increasing physician support internationally as a therapy for diabetic neuropathy. Alredase is registered in 19 countries and currently is marketed in nine countries. An NDA for neuropathy is expected to be filed in the United States in 1994 upon successful completion of multi-center studies. Anti-Inflammatory Drugs - In a unique move in the U.S. pharmaceutical industry, Wyeth-Ayerst launched two products concurrently in the same therapeutic area. These are Lodine (etodolac) 400 mg. and Oruvail (ketoprofen), which are expected to strengthen Wyeth-Ayerst as a leader in the $2 billion non-steroidal anti-inflammatory drug (NSAID) field. The 400 mg. tablet of Lodine adds a higher strength of the NSAID indicated for treatment of osteoarthritis and relief of pain. Lodine, one of the most frequently prescribed NSAIDs in the United States, also continued to grow internationally as therapy for osteoarthritis, rheumatoid arthritis and pain. It is registered in 48 countries and is available in 35. A once-a-day dosage form, Lodine SR, was introduced successfully in France, Mexico, Switzerland and the United Kingdom. It is registered in five other countries, has approvals pending in eight countries and continues in Phase III trials in the United States. Oruvail extended release capsules are a once-a-day dosage form that offers a valuable treatment option for the 18 million people in the United States who suffer from osteoarthritis and rheumatoid arthritis. Sales of Oruvail, launched in October 1993, are expected to offset, in part, sales declines in Orudis (ketoprofen) due to patent expiration in 1991. Orudis continued to be an important NSAID in the United States for moderate pain, arthritis and dysmenorrhea. Advanced Phase III trials continued for bromfenac sodium, a potent, long-acting analgesic with fewer side effects than narcotic analgesics. 15 Review of Operations Anti-Infectives, Vaccines and Immunomodulators - Wyeth-Ayerst is the leader in small volume parenterals in the United States. It supplies a wide range of products, including: Ativan Injection, a premedication used in surgical, oncologic and critical care procedures; Infumorph (preservative-free morphine sulfate sterile solution) for the management of chronic pain; FluShield (influenza vaccine); and the Tubex Closed Injection System, which is the most comprehensive line of pre-filled syringe delivery systems. Sales of anti-infectives were strong internationally. Key products were Bicillin (sterile penicillin G benzathine and penicillin G procaine) and Pen-Vee K (penicillin V potassium). Both are valuable products for treating a range of upper respiratory infections, including strep throat as well as the treatment of rheumatic fever. Wyeth-Ayerst also is one of the largest suppliers of influenza, cholera, typhoid and adenovirus vaccine in the United States. Progress was made toward developing a new generation of more effective flu vaccines. Children's Health Care - Wyeth-Ayerst continued to build recognition for products that improve health care for infants and children. The scientifically formulated nutritional products of Wyeth-Ayerst are widely recommended by the medical community and are leaders worldwide. Increased sales in many international markets reflected growth in established products and new product introductions. A significant expansion to our state-of-the-art nutritional manufacturing facility in Ireland began operations. Unit sales of SMA infant formula increased in the United States as well as internationally where it is sold as S-26. The brand held the number- one position in the first-age formula segment in key international markets such as Australia and the United Kingdom. The brand is growing throughout Latin America, where a whey-based SMA with nucleotides was introduced in Mexico. The addition of this formulation, which may help to bridge the immunological gap between breast milk and commercial formulas, aligns Mexico with Wyeth-Ayerst's product line in North America. Nursoy, a soy-based formula for infants and children allergic to cow's milk, sustained sales gains in the United States. Bonamil, an economical alternative to existing casein-based formulas, was launched successfully in Canada. Increased recognition among medical professionals of the need to improve the diet of babies aged six months or older led to excellent sales growth for Promil and other follow-on formulas. Sales growth was recorded for Croissance, a liquid third-age product that is marketed jointly with Cedilac, the largest French milk producer. Pediatric pharmaceutical specialties complement the nutritional franchise in the United States. Children's Advil (ibuprofen) Suspension, indicated for the reduction of fever and relief of the symptoms of juvenile arthritis, was up in sales. Donnagel is recommended as an anti-diarrheal product. 16 Cough/Cold/Allergy Products - Wyeth-Ayerst is a leader in total prescriptions for cough/cold/allergy products in the United States. Major products include the codeine formulas of the Phenergan (promethazine) and Robitussin lines of cough control products and the combination antihistamine/decongestant formulas of Dimetane, which are used in the treatment of serious colds and allergies. Generic Products - ESI-Pharma, Inc. was formed by Wyeth-Ayerst in 1993 to compete in the U.S. generic drug marketplace with a broad line of oral products. ESI's initial product introductions were two drugs indicated for secondary amenorrhea and abnormal uterine bleeding. Cycrin (medroxyprogesterone acetate) is bioequivalent and interchangeable with Provera. Aygestin (norethindrone acetate) is bioequivalent to Norlutate. These drugs compete in the progestin market, which has been growing in recent years. The Wyeth Group Germany, consisting of Wyeth-Pharma, Brenner-Efeka, Kytta and Leipziger Arzneimittelwerk, holds a substantial stake in the expanding generic market. Further growth potential was added by the acquisition of Siegfried Pharma GmbH in early 1994. Siegfried has a strong generic line of cardiovascular and other ethical pharmaceuticals. Managed Care - In response to rapidly changing industry conditions, Wyeth-Ayerst intensified efforts to work with hospital purchasing groups, entering into agreements with two of the largest such organizations, which represent nearly 25% of the hospitals in the United States. Similarly, Wyeth-Ayerst significantly expanded the size of its Managed Care sales and marketing organization in 1993. This staff expansion is reflective of a commitment to maintain our prescription drug leadership position in a health care delivery system that will be increasingly influenced by managed care plans. Wyeth-Ayerst will respond to competition in this new environment and will maintain its position in providing quality, cost-effective products and services. Biopharmaceuticals - Genetics Institute, Inc. is developing a portfolio of genetically engineered human proteins and small molecules for use in treating a range of health problems. A Phase I study was completed in 1993 for Neumega rhIL-11, an agent for enhancing blood platelet production that often is lowered by the toxic side effects of chemotherapy in cancer patients. rhBMP-2, a protein that has shown encouraging preclinical activity as a treatment for multiple orthopedic indications where bone growth or repair is desired, is being evaluated in pilot studies. Phase II studies continue for rhM-CSF as a potential agent for the treatment of cancer, and a Phase I/II clinical study began for the reduction of significantly elevated cholesterol levels. Two new products, rhIL-12 for treating cancer and infectious disease and rhFactor IX for treating hemophilia B, progressed from discovery research to product development during the year. Construction was begun on the Bioscience Center, which will augment pharmacology research and add transgenic capabilities at Wyeth-Ayerst's Princeton, New Jersey, research complex. This will enhance our ability to develop and utilize animal models of human diseases in the search for new medicines. 17 Review of Operations Research Partnerships - Several collaborative research ventures proceeded during the year. Clinical trials continued for three products using new drug delivery system technology developed by ALZA Corporation. A research partnership with Athena Neurosciences, Inc. and Genetics Institute, Inc. in the areas of "cell trafficking" and cell adhesion technology is aimed at developing products to treat inflammation. A discovery research program is using the proprietary technologies of Panlabs, Inc. to screen natural products for new drugs for stroke, asthma and osteoporosis. Research with Oncogene Science, Inc. is directed at finding genetically engineered therapies for asthma, osteoporosis, immune system modulation and diabetes. International Initiatives - Substantial progress was made in establishing state-of-the-art pan-European manufacturing and distribution facilities. A new manufacturing center began operations in Ireland, producing prescription and over-the-counter (OTC) products. Distribution centers are being established in Belgium, France, Germany and the United Kingdom. Production facilities were augmented in Mexico and in Canada, where the Company's Wyeth and Ayerst subsidiaries were merged to form Wyeth-Ayerst Canada, Inc. Consumer Health Care - -------------------------------------------------------------------------------- Whitehall-Robins is a premier consumer health care business with leading products in key market segments in many countries and major initiatives to meet the growing emphasis on self-medication. A focused research and development effort in the United States and the United Kingdom is directed at converting prescription products to OTC status. Whitehall-Robins has one of the largest OTC medical detailing efforts in the United States. In addition, Whitehall-Robins has established a core unit of specialists to capitalize on the growing opportunities within managed health care in the United States. It also is rapidly extending its core product franchise to international markets through targeted research and development and expanded access to the services and facilities of Wyeth-Ayerst. Late in 1993, an application was submitted by Whitehall- Robins to the U.S. Food and Drug Administration (FDA) for an OTC version of Wyeth-Ayerst's prescription analgesic Orudis. Efforts continued under an agreement with Eli Lilly and Company to develop and market an OTC version of Axid (nizatidine), an H2 antagonist. Analgesics - Sales growth continued for Advil (ibuprofen), one of the most successful prescription-to-OTC product conversions in history. Advil is the largest-selling OTC ibuprofen product in the United States and Canada and the second-largest selling non-prescription U.S. analgesic. The brand benefited from expanded advertising, promotion, physician detailing and education programs of the Advil Forum on Health Education. These efforts raised awareness of the effectiveness of ibuprofen for relief of pain due to many types of ailments. 18 Growth of the ibuprofen sector of the analgesic market is coming somewhat at the expense of the older aspirin-based analgesic products. Among aspirin-based products, Anacin remained an important analgesic in North America. Anadin, the leading analgesic in the United Kingdom, was strengthened through an extension of its top-selling Anadin Extra product and was launched in Portugal. The Spalt/Doppel-Spalt line continued as a leader in Germany, and the Company introduced Spalt fur die Nacht, the first nighttime analgesic in Europe. Cough/Cold/Allergy Remedies - Strong sales increases continued for leading products in the U.S. OTC cough/cold/ allergy category, one of the fastest growing in the field of self-medication. Robitussin built on its leadership in the U.S. cough syrup category, continuing as the brand most frequently recommended by physicians and pharmacists. New products included Robitussin Pediatric Night Relief and two cold formulations - Robitussin Cold & Cough Liqui-Gels and Robitussin Severe Congestion Liqui-Gels. Robitussin Cough Drops strengthened its position as the second-largest selling brand of U.S. cough drops with the introduction of Robitussin Liquid Center Cough Drops, and the brand was launched in Mexico. Sales for Dimetapp increased in the highly competitive cold segment. The brand remained the OTC antihistamine/ decongestant most widely recommended by physicians for colds and allergies. The launch of Dimetapp Allergy in tablet and Liquigel forms expanded the brand in one of the fastest-growing segments of the category. An initial entry was made into the fast-growing non-drowsy segment with Dimetapp Decongestant Liquigels. Sales climbed for Dimetapp in Canada, where national advertising was begun, and in Brazil and Australia. The brand was approved for OTC marketing in Mexico. Advil Cold and Sinus (ibuprofen and pseudoephedrine) was one of the fastest growing brands in the U.S. cough/cold/allergy category and was introduced in Canada. FDA now has approved expansion of the franchise to include sales of tablets as well as caplets for Advil Cold and Sinus. This product also was introduced in France under the name RhinAdvil. The Dristan line declined in the United States but expanded internationally. Dristan solidified its strong leadership in Colombia. In Argentina, Dristan's leading position in cold symptom relief was strengthened with the introduction of Dristancito for children. Oral Health - Whitehall's Kolynos oral health care franchise, which includes dental creams, toothbrushes, dental floss and mouthwash, boosted its leading market share position in many Latin American markets. In Brazil, Kolynos dental creams continue to dominate the market through increased consumer advertising investments and line extensions, such as Kolynos Total Action, which was introduced in late 1993. The Kolynos brand of toothbrushes achieved market leadership for the first time in Brazil. This leadership position was fueled by the introduction of Kolynos Master toothbrushes and an extended line of Kolynos Doctor toothbrushes. In Argentina, the Kolynos brand maintained its leading position in the oral health care market through the introduction of dental cream line extensions, Kolynos Star Gel and Kolynos Ninos, and innovative product presentations such as pump dispensers. 19 Review of Operations During 1993, Whitehall Colombia maintained a leading position in the oral health care market. New advertising campaigns and product reformulations enabled Kolynos to achieve consistent share gains. Hemorrhoidal and Asthma Relief - Preparation H remained the number-one selling product in the hemorrhoidal relief category in the United States, Canada and many European countries and was launched in Spain. Primatene, the largest-selling non-prescription brand in the United States for relief of asthma, was strengthened by the introduction of new Primatene Dual Action Formula Tablets. This is the first line extension for the franchise in more than 10 years. Family Planning and In-Home Diagnostics - Clearblue Easy was number one in recommendations by chain drugstore pharmacists and a leader in drugstore and food store sales in the fast-growing U.S. pregnancy test kit category. The brand continued to be expanded internationally, where it was introduced in Argentina. Sales were up for Clearplan Easy, which gained as the leader in the U.S. ovulation predictor category. Leadership in the U.S. family planning category was maintained with the Today Contraceptive Sponge, the largest-selling feminine OTC contraceptive. Lip Care, Medicated Shampoo and Topical Analgesics - Sales growth for Chap Stick Lip Balm, a category leader in the United States, was fueled by the expansion of a medicated line and new marketing programs. Denorex remained a leading medicated shampoo in the United States. The franchise benefited from the addition of Denorex for Dry Scalp and Denorex Shampoo and Conditioner for Dry Scalp - the first products for relief of dry, itchy scalp that are enriched with Panthenol (provitamin B5), a conditioning agent. The Anbesol line of leading topical analgesics in the United States demonstrated expanding sales in both the adult and baby categories of the market. International Research and Development facilities - A state-of-the-art central development center was completed in the United Kingdom, and an additional center is scheduled for completion during the first quarter of 1994 in Brazil. The U.K. facility focuses on incorporating new technology into OTC products and on supporting introductions in new categories. The Brazilian center will focus on the development of oral health products and new OTC products that meet the unique needs of Latin American consumers. Medical Supplies and Instrumentation - -------------------------------------------------------------------------------- The innovative medical devices, supplies and diagnostic instrumentation of American Home Products Corporation meet specialized needs of health care providers in the United States and internationally. Sherwood Medical Company, Corometrics Medical Systems, Quinton Instrument Company and Symbiosis Corp. are known for quality, cost-effective products that are safe and easy to use. Disposable Syringes and Needles - Sherwood's sales of safety syringes continued to grow dramatically in the United States. Sherwood now offers a complete range of needle and syringe 20 combinations to protect health care workers from accidental needlesticks and exposure to blood-borne pathogens. Tubes, Catheters and Chest Drainage Products - The Argyle line gives Sherwood a leading U.S. position in the key areas of umbilical vessel catheters, connecting tubes, naso-gastric tubes and chest drainage products. A substantial sales increase was registered in the United States for the Argyle Salem Sump Anti-Reflux Valve. This product protects patients and clinical staff from contact with potentially hazardous bodily fluids during prolonged stomach drainage. In 1994, Sherwood will introduce the Argyle Turkel Safety Thoracentesis System. This new product, used to drain fluid from the pleural space, incorporates many safety features and benefits that minimize potential complications associated with traditional thoracentesis procedures, such as inadvertent lung puncture and potential pneumothorax. Initial clinical feedback has been favorable. Sherwood maintained its leadership position in tubes and catheters in Germany and recorded sales growth in France. Nippon Sherwood strengthened its leading share in Japan for stomach drainage products and continued as a leader in suction, intravenous hemodialysis and enteral feeding tube products. An innovative hemostatic puncture closure device licensed from Kensey Nash Corporation and developed in cooperation with Quinton will be marketed by Sherwood internationally and by Quinton in the United States under the trade name Angio-Seal. Clinical trials continue in Europe and in the United States for this product, which is expected to significantly increase patient comfort while reducing costs related to arterial punctures during the termination of cardiac catheterization procedures. Disposable and Consumable Obstetrical Products - Sales of disposable and consumable products contributed to the positioning of Corometrics as a leader in the obstetrical market. Ongoing development of disposable and sensor products is focusing on increased vital signs detection with non-invasive technology. Perinatal Monitoring Systems - Corometrics sustained a leading position in the perinatal medical area in the United States through technological improvements to its obstetrical and neonatal equipment and systems. New software updates and monitoring features strengthened the Model 116 Intrapartum Fetal Monitor as the standard product for labor-to-birth care of mother and fetus in the obstetrical market. New software enhancements improved the display, operation and ease of use of the Model 556 Patient Monitor, which is particularly suited for neonatal intensive care. Major obstetrical, neonatal and pediatric monitoring systems were introduced internationally and are awaiting approval in the United States. These systems include the first and only fetal and maternal monitoring system combined into a single package; a compact, lower-cost intrapartum fetal monitor; and advanced infant monitors for hospital and homecare uses. Cardiopulmonary Instrumentation and Devices - Quinton maintained a leadership position in the stress-testing field in the United States and expanded internationally where software for the Q4500 Stress Test System, was made available 21 Review of Operations in French, German, Italian and Spanish language versions. Sales increased for the EPLab automated electrophysiology management system, which provides data analysis, reporting and optical disk storage. The system was enhanced by the introduction of EPAmp, a new electrophysiology/ catheter lead switching system that significantly increases speed and efficiency in data analysis. Electrophysiology is a rapidly growing area that has shown great success in treating potentially fatal heart rhythm disturbances. Quinton also held a leading share of cardiac catheterization laboratory monitors. New angiography and ventriculography digital imaging now is available for the Q-Cath Cardiac Catheterization Laboratory System. These programs make Q-Cath the first system of its type to provide real-time hemodynamic analysis, online cardiac image analysis and combined image and analysis reporting. Laparoscopic and Endoscopic Instruments - Symbiosis Corp., an original equipment manufacturer acquired in 1992, holds a leading position in disposable laparoscopic and endoscopic surgical products and provides innovative products to major surgical instrumentation companies for sales to customers. Laparoscopy, a method of performing surgery through very small incisions, offers significant benefits to patients and substantial savings to the health care system. In 1993, a new laparoscopic suction irrigation system that integrates electrosurgical cutting and coagulation capabilities was introduced. This product is among the first of a new generation of laparoscopic instruments designed specifically to incorporate multiple technologies in a single device. It also represents the initial less-invasive product to be marketed in the United States by Sherwood Intrascopic. This is a new division established by Sherwood to strengthen the Company's presence in key segments of the less-invasive surgical product market. In addition, Symbiosis entered the arthroscopic field, introducing a new line of disposable instruments. Arthroscopy involves the interior examination and treatment of a joint. Enteral Feeding Systems - A strong performance by the Kangaroo Pet Enteral Feeding Pump strengthened Sherwood as a leader in enteral feeding devices in the United States. This ambulatory system, introduced last year, has exclusive safety features and is the most compact product of its type. Sales for the Kangaroo device product line benefited from gains for adult formula supplements, particularly the KDS ready-to-use system. Wound Care Dressings - Specialty wound care brands such as Viasorb, Blisterfilm and Ultec recorded significant sales increases for Sherwood in the wound care dressings field in the United States. These products offer a cost-effective alternative to conventional methods for treating chronic wounds. Thermometry - Sherwood is a thermometry leader in the United States with Filac electronic predictive thermometers and innovative FirstTemp infrared tympanic thermometers, which enable temperatures to be taken accurately and quickly. Excellent sales gains were recorded in Europe, Canada and Australia for tympanic thermometers. 22 Facilities Development - Sherwood continued to consolidate European manufacturing of tube, catheter and chest drainage products in Ireland. Construction was begun by Quinton on a new administrative, manufacturing and warehouse facility in Bothell, Washington. Animal Health Care - -------------------------------------------------------------------------------- Fort Dodge Laboratories experienced strong sales growth in 1993 and is making a dedicated commitment to increase its leadership in key segments of veterinary biological and pharmaceutical markets in the United States. The division also is expanding its presence in Europe, Asia and Latin America. Small Animal Products - LymeVax (borrelia burgdorferi bacterin) continued to gain acceptance as the only U.S. Department of Agriculture (USDA) licensed canine Lyme disease vaccine, achieving another year of strong sales growth and becoming the single largest-dollar-volume canine vaccine in the United States. Fort Dodge strengthened its position as a leader in the growing feline biological field fueled by sales increases for Fel-O-Vax Lv-K IV. Duramune (coronavirus) combination vaccines and Ketaset (ketamine hydrochloride) and Telazol (tiletamine HCl/zolazepam HCl) anesthetics also recorded substantial sales growth in the small animal line. In 1994, the division expects to introduce the first fungal vaccine licensed by the USDA for prevention and treatment of feline ringworm. Under development are new canine antibiotic and inflammation control products and feline analgesics. A complete range of equine, bovine and small animal vaccines was successfully introduced in Ireland. Through collaboration with the GHEN Corporation, Fort Dodge expects to receive licenses for canine and feline vaccines in Japan. Dairy and Cattle Products - Leadership in antibiotic products for mastitis prevention and treatment in the dairy industry was maintained for Fort Dodge and Franklin Laboratories, its OTC entity, with Today, Tomorrow, Cefa-Lak and Cefa-Dri. Advances in production technology led to sales increases for Triangle and Discovery, the leading lines of inactivated bovine biologicals. TrichGuard and Reprotec gained in recognition for protection against bovine infertility. Internationally, a full range of bovine biologicals was introduced in Ireland, Italy and Spain. Licenses for small animal and equine vaccines were received in many European countries. Production of the full line of Fort Dodge vaccines for Europe was begun in a new facility in Ireland, and efforts were initiated to establish a European sales and marketing network. Marketing and Production Improvements - A unique toll-free order system was installed that ensures next-day product delivery in the United States, and the sales force was expanded significantly to provide greater customer access to technical resources and product information. The addition of new high-speed and automated production capabilities and the consolidation of distribution operations resulted in increased capacity, lower operating costs, and improved productivity and customer service in the United States. 23 Review of Operations Food Products - -------------------------------------------------------------------------------- American Home Food Products, Inc. and Canadian Home Products Limited are known for quality, nutritious, ready-to-eat convenience foods that represent some of the most popular brands in key food categories in North America. Prepared Meals and Side Dishes - American Home Foods strengthened its leading share of the prepared pasta category in the United States through new products and line extensions. The appeal of the Chef Boyardee brand to older children and adults was increased with the introduction of a meat and cheese tortellini variety. Chef Boyardee Sir Chomps-a-Lot, a bite-sized, canned pasta successfully introduced in 1992, was expanded with two new varieties: lasagna and O' Rings with mini-meatballs. The franchise also was bolstered by the restage of Chef Boyardee Teenage Mutant Ninja Turtles and Chef Boyardee Dinosaurs in new pasta shapes to coincide with the release of popular movies. The company expanded its leadership in the microwave segment with Chef Boyardee Microwave Meals, a leading line of microwavable prepared pastas, and Chef Boyardee Main Meals, a line of microwave products in family portions. Record sales were achieved in Canada for the canned pasta line, which added Chef Boyardee Sir Chomps-a-Lot and fettuccine products. Dennison's, the top-selling line of chili products on the West Coast, introduced Hot & Chunky Chili. Ranch Style continued to be a leading line of bean products in key geographic areas. Luck's, a leading brand of beans and peas in the Southeast, achieved a sizable sales increase for Chili Hot Beans in a redesigned package. Condiments and Snacks - Pam No Stick Cooking Spray maintained its leadership in a highly competitive category in the United States and Canada. Gulden's continued as the largest-selling spicy brown mustard in the United States. Another year of excellent sales growth was recorded for Crunch 'n Munch, the leading brand of glazed popcorn in the United States and Canada. Early in 1993, American Home Foods became one of the top fruit spread marketers in the United States with the acquisition of M. Polaner, Inc. Polaner All Fruit has recently become the number-one fruit juice sweetened spreadable fruit. The company expects to further strengthen the brand through national expansion and increased marketing support. Polaner also is a leader in the rapidly growing ready-to-use garlic and wet spices category. The Ro*Tel brand of canned tomatoes and green chilies introduced a bottled, pourable version for convenient use on sandwiches and other foods. Ro*Tel was acquired in 1992 and is the leading brand in its segment. 24 Financial Section Contents 26 Ten-Year Selected Financial Data 28 Consolidated Balance Sheets 29 Consolidated Statements of Income 30 Consolidated Statements of Retained Earnings and Additional Paid-in Capital 31 Consolidated Statements of Cash Flows 32 Notes to Consolidated Financial Statements 39 Report of Independent Public Accountants 39 Management Report on Financial Statements 40 Quarterly Financial Data 40 Market Prices of Common Stock and Dividends 41 Management's Discussion and Analysis of Financial Condition and Results of Operations 25 Ten-Year Selected Financial Data
American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 (Dollar amounts in thousands except per share amounts) Summary of Sales and Earnings - ------------------------------------------------------------------------------------------------------------------------------------ Net sales ............ $8,304,851 $7,873,687 $7,079,443 $6,775,182 $6,747,016 $6,401,454 $5,850,383 $5,683,507 $5,358,376 $5,088,798 Net income (1) ....... 1,469,300 1,460,842 1,375,273 1,230,597 1,102,158 995,461 928,232 865,922 818,459 695,478 Net income per common share ...... 4.73 4.65 4.36 3.92 3.54 3.22 2.98 2.73 2.54 2.14 Dividends per common share ...... 2.86 2.66 2.375 2.15 1.95 1.80 1.67 1.55 1.45 1.32 Year-End Financial Position - ------------------------------------------------------------------------------------------------------------------------------------ Current assets ....... $4,807,684 $4,552,077 $4,119,057 $3,826,075 $3,532,786 $3,256,494 $3,310,467 $3,249,404 $2,634,616 $2,328,294 Current liabilities .. 1,584,411 1,492,717 1,270,135 1,693,852 1,108,895 1,067,599 1,392,800 1,103,109 754,216 775,031 Ratio of current assets to current liabilities ....... 3.03 3.05 3.24 2.26 3.19 3.05 2.38 2.95 3.49 3.00 Total assets ......... 7,687,353 7,141,405 5,938,797 5,637,107 5,681,487 5,492,424 5,411,150 4,928,476 3,972,634 3,577,565 Long-term debt ....... 859,278 601,934 104,710 111,430 1,895,796 100,057 90,076 70,815 63,017 63,249 Average shareholders' equity ............ 3,719,539 3,431,568 2,987,885 2,322,623 1,651,050 1,077,462 1,572,972 2,227,801 1,977,817 2,115,118 Shareholders -- Outstanding Shares - ------------------------------------------------------------------------------------------------------------------------------------ Number of common shareholders ...... 72,664 73,064 71,209 69,907 70,904 70,021 73,353 75,405 77,797 79,541 Number of preferred shareholders ...... 726 780 870 931 1,021 1,110 1,187 1,314 1,417 1,975 Average number of common shares outstanding used for earnings per share calculation (in thousands...... 310,668 314,201 315,726 314,066 311,644 309,396 311,975 317,678 322,259 325,151 Preferred shares outstanding at year-end (in thousands) ........ 40 43 51 57 64 71 77 87 98 112 Employment Data - ------------------------------------------------------------------------------------------------------------------------------------ Number of employees at year-end ....... 51,399 50,653 47,938 48,700 50,816 51,464 50,623 49,896 53,337 53,298 Wages and salaries ... $1,654,984 $1,575,615 $1,388,397 $1,398,721 $1,391,233 $1,284,208 $1,171,788 $1,045,691 $1,052,264 $ 967,651 Benefits (including social security taxes) ............ 396,045 367,899 300,810 312,750 256,458 245,834 215,109 164,306 188,946 176,165 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Net income in 1992 includes the impact of accounting changes and the charge for acquired research discussed in Notes 2, 4 and 9 and in Management's Discussion and Analysis of Financial Condition and Results of Operations. Excluding these items, 1992 net income was $1,370,738 and net income per common share was $4.36. Net income in 1987 and 1984 excludes provisions related to Dalkon Shield claims of $1.75 billion and $615 million, respectively, recorded by A.H. Robins Company, Incorporated prior to its acquisition by the Company in 1989.
26 Consolidated Balance Sheets American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------ December 31, 1993 1992 (In thousands except share amounts) Assets - ------------------------------------------------------------------------------ Cash and cash equivalents ...................... $1,936,834 $1,692,761 Marketable securities .......................... 283,449 289,603 Accounts receivable less allowances (1993 - $45,949 and 1992 - $38,905) ......... 1,389,555 1,250,541 Inventories .................................... 958,896 944,568 Other current assets ........................... 238,950 374,604 ---------- ---------- Total Current Assets ...................... 4,807,684 4,552,077 Property, plant and equipment: Land ...................................... 89,375 79,881 Buildings ................................. 1,473,413 1,292,741 Machinery and equipment ................... 1,897,577 1,684,271 ---------- ---------- 3,460,365 3,056,893 Less accumulated depreciation .................. 1,400,580 1,279,102 ---------- ---------- 2,059,785 1,777,791 Goodwill ....................................... 716,395 708,832 Other assets ................................... 103,489 102,705 ---------- ---------- $7,687,353 $7,141,405 ========== ========== Liabilities - ------------------------------------------------------------------------------ Loans payable to banks ......................... $ 4,280 $ 11,162 Trade accounts payable ......................... 388,804 366,986 Accrued expenses ............................... 1,019,923 970,498 Accrued federal and foreign taxes on income .... 171,404 144,071 ---------- ---------- Total Current Liabilities ................. 1,584,411 1,492,717 Long-term debt ................................. 859,278 601,934 Accrued postretirement benefit obligation ...... 264,553 250,355 Other noncurrent liabilities ................... 903,993 1,008,708 Minority interests ............................. 198,630 225,102 Shareholders' Equity - ------------------------------------------------------------------------------ $2 convertible preferred stock, par value $2.50 per share; 5,000,000 shares authorized ................. $ 100 $ 108 Common stock, par value $.33 1/3 per share; 600,000,000 shares authorized .... 103,442 104,349 Additional paid-in capital ..................... 1,014,911 953,155 Retained earnings .............................. 2,884,244 2,547,719 Currency translation adjustments ............... (126,209) (42,742) ---------- ---------- Total Shareholders' Equity ................ 3,876,488 3,562,589 ---------- ---------- $7,687,353 $7,141,405 ========== ========== - ------------------------------------------------------------------------------ The accompanying notes are an integral part of these consolidated balance sheets. 28 Consolidated Statements of Income American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------ Years Ended December 31, 1993 1992 1991 (In thousands except per share amounts) Net Sales ................................ $8,304,851 $7,873,687 $7,079,443 ---------- ---------- ---------- Cost of goods sold ....................... 2,723,902 2,568,690 2,390,463 Selling, administrative and general expenses .................. 2,922,579 2,846,365 2,541,422 Research and development expenses ........ 662,689 552,450 430,519 Other expense (income), net .............. 3,016 (37,888) (42,771) Special charge ........................... -- 220,000 -- ---------- ---------- ---------- 6,312,186 6,149,617 5,319,633 ---------- ---------- ---------- Income before federal and foreign taxes on income ....................... 1,992,665 1,724,070 1,759,810 Provision for taxes on income: Federal ............................. 287,846 351,193 163,217 Foreign ............................. 235,519 222,139 221,320 ---------- ---------- ---------- 523,365 573,332 384,537 ---------- ---------- ---------- Income before accounting changes ......... 1,469,300 1,150,738 1,375,273 Cumulative effect of accounting changes: Income taxes ........................ -- 383,295 -- Postretirement benefits other than pensions (net of taxes of $37,704) ........ -- (73,191) -- ---------- ---------- ---------- Net Income ............................... $1,469,300 $1,460,842 $1,375,273 ========== ========== ========== Income per share of common stock before accounting changes ............. $ 4.73 $ 3.66 $ 4.36 Cumulative effect of accounting changes: Income taxes ........................ -- 1.22 -- Postretirement benefits other than pensions .................... -- (.23) -- ---------- ---------- ---------- Net Income per Share of Common Stock ..... $ 4.73 $ 4.65 $ 4.36 ========== ========== ========== - ------------------------------------------------------------------------------ The accompanying notes are an integral part of these consolidated statements. 29 Consolidated Statements of Retained Earnings and Additional Paid-in Capital American Home Products Corporation and Subsidiaries - ------------------------------------------------------------------------------ Years Ended December 31, 1993 1992 1991 (In thousands except per share amounts) Retained Earnings - ------------------------------------------------------------------------------ Balance, beginning of year ............ $2,547,719 $2,316,555 $1,802,658 Net income ............................ 1,469,300 1,460,842 1,375,273 ---------- ---------- ---------- 4,017,019 3,777,397 3,177,931 ---------- ---------- ---------- Cash dividends declared: Preferred stock (per share: 1993 - 1991, $2.00) ............. 82 92 108 Common stock (per share: 1993- 1991, $2.86, $2.66, $2.375) ..... 888,100 833,758 749,030 ---------- ---------- ---------- 888,182 833,850 749,138 Cost of treasury stock acquired, less amount charged to capital ..... 244,593 395,828 112,238 ---------- ---------- ---------- 1,132,775 1,229,678 861,376 ---------- ---------- ---------- Balance, end of year .................. $2,884,244 $2,547,719 $2,316,555 ========== ========== ========== Additional Paid-in Capital - ------------------------------------------------------------------------------ Balance, beginning of year ............ $ 953,155 $ 838,099 $ 683,504 Excess over par value of common stock issued ....................... 84,013 125,513 145,583 Miscellaneous, net .................... (22,257) (10,457) 9,012 ---------- ---------- ---------- Balance, end of year .................. $1,014,911 $ 953,155 $ 838,099 ========== ========== ========== - ------------------------------------------------------------------------------ The accompanying notes are an integral part of these consolidated statements. 30 Consolidated Statements of Cash Flows American Home Products Corporation and Subsidiaries - ----------------------------------------------------------------------------- Years Ended December 31, 1993 1992 1991 (In thousands) Operating Activities - ----------------------------------------------------------------------------- Net income ........................... $ 1,469,300 $ 1,460,842 $ 1,375,273 Adjustments to reconcile to net cash provided from operating activities: Depreciation and amortization ... 241,068 210,213 167,166 Deferred income taxes ........... 153,314 (223,484) (15,459) Special charge .................. -- 220,000 -- Changes in working capital, net of businesses acquired or sold: Accounts receivable ............ (135,038) (192,150) (2,997) Inventories .................... (8,341) (72,057) (51,554) Trade accounts payable and accrued expenses ............ 62,758 104,217 270,865 Accrued taxes .................. 27,333 31,457 (23,251) Other current assets ........... (13,101) 138 34,728 Other items, net ................ (115,905) (26,031) 143,288 ----------- ----------- ----------- Net cash provided from operating activities ........................ $ 1,681,388 $ 1,513,145 $ 1,898,059 =========== =========== =========== Investing Activities - ----------------------------------------------------------------------------- Purchases of property, plant and equipment ......................... $ (517,912) $ (428,109) $ (227,911) Purchases of businesses for cash, net of cash acquired .............. (67,500) (565,952) -- Proceeds/(purchases) of marketable securities, net ................... 6,154 (238,589) -- Proceeds from sales of businesses/assets ................. 13,614 60,341 44,947 Purchases of other assets ............ (16,038) (10,165) (8,470) ----------- ----------- ----------- Net cash used for investing activities ........................ $ (581,682) $(1,182,474) $ (191,434) =========== =========== =========== Financing Activities - ----------------------------------------------------------------------------- Dividends paid ....................... $ (888,182) $ (833,850) $ (749,138) Net proceeds/(repayments) of commercial paper and notes ........ 251,646 503,759 (665,039) Purchases of treasury stock .......... (277,495) (434,947) (123,898) Exercise of stock options ............ 69,255 95,431 127,873 ----------- ----------- ----------- Net cash used for financing activities ........................ (844,776) (669,607) (1,410,202) ----------- ----------- ----------- Effects of exchange rates on cash balances ..................... (10,857) (32,906) (20,354) ----------- ----------- ----------- Increase/(decrease) in cash and cash equivalents .............. 244,073 (371,842) 276,069 Cash and cash equivalents, beginning of year ................. 1,692,761 2,064,603 1,788,534 ----------- ----------- ----------- Cash and cash equivalents, end of year ....................... $ 1,936,834 $ 1,692,761 $ 2,064,603 =========== =========== =========== - ----------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated statements. 31 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 subsidiaries (the Company). Cash and Cash Equivalents, for purposes of reporting cash flows, consists primarily of certificates of deposit, time deposits and other short-term, highly liquid securities and is stated at cost, which approximates fair value. Marketable Securities consists of U.S. government or agency issues and corporate bonds and are stated at cost, which approximates fair value. The fair values are estimated based on quoted market prices. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 115 - Accounting for Certain Investments in Debt and Equity Securities. This Statement will be adopted in the first quarter of 1994, and the effect will be immaterial to the Company. Inventories are valued at the lower of cost or market. Inventories valued under the last-in, first-out (LIFO) method amounted to $148,700,000 at December 31, 1993 and $265,816,000 at December 31, 1992. Current value exceeded LIFO value by $65,607,000 and $52,894,000 at December 31, 1993 and 1992, respectively. The remaining inventories are valued under the first-in, first-out (FIFO) or the average cost method. Inventories at December 31 consisted of: (In thousands) 1993 1992 - -------------------------------------------------------------- Finished goods......................... $435,902 $477,226 Work in progress....................... 219,701 197,368 Materials and supplies................. 303,293 269,974 -------- -------- $958,896 $944,568 ======== ======== - -------------------------------------------------------------- Property, Plant and Equipment is carried at cost. Depreciation is provided over the estimated useful lives of the related assets, principally on the straight-line method. Goodwill is being amortized on the straight-line method over periods not exceeding 40 years. Accumulated amortization was $636,385,000 and $604,484,000 at December 31, 1993 and 1992, respectively. Long-Term Debt is stated at face value, which approximates fair value (see Note 3). The fair value of the Company's long-term debt is estimated based on quoted market prices. 2 Acquisitions - -------------------------------------------------------------------------------- On March 19, 1993, the Company acquired M. Polaner, Inc. (Polaner), a manufacturer of jams, for $67,500,000 in a purchase transaction. The excess of the purchase price over the net assets acquired was approximately $65,600,000. In January 1992, the Company acquired a majority interest in Genetics Institute, Inc. (G.I.), a biopharmaceutical company. The Company acquired approximately 40% of G.I.'s outstanding common stock for $50 per share in cash and purchased approximately 9,500,000 newly issued shares of G.I. common stock for $300,000,000. The total consideration paid by the Company for the approximate 60% interest in G.I. was $666,000,000. The purchase price exceeded the net tangible assets acquired by approximately $365,000,000 of which $220,000,000 was attributable to acquired research and was expensed as a special charge in 1992. The unamortized goodwill at December 31, 1993 was $164,000,000 inclusive of additional share purchases of 40,000 and 907,000 shares in 1993 and 1992, respectively, bringing the Company's total ownership at December 31, 1993 to approximately 64%. The Company holds an option to acquire the remaining shares of G.I. from the public shareholders over a five-year period ending December 31, 1996 at prices escalating by approximately $1.84 per quarter, to $85 per share through December 31, 1996. At January 1, 1994, the option price per share was $64.74. The Company has the right to acquire additional shares through open market or privately negotiated purchases, provided that its aggregate holdings do not exceed 75% of G.I.'s outstanding equity. G.I. continues as a publicly traded company. On September 24, 1992, pursuant to a Stock Purchase Agreement, the Company acquired Symbiosis Corp. (Symbiosis), a manufacturer of disposable surgical instruments. Under the terms of the agreement, the Company paid 32 $175,000,000 for 100% of Symbiosis' stock. The purchase price exceeded the net assets acquired by approximately $173,000,000. The results of operations of G.I., Symbiosis and Polaner have been included in the consolidated statements of income since their acquisition dates. The Company also acquired all the outstanding stock of Intelligent Medical Systems, Inc. (IMS) in exchange for 498,242 shares of the Company's common stock. This acquisition was accounted for as a pooling-of-interests, effective January 1, 1992. The 1991 financial statements were not restated for this transaction as the effects were immaterial. The Company had other acquisitions during the 1991-1993 period, the effect of which, individually and in the aggregate, was not material to the consolidated financial position or results of operations. Unaudited pro forma results of operations to reflect the 1993 and 1992 acquisitions as if they had taken place on January 1 of those years are not presented as the effects are immaterial. 3 Long-Term Debt and Financing Arrangements - -------------------------------------------------------------------------------- On April 10, 1992, the Company issued $250,000,000 principal amount of five-year Notes due April 15, 1997. The five-year Notes bear interest at the rate of 6.875% payable semiannually on April 15 and October 15. On October 2, 1992, the Company issued an additional $250,000,000 principal amount of 10-year Notes due October 15, 2002. The 10-year Notes bear interest of 6.5% payable semiannually on April 15 and October 15. On February 19, 1993, the Company issued $250,000,000 principal amount of 30-year Notes due March 1, 2023. The 30-year Notes bear interest of 7.25% payable semiannually on March 1 and September 1. All the Notes were issued under a $1,000,000,000 shelf registration statement filed with the Securities and Exchange Commission in February 1992. These Notes are unsecured and unsubordinated and may not be redeemed prior to maturity. The proceeds from the sale of the Notes were used for acquisitions and general corporate purposes, including common share repurchases and repayments of commercial paper. In April 1993, the Company entered into a Revolving Credit Facility Agreement, for a 364-day term, with a syndicate of international lending institutions. The facility allows the Company to borrow a maximum of $1,000,000,000 on an unsecured basis at variable interest rates and may be used to satisfy general corporate cash requirements, including acquisitions, common share repurchases and commercial paper backup. Fees under the agreement are not significant. The Company intends to renew the facility upon the expiration of the 364-day term. To date, there have been no borrowings under this agreement. The Notes and the Revolving Credit Facility Agreement contain customary covenants, representations, warranties, conditions and default provisions which, given the Company's current financial position, provide substantial flexibility. The Company participates in certain off-balance sheet arrangements, including interest rate swap agreements and foreign exchange forward contracts, as part of its management of interest rate and foreign currency exposures, which, in the aggregate, are not significant. The Company believes that the risks of accounting loss associated with these arrangements, principally from non-performance by the counterparties or due to fluctuations in interest and/or exchange rates, would not have a material adverse effect on the Company's results of operations or financial position. Interest payments in connection with the Company's debt obligations for the years ended December 31, 1993, 1992 and 1991 amounted to $55,215,000, $26,151,000 and $37,159,000, respectively. 4 Employee Benefit Plans - -------------------------------------------------------------------------------- Pension Plans: The Company sponsors various retirement plans for most full-time employees. Total pension expense for 1993, 1992 and 1991 was $50,660,000, $46,003,000 and $43,412,000, respectively. Pension plan benefits are based primarily on participants' compensation and years of credited service. It has been the Company's policy to fund all current and prior service costs under retirement plans, and all liabilities for accrued vested and nonvested benefits have been fully funded. 33 Notes to Consolidated Financial Statements Net periodic pension cost of domestic pension plans was as follows: (In thousands) 1993 1992 1991 - -------------------------------------------------------------- Service cost on benefits earned during the year........... $ 31,520 $ 28,237 $ 25,277 Interest cost on projected benefit obligation........ 59,485 54,226 49,513 Actual return on plan assets... (113,393) (53,600) (105,376) Net amortization and deferral.................. 57,642 2,502 59,009 --------- -------- -------- Net periodic pension cost...... $ 35,254 $ 31,365 $ 28,423 ========= ======== ======== - -------------------------------------------------------------- The actuarial present value of benefit obligations and funded status for the Company's domestic plans were as follows: (In thousands) 1993 1992 1991 - -------------------------------------------------------------- Benefit obligations: Vested benefits........ $620,872 $510,892 $486,306 Nonvested benefits..... 45,702 36,461 34,021 -------- -------- -------- Accumulated benefit obligation............. 666,574 547,353 520,327 Projected compensation increases.............. 160,079 153,495 116,568 -------- -------- -------- Projected benefit obligation............. 826,653 700,848 636,895 Plan assets at fair value... 743,292 668,005 608,245 -------- -------- -------- Projected benefit obligation in excess of plan assets (83,361) (32,843) (28,650) Unrecognized net loss (gain)............ 16,457 (18,080) (30,800) Unrecognized net transition obligation............. 2,891 1,968 1,045 Unrecognized prior service cost........... 26,177 29,482 22,761 -------- -------- -------- Net pension liability....... $(37,836) $(19,473) $(35,644) ======== ======== ======== - -------------------------------------------------------------- Assumptions used in developing the projected benefit obligation as of December 31 were as follows: 1993 1992 1991 - -------------------------------------------------------------- Discount rate......................... 7.5% 8.5% 8.5% Rate of increase in compensation..................... 4.5% 6.0% 6.0% Rate of return on plan assets......... 8.5% 9.0% 9.0% - -------------------------------------------------------------- Postretirement Benefits: The Company provides postretirement health care and life insurance benefits for retired employees. Most full-time employees become eligible for these benefits after attaining specified age and service requirements. Effective January 1, 1992, the Company adopted SFAS No. 106 - Employers' Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 106 requires the Company to accrue the estimated cost of retiree benefit payments, other than pensions, during the employee's active service period. The Company had established reserves in prior years for the postretirement health care benefits of existing retirees totaling $129,084,000 as of December 31, 1991. Prior to adoption of SFAS No. 106, the Company expensed the cost of these benefits, principally health care and related benefits, as claims were paid. The Company recognized this change as a cumulative effect of a change in accounting principle as of January 1, 1992, resulting in a non-recurring after-tax charge of $73,191,000. The Company's unfunded accumulated postretirement benefit obligation (APBO) increased to $355,864,000 as of December 31, 1993, due principally to claims experience in 1993 and the reduction of the discount rate. The Company recorded an accrued postretirement benefit obligation of $264,553,000 as of December 31, 1993. Net periodic postretirement health care cost at December 31 included the following components: (In thousands) 1993 1992 - -------------------------------------------------------------- Service cost on benefits earned during the year................... $ 9,759 $ 8,439 Interest cost on APBO.................. 26,765 21,456 Amortization of loss................... 1,230 -- ------- ------- Net periodic postretirement health care cost.................. $37,754 $29,895 ======= ======= - -------------------------------------------------------------- The cost of these programs in 1991 was $15,218,000. The APBO at December 31 was as follows: (In thousands) 1993 1992 - -------------------------------------------------------------- Retirees............................... $165,797 $118,920 Fully eligible active participants..... 151,753 103,090 Other active participants.............. 38,314 28,345 -------- -------- APBO .................................. 355,864 250,355 Unrecognized net loss.................. (91,311) -- -------- -------- Accrued postretirement benefit obligation................ $264,553 $250,355 ======== ======== - -------------------------------------------------------------- 34 Assumptions used in developing the APBO were as follows: 1993 1992 - -------------------------------------------------------------- Discount rate........................... 7.5% 9.0% Increase in per capita cost of health care benefits that gradually was decreased over 10 years and held constant thereafter........... 11%-6% 12%-6% - -------------------------------------------------------------- A one percentage point increase in the assumed health care cost trend rates would increase the APBO as of December 31, 1993 by approximately $36,382,000, and the total of the service and interest cost components of the net periodic postretirement health care cost would increase by approximately $5,017,000. In November 1992, the Financial Accounting Standards Board issued SFAS No. 112 - Employers' Accounting for Postemployment Benefits. This Statement will be adopted in the first quarter of 1994, and the effect will be immaterial to the Company. 5 Other Noncurrent Liabilities - -------------------------------------------------------------------------------- Other noncurrent liabilities include reserves for contingencies relating to income taxes and environmental and product liabilities. Deferred income taxes payable, liabilities for the Company's Management Incentive Plan and reserves for plant reorganizations, including severance payments, also are included. The Company has responsibilities for environmental safety and cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. The Company also is involved in various other environmental claims and legal proceedings of a nature considered normal to its business. The Company provides for the estimated costs of remediation for all known environmental liabilities. The Company's Management Incentive Plan provides for cash and deferred contingent common stock awards to key employees. The maximum shares issuable under the plan are 12,000,000 common shares, of which 8,702,162 have been awarded through December 31, 1993. Deferred contingent common stock awards plus accrued dividends totaling 316,648 shares were outstanding at December 31, 1993. Awards for 1993 amounted to $31,266,000, which included deferred contingent common stock of $7,120,000 (101,348 shares). Awards for 1992 were $30,337,000, which included deferred contingent common stock of $7,201,000 (104,098 shares). Awards for 1991 amounted to $25,871,000, which included deferred contingent common stock of $14,324,000 (168,911 shares). 6 Capital Stock - -------------------------------------------------------------------------------- There were 600,000,000 shares of common stock and 5,000,000 shares of preferred stock authorized at December 31, 1993. Of the authorized preferred shares, there is a series of shares (40,137 outstanding), which is designated as $2 convertible preferred stock. Each share of the $2 series is convertible at the option of the holder into nine shares of common stock. This series may be called for redemption at $60 per share plus accrued dividends if the market price of the common stock is at least $6.67 per share. Changes in outstanding common shares during 1993, 1992 and 1991 are summarized as follows: (In thousands) 1993 1992 1991 - -------------------------------------------------------------- Balance, beginning of year..... 313,048 315,623 314,028 Issued for stock options and Management Incentive Plan...................... 1,754 2,681 3,470 Conversions of preferred stock (3,011 shares in 1993, 7,900 shares in 1992 and 5,900 shares in 1991)..... 27 72 53 Purchase of shares for treasury (4,503) (5,826) (1,928) Issued for acquisition of IMS -- 498 -- ------- ------- ------- Balance, end of year........... 310,326 313,048 315,623 ======= ======= ======= - -------------------------------------------------------------- 7 Stock Options - -------------------------------------------------------------------------------- The Company has three Stock Option Plans - 1985, 1980 and 1978 - and a 1990 Stock Incentive Plan. In addition, in June 1993, the Board of Directors of the Company approved the 1993 Stock Incentive Plan to be presented to shareholders for approval in April 1994. Under the 1993 and 1990 plans, a maximum of 14,000,000 and 12,000,000 option shares, respectively, may be granted at prices not less than 100% of the fair market value at the date of option grant. No further grants will be made under the 1985, 1980 and 1978 plans. 35 Notes to Consolidated Financial Statements 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 provide for the granting of Stock Appreciation Rights (SAR) which permit the optionee to surrender an exercisable option for an amount equal to the excess of the market price of the common stock over the option price when the right is exercised. In May 1991, all SARs issued to U.S. employees were canceled. Foreign employee SARs for 112,800 shares remain outstanding and exercisable at December 31, 1993. The 1993 and 1990 plans, in addition and among other things, provide for the issuance of up to 2,000,000 of the available options as restricted stock performance awards under each plan. No restricted stock performance awards have been granted under these plans. Transactions involving the plans are summarized as follows: Option Shares 1993 1992 - -------------------------------------------------------------- Outstanding January 1.............. 12,465,013 12,671,683 Granted............................ 10,710,210 1,899,100 Canceled........................... (322,450) (70,600) Exercised (1993 - $23.03 to $60.88 per share)............. (1,511,849) (2,035,170) ---------- ---------- Outstanding December 31............ 21,340,924 12,465,013 ========== ========== Exercisable December 31 (1993 - $27.06 to $79.31 per share)............. 10,805,634 10,562,913 ========== ========== - -------------------------------------------------------------- At December 31, 1993, 12,713,740 shares were available for future grants under the 1993 and 1990 plans. 8 Other Expense (Income), Net - -------------------------------------------------------------------------------- This caption in the Consolidated Statements of Income is summarized as follows: (In thousands) 1993 1992 1991 - -------------------------------------------------------------- Interest income............. $(89,677) $(108,720) $(137,203) Interest expense............ 47,174 35,503 31,431 Foreign exchange loss and other......... 45,519 35,329 63,001 --------- ---------- ---------- Total....................... $ 3,016 $ (37,888) $ (42,771) ========= ========== ========== - -------------------------------------------------------------- 9 Income Taxes - -------------------------------------------------------------------------------- The provision for income taxes consisted of: (In thousands) 1993 1992 1991 - -------------------------------------------------------------- Current: Domestic............... $150,916 $154,572 $173,555 Foreign................ 219,135 221,245 226,441 370,051 375,817 399,996 Deferred: Domestic............... 136,930 196,621 (10,338) Foreign................ 16,384 894 (5,121) -------- -------- -------- 153,314 197,515 (15,459) -------- -------- -------- $523,365 $573,332 $384,537 ======== ======== ======== - -------------------------------------------------------------- Deferred tax (liabilities) assets, inclusive of a valuation allowance for deferred tax assets, were reflected in the consolidated balance sheets at December 31 as follows: (In thousands) 1993 1992 - -------------------------------------------------------------- Net current assets....................... $ 140,902 $289,744 Net noncurrent liabilities............... (148,558) (144,086) --------- -------- $ (7,656) $145,658 ========= ======== - -------------------------------------------------------------- Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred tax benefits result principally from the recording of certain reserves which currently are not deductible for tax purposes. Deferred tax credits result principally from temporary differences in the recognition of gains and losses from certain investments and from the use, for tax purposes, of accelerated depreciation. 36 In 1992, the Company adopted SFAS No. 109 - Accounting for Income Taxes. The impact of SFAS No. 109 resulted in the accelerated recognition of $301,706,000 of tax benefits related to the remaining net operating loss (NOL) carryforward as of January 1, 1992 of its subsidiary, A.H. Robins Company, Incorporated (Robins), and additional tax benefits of $81,589,000 not previously recognized. Prior to the adoption of SFAS No. 109, the Company had recognized the Robins' NOL benefit, for financial reporting purposes, as this benefit was realized for tax purposes in accordance with SFAS No. 96 - Accounting for Income Taxes, which is superseded by SFAS No. 109. The aggregate amount of the tax benefits was $383,295,000. Included in the 1991 current domestic provision for income taxes is the benefit of the Robins' NOL of $132,371,000. The Robins' NOL for tax purposes was fully utilized during 1993. The Company has recorded deferred tax assets as of December 31, 1993 under SFAS No. 109 of $507,937,000 related principally to reserves for product and environmental liabilities, postretirement benefit obligations and other employee benefits and reorganizations. A valuation allowance was established on January 1, 1992 for certain deferred tax assets related to reorganizations, product liability and other matters, as the Company determined that it was more likely than not that these benefits will not be realized. During 1993, the valuation allowance was reduced by $9,961,000 to $91,363,000. There was no change to this allowance in 1992. Deferred tax liabilities of $424,230,000 as of December 31, 1993 related principally to accelerated depreciation, losses on securities and employee compensation. A reconciliation between the Company's effective tax rate and the U.S. statutory rate is as follows: Tax Rate 1993 1992 1991 - --------------------------------------------------------------- U.S. statutory rate................... 35.0% 34.0% 34.0% Effect of Puerto Rico and Ireland manufacturing operations......... (6.1) (6.1) (6.0) Effect of Robins' net operating loss................... -- -- (7.5) Expenses for which no tax benefits were recorded........... -- 4.5 -- Research credits...................... (1.3) (0.4) (0.9) Other................................. (1.3) 1.3 2.3 ----- ---- ---- Effective tax rate.................... 26.3% 33.3% 21.9% ===== ==== ==== - --------------------------------------------------------------- Total income tax payments for the years ended December 31, 1993, 1992 and 1991 amounted to $335,102,000, $292,170,000 and $349,333,000, respectively. 10 Net Income per Share - -------------------------------------------------------------------------------- Net income per share of common stock was based on the average of common shares and common share equivalents outstanding during the year: 310,668,000 shares in 1993, 314,201,000 shares in 1992 and 315,726,000 shares in 1991. 11 Contingencies - -------------------------------------------------------------------------------- The Company is involved in various legal proceedings, including product liability suits of a nature considered normal to its business. The Company is self-insured against ordinary product liability risks and has liability coverage in excess of certain limits from various insurance carriers. 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 will not have a material adverse effect on the Company's results of operations or financial position. 37 Notes to Consolidated Financial Statements 12 Company Data by Industry Segment - -------------------------------------------------------------- Years Ended December 31, ------------------------------- (In millions) 1993 1992 1991 - -------------------------------------------------------------- Net Sales to Customers Health Care Products: Pharmaceuticals.......... $4,774.6 $4,589.3 $4,018.0 Consumer Health Care.................... 1,743.0 1,611.0 1,435.7 Medical Supplies and Diagnostic Products..... 851.5 807.6 766.6 -------- -------- -------- 7,369.1 7,007.9 6,220.3 Food Products................. 935.8 865.8 859.1 -------- -------- -------- Consolidated Total............ $8,304.9 $7,873.7 $7,079.4 ======== ======== ======== - -------------------------------------------------------------- Income before Taxes - -------------------------------------------------------------- Health Care Products.......... $1,836.7 $1,755.7 $1,561.3 Food Products................. 152.4 146.1 129.4 -------- -------- -------- Total Health Care and Food Products............ 1,989.1 1,901.8 1,690.7 Corporate (1)................. 3.6 (177.7) 69.1 -------- -------- -------- Consolidated Total............ $1,992.7 $1,724.1 $1,759.8 ======== ======== ======== - -------------------------------------------------------------- Total Assets at December 31 - -------------------------------------------------------------- Health Care Products.......... $5,165.3 $4,944.4 $3,601.9 Food Products................. 504.4 384.0 317.4 Corporate..................... 2,017.7 1,813.0 2,019.5 -------- -------- -------- Consolidated Total............ $7,687.4 $7,141.4 $5,938.8 ======== ======== ======== - -------------------------------------------------------------- Depreciation Expense - -------------------------------------------------------------- Health Care Products.......... $172.3 $169.3 $138.8 Food Products................. 11.8 10.6 10.5 Corporate..................... 6.8 3.7 3.5 ------ ------ ------ Consolidated Total............ $190.9 $183.6 $152.8 ====== ====== ====== - -------------------------------------------------------------- Capital Expenditures (2) - -------------------------------------------------------------- Health Care Products.......... $416.3 $474.4 $209.1 Food Products................. 24.9 20.0 16.1 Corporate..................... 76.7 60.9 12.9 ------ ------ ------ Consolidated Total............ $517.9 $555.3 $238.1 ====== ====== ====== - -------------------------------------------------------------- Company Data by Geographic Segment - -------------------------------------------------------------- Years Ended December 31, ------------------------------- (In millions) 1993 1992 1991 - -------------------------------------------------------------- Net Sales to Customers - -------------------------------------------------------------- United States................. $5,695.8 $5,387.1 $4,877.7 Canada and Latin America.................. 897.7 758.9 707.5 Europe and Africa............. 1,196.6 1,244.1 1,108.8 Asia and Australia............ 514.8 483.6 385.4 -------- -------- -------- Consolidated Total............ $8,304.9 $7,873.7 $7,079.4 ======== ======== ======== - -------------------------------------------------------------- Income before Taxes - -------------------------------------------------------------- United States (1)............. $1,465.7 $1,245.9 $1,334.8 Canada and Latin America.................. 214.9 158.9 148.7 Europe and Africa............. 224.0 233.6 211.0 Asia and Australia............ 88.1 85.7 65.3 -------- -------- -------- Consolidated Total............ $1,992.7 $1,724.1 $1,759.8 ======== ======== ======== - -------------------------------------------------------------- Total Assets at December 31 - -------------------------------------------------------------- United States................. $5,736.6 $5,249.6 $4,385.5 Canada and Latin America.................. 467.5 436.6 356.9 Europe and Africa............. 1,075.7 1,065.3 867.2 Asia and Australia............ 407.6 389.9 329.2 -------- -------- -------- Consolidated Total............ $7,687.4 $7,141.4 $5,938.8 ======== ======== ======== - -------------------------------------------------------------- (1) These segments include the special charge of $220,000,000 in 1992 (see Note 2). (2) Capital expenditures for 1992 include additions from businesses acquired. Transactions between industry and geographic segments are not material. Foreign exchange adjustments, which were included in operating income before taxes in this note and in other expense (income), net in the Consolidated Statements of Income on page 29, resulted in net charges to income of $55,475,000 in 1993, $23,662,000 in 1992 and $66,610,000 in 1991, principally in the Canada and Latin America segment (see Note 8). 38 Report of Independent Public Accountants To the Board of Directors and Shareholders 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, 1993 and 1992, and the related consolidated statements of income, retained earnings, additional paid-in capital and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Home Products Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Notes 4 and 9 to the consolidated financial statements, effective January 1, 1992, the Company changed its methods of accounting for postretirement benefits other than pensions and income taxes. Arthur Andersen & Co. New York, N.Y. January 18, 1994 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 generally accepted accounting principles 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 auditors who have expressed their opinion with respect to the fairness of these statements. The Audit Committee of the Board of Directors, com-posed of non-employee directors, meets periodically with the external 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 G. Blount Chairman, President and Executive Vice President and Chief Executive Officer Chief Financial Officer 39 Quarterly Financial Data
- --------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter (In thousands except per share amounts) 1993 1993 1993 1993 - --------------------------------------------------------------------------------------- Net Sales ................. $2,111,015 $1,909,416 $2,168,116 $2,116,304 Gross Profit .............. 1,450,423 1,258,745 1,455,053 1,416,728 Net Income ................ 401,509 287,490 397,553 382,748 Net Income per Common Share $ 1.29 $ 0.93 $ 1.28 $ 1.23 - --------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter 1992 1992 1992 1992 - --------------------------------------------------------------------------------------- Net Sales ................. $2,002,039 $1,759,867 $2,109,318 $2,002,463 Gross Profit .............. 1,346,276 1,181,303 1,404,109 1,373,309 Net Income ................ 453,368 263,493 382,428 361,553 Net Income per Common Share $ 1.43 $ 0.84 $ 1.22 $ 1.16 - ---------------------------------------------------------------------------------------
Market Prices of Common Stock and Dividends 1993 Range of Prices* 1992 Range of Prices* - ------------------------------------------------ --------------------------- Dividends Dividends High Low per Share High Low per Share - -------------------------------------------------------------------------------- First Quarter .. $68.00 $55.50 $0.71 $84.25 $72.75 $0.65 Second Quarter . 69.00 62.38 0.71 82.00 66.75 0.65 Third Quarter .. 65.75 58.38 0.71 77.13 66.88 0.65 Fourth Quarter . 65.38 58.88 0.73 73.25 63.25 0.71 - -------------------------------------------------------------------------------- * Prices are those of the New York Stock Exchange - Composite Transactions. 40 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 (Notes) on pages 28 to 38. Results of Operations - -------------------------------------------------------------------------------- Net sales increased 5% to $8.3 billion in 1993, while net sales for 1992 increased 11% from 1991 levels. Worldwide health care products segment sales of $7.4 billion in 1993 were 5% higher than in 1992, and 1992 sales of $7.0 billion were 13% above 1991 levels. Food products sales increased 8% to $936 million in 1993 and 1% in 1992. Net sales of health care and food products in the United States in 1993 were $5.7 billion, an increase of 6% from 1992; 1992 net sales increased 10% from 1991. Foreign sales increased 5% in 1993 to $2.6 billion and increased 13% in 1992 to $2.5 billion. Net sales of health care products in the United States of $4.8 billion in 1993 increased 5%, and 1992 net sales of $4.6 billion increased 12%. U.S. pharmaceutical sales increased 5% in 1993, due primarily to unit volume growth of 3%. U.S. pharmaceutical sales growth of 14% in 1992 was due primarily to unit volume increases of 11%. The Company voluntarily established a policy to limit the weighted average U.S. prescription pharmaceutical price increase to not more than the increase in the Consumer Price Index, which in 1993 was 2.7%. The Company's U.S. prescription pharmaceutical price increase in 1993 was 2.6%. In 1992, the Company's weighted average U.S. prescription pharmaceutical price increase was 3.7%, which approximated the 1992 increase in the Consumer Price Index. Unit volume growth in the U.S. pharmaceutical segment was led by Premarin and increases in the anti-inflammatory and veterinary product line categories. Genetics Institute, Inc.'s (G.I.) recombinant antihemophilic factor (rAHF) bulk product sales also contributed to this volume growth. U.S. pharmaceutical sales growth was impacted by increased competitive pressures on pricing in both the public and private sectors, increases in Medicaid rebates, and additional rebates under the Women, Infants and Children Program. It is anticipated that these trends will continue in this market in 1994, regardless of the outcome of proposed health care reform legislation. U.S. pharmaceutical sales increases in 1992 were due principally to unit volume increases in female health care products, the anti-inflammatory product, Lodine, and infant nutritional products. Consumer health care sales in the United States increased 5% to $1.2 billion in 1993 as price increases were partly offset by unit volume declines of 3%. Unit volume growth in the cough/cold/allergy product line was more than offset by unit sales declines in some of the Company's analgesic products, particularly Anacin. However, Advil unit volume grew 8% in the United States in 1993. U.S. consumer health care sales were unfavorably impacted by the continued growth of private label brands and new competitive products. U.S. consumer health care sales in 1992 were 12% higher than 1991 levels, due principally to unit volume growth in the analgesic and cough/cold/allergy product categories. Medical supplies and diagnostic products sales in the United States increased 6% in 1993, due principally to increased unit volume as competitive conditions in the hospital supply market held prices in many product categories at 1992 levels. The acquisition of Symbiosis Corp. (Symbiosis) in late 1992 and sales growth in Sherwood's disposable needle and syringe products contributed to the sales increase. U.S. medical supplies and diagnostic products sales in 1992 increased 4% as a result of the acquisition of Symbiosis and Intelligent Medical Systems, Inc. (see Note 2) and increased unit sales of cardiovascular monitoring systems. Foreign sales of health care products in 1993 increased 5% to $2.5 billion. Unit volume grew 5%, while price increases of 6% were offset by unfavorable foreign exchange rates. Foreign sales of health care products in 1992 of $2.4 billion increased 13%, due to 6% unit volume growth, price increases averaging 5% and favorable foreign exchange rates. Foreign pharmaceutical sales increased 2% in 1993, led by unit volume gains for female health care and infant nutritional products. Excluding the effects of exchange rates, foreign pharmaceutical sales would have increased 9% in 1993. The Company operates under governmental price controls in many of its more significant international markets and, during 1993, experienced price rollbacks in several countries, including Germany and Italy. Pricing pressures are expected to continue in 1994, particularly in Europe. The Company was able to increase prices in line with inflation and related currency devaluations in several Latin American markets in 1993, particularly Brazil, which contributed to the foreign pharmaceuticals sales gain. 41 Management's Discussion and Analysis of Financial Condition and Results of Operations However, changes in governmental health care policies and, to a lesser extent, competitive conditions may constrain prices in 1994. Foreign sales of pharmaceuticals increased 14% in 1992, led by unit volume gains for infant nutritional and female health care products. Foreign consumer health care sales in 1993 increased 16% to $586 million, due primarily to unit volume growth in the oral health care product line, particularly in Argentina, and inflation-related price increases in Brazil. In 1992, foreign consumer health care sales increased 12%, primarily due to unit volume growth in the oral health care product line. Food products sales in the United States in 1993 were $879 million, 9% above year-ago levels. This increase was led by unit volume growth of 8%, principally as a result of the M. Polaner, Inc. (Polaner) acquisition (see Note 2), with additional volume contributions from Crunch 'n Munch. Competitive conditions, primarily in certain regional and specialty product markets, continue to constrain sales growth. U.S. sales of food products in 1992 of $808 million were 1% above 1991 levels. Cost of goods sold in 1993, as a percentage of net sales, was consistent with 1992 levels. Cost of goods sold in 1992 was one percentage point below 1991 levels, due principally to operating efficiencies in the consumer health care and food products businesses. Selling, administrative and general expense, as a percentage of net sales, decreased by approximately one percentage point from 1992, due primarily to decreases in media spending, particularly in the U.S. consumer health care segment. Selling, general and administrative expense in 1992, as a percentage of net sales, was consistent with 1991 levels. Research and development expense increased 20% to $663 million in 1993 and 28% to $552 million in 1992. The increased expenditures in 1993 and 1992 were due, in part, to G.I.'s research spending (see Note 2), net of its collaborative revenues. Excluding G.I.'s expenditures, research and development expenses increased 11% in 1993 and 19% in 1992. Pharmaceutical research and development expense, as a percentage of worldwide pharmaceutical sales, exclusive of nutritional sales, was 14% and 12% in 1993 and 1992, respectively. As discussed in Note 8, other expense (income), net in 1993 reflects reduced net interest income, due primarily to the use of cash balances and proceeds from debt issuances for acquisitions and common share repurchases in 1993 and 1992 and, to a lesser extent, lower interest rates on invested funds. Foreign exchange rates, principally in Brazil, also had an unfavorable impact on earnings in 1993. Other (income) expense, net in 1992 reflected lower interest rates compared to 1991 and reduced foreign exchange losses. The growth in sales outpaced the growth in income before taxes in 1993, exclusive of the 1992 special charge, due primarily to the impact of recent acquisitions from which the incremental sales contribution exceeded the income contribution and also due to lower net interest income previously mentioned. In August 1993, Congress passed the Omnibus Budget Reconciliation Act of 1993. The Company's effective tax rate of 26.3% in 1993 was not significantly impacted by this legislation as the 1% increase in the corporate tax rate to 35%, effective January 1, 1993, was more than offset by the retroactive reinstatement of the research tax credit. The Company's effective tax rate of 33.3% in 1992 reflected the non tax-deductible $220 million write-off of the acquired research related to the G.I. acquisition. The Company's effective tax rate in 1994 is expected to increase to approximately 28% - 29%, due primarily to a reduction in Section 936 tax benefits derived from its manufacturing operations in Puerto Rico, offset, in part, by incremental tax benefits from its manufacturing operations in Ireland (see Note 9). As discussed above and in Notes 2, 4 and 9, reported results in 1992 were impacted by the $220 million special charge and the adoption of Statement of Financial Accounting Standards Nos. 109 and 106. Excluding the impact of these non-recurring items from 1992 results, net income and earnings per share increased 7% and 8%, respectively, in 1993 as these items, in the aggregate, contributed $90 million ($.29 per share) to 1992 net income. 42 As previously mentioned, intense competition and pricing pressures in the U.S. pharmaceutical and other health care markets are expected to continue in the near term, particularly from managed care organizations, hospital associations/alliances, governmental agencies and other large buying groups. In addition, health care reform legislation in the United States has been proposed to the Congress by President Clinton. Other health care reform proposals from members of Congress are being introduced with varied agendas on issues such as Medicaid and Medicare rebates, price controls, governmental alliances and other matters. Similarly, in international markets, particularly in Europe and Brazil, health care spending is subject to increasing governmental scrutiny, much of which is focused on pharmaceutical prices. While we cannot predict the impact this proposed health care legislation will have on the Company's worldwide results of operations, we believe 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. However, it is expected that global market forces will continue to constrain price growth regardless of the outcome of health care reform. The Company is not dependent on any one patent-protected product or line of products for a substantial portion of its revenues or profits. However, Premarin, the Company's conjugated estrogens product, which no longer is patent- protected, does contribute significantly to sales and profits. While Premarin presently is subject to competition from other hormone replacement products, it currently is not subject to competition from generic conjugated estrogens products. The Company cannot presently predict the timing of regulatory approval of such generic products and their potential impact on the market. Financial Condition and Liquidity - -------------------------------------------------------------------------------- Cash, cash equivalents and marketable securities as of December 31, 1993 totaled $2.2 billion. Principal sources of cash in 1993 were operating activities, which generated $1.7 billion, and the proceeds from the issuance of $250 million of 30-year debentures (see Note 3). These funds were used principally for dividend payments of $888 million, common share repurchases of $277 million, and additions to property, plant and equipment of $518 million. In 1992, the Company issued $500 million of medium-term notes. These funds, in addition to operating funds of $1.5 billion, were used for dividend payments, share repurchases, capital additions and the acquisitions noted in the following paragraphs. On March 19, 1993, the Company acquired all the outstanding common stock of Polaner for $67.5 million (see Note 2). Effective January 16, 1992, the Company acquired a majority interest in G.I. (see Note 2). The cost to the Company to acquire the outstanding G.I. shares, which the Company does not own, ranges from approximately $1.0 billion to $1.3 billion under the option discussed in Note 2. As also discussed in Note 2, in September 1992, the Company acquired 100% of the common stock of Symbiosis, a developer and manufacturer of disposable instruments for endoscopic and laparoscopic surgery, for $175 million. The Company continued to expand and upgrade its operating plants, research facilities and office facilities during the year. Significant capital projects included the completion of pharmaceutical manufacturing facilities in Ireland and the expansion of Premarin manufacturing facilities in Canada. The expansion of research and development facilities in Radnor, Pennsylvania, and Andover, Massachusetts, also continued in 1993. In October 1993, the construction of the new corporate headquarters in Madison, New Jersey, was completed. The Company also continued to invest capital in its manufacturing facilities to comply with environmental regulations. The Company has significant cash balances, a consistent ability to generate cash flow from operations and available funds under its Revolving Credit Facility Agreement (see Note 3). The Company foresees no difficulty in maintaining its present financial condition and liquidity and the ability to finance its global research and development, capital programs and other foreseeable future needs. 43 Directors and Officers Board of Directors John R. Stafford(1) Chairman, President and Chief Executive Officer Clifford L. Alexander, Jr. President, Alexander & Associates, Inc. Frank A. Bennack, Jr. President and Chief Executive Officer, The Hearst Corporation K. Roald Bergethon Educational Consultant Robert G. Blount Executive Vice President John W. Culligan(1) Retired-Former Chairman of the Board Robin Chandler Duke National Chair, Population Action International John D. Feerick Dean, Fordham University School of Law Edwin A. Gee Retired-Former Chairman, International Paper Company William F. Laporte(1) Retired-Former Chairman of the Board Robert W. Sarnoff Director/Consultant John R. Torell III Chairman, Torell Management Inc. William Wrigley President and Chief Executive Officer, Wm. Wrigley Jr. Company Principal Corporate Officers John R. Stafford(2,3) Chairman, President and Chief Executive Officer Robert G. Blount(2,3) Executive Vice President Stanley F. Barshay(2,3) Senior Vice President Joseph R. Bock(2,3) Senior Vice President Joseph J. Carr(2,3) Senior Vice President Fred Hassan(2,3) Senior Vice President Louis L. Hoynes, Jr.(2,3) Senior Vice President and General Counsel John B. Adams Vice President-Corporate Development Thomas G. Cavanagh Vice President-Investor Relations John R. Considine(2,3) Vice President-Finance E. Thomas Corcoran(3) Vice President Paul M. Heinrich Vice President-Engineering Gerald A. Jibilian Vice President and Associate General Counsel Thomas M. Nee(2) Vice President-Taxes Edward A. Schefer Vice President-Management Information Systems Steven A. Tasher Vice President-Environmental Affairs and Associate General Counsel- Environment Carol G. Emerling Secretary Robert J. Haller Comptroller Roxanne E. Parker Treasurer Principal Division and Subsidiary Officers American Home Food Products, Inc. Charles E. LaRosa,(3) President Corometrics Medical Systems Craig A. Castle, President Fort Dodge Laboratories E. Thomas Corcoran,(3) Vice President, AHPC Genetics Institute, Inc. Gabriel Schmergel, President Quinton Instrument Company Anthony G. Perri, President Sherwood Medical Company David A. Low,(3) President Specialty Pharmaceuticals Division David Strunce, President Symbiosis Corp. Kevin W. Smith, President Whitehall International, Inc. Jean-Claude Leroux,(3) President Whitehall-Robins Terrence L. Stecz,(3) President Wyeth-Ayerst Laboratories Robert Essner,(3) President Wyeth-Ayerst International, Inc. David M. Olivier,(3) President Wyeth-Ayerst Research Robert I. Levy, M.D., President (1)Executive Committee (2)Finance Committee (3)Operations Committee 44 Corporate Data Corporate Employee Relations Relations with organized labor remain harmonious and responsible. Our labor agreements offer competitive wages and benefits, giving us the ability to compete and provide our employees with a broad base of benefit programs. 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, national origin, physical or mental disability, race, religion, sex or status as a Vietnam-era veteran or a qualified disabled veteran. Our continued progress is the result of our ability to attract and retain highly qualified employees who, through their superior performance, contribute significantly to our success. We sincerely appreciate the dedication, commitment and support all of our employees gave us throughout 1993. Independent Auditors Arthur Andersen & Co. Transfer Agent and Registrar Chemical Bank 450 West 33rd Street New York, NY 10001 Executive Offices American Home Products Corporation Five Giralda Farms Madison, NJ 07940 Annual Meeting The Annual Meeting of Shareholders will be held on April 20, 1994, in Short Hills, New Jersey. Form 10-K A copy of the Company's Form 10-K Annual Report to the Securities and Exchange Commission may be obtained by any shareholder without charge upon written request to: American Home Products Corporation Treasurer's Department Five Giralda Farms Madison, NJ 07940 (201) 660-6936 Master Investment Plan The plan provides shareholders with the opportunity to automatically reinvest dividends or to make cash purchases of additional shares of the Company's common stock. Inquiries should be directed to: Chemical Bank Dividend Reinvestment Department J.A.F. Building P.O. Box 3069 New York, NY 10116-3069 Shareholder Relations (800) 851-9677 Policy on Health, Safety and Environmental Protection A copy of the Company's "Policy on Health, Safety and Environmental Protection" may be obtained upon written request to: American Home Products Corporation Office of Environment and Safety Five Giralda Farms Madison, NJ 07940 Product designations appearing in differentiated type are trademarks. Pages 25-44 are printed on recycled paper. American Home Products Corporation Five Giralda Farms Madison, New Jersey 07940 EX-23 6 CONSENT OF EXPERTS 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 18, 1994 included in American Home Products Corporation's (the Company) Annual Report to Shareholders for the year ended December 31, 1993. Furthermore, we consent to the incorporation of our reports dated January 18, 1994 included in or made part of this Form 10-K, into the Company's previously filed Registration Statements on Form S-3 (File No. 33-45324) and on Form S-8 (File Nos. 33-24068, 33-41434, 33-50149 and 33-55456). ARTHUR ANDERSEN & CO. New York, New York March 23, 1994 -----END PRIVACY-ENHANCED MESSAGE-----