Catalina Marketing Corporation

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, and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

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. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

As of September 30, 2003, the last business day of our most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant (based on the last sales price on that date of $15.19 as reported by the New York Stock Exchange, Inc.) was $740,167,505. The number of shares of registrant’s common stock, par value $0.01 per share, outstanding as of March 31, 2004, was 52,134,462.

References herein to “Catalina Marketing,” the “Company,” “we,” “us” or “our” refer to Catalina Marketing Corporation and its subsidiaries unless the context specifically states or implies otherwise.

Certain information included in this Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by the use of words such as “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning, in connection with any discussion of the Company’s future business, results of operations, liquidity and operating or financial performance. Such forward-looking statements involve significant material known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We cannot assure you that any future results, performance or achievements will be achieved.

Factors that may cause such differences include, but are not limited to, the changing market for promotional activities, especially as it relates to policies and programs of consumer packaged goods and pharmaceutical manufacturers and retailers; general business and economic conditions; acquisitions and divestitures; risks associated with the Company’s growth and financings; government and regulatory policies affecting the Company and its customers; potential adverse federal, state, or local legislation or regulation or adverse determinations subjecting the Company to additional taxes; the pricing and availability of alternative forms of advertising; product acceptance; the Company’s ability to execute on its various business plans and to test, expand and install its networks in new markets; risks associated with reliance on the performance and financial condition of advertisers and customers; technological developments; changes in the competitive and regulatory environments in which the Company and its customers operate; seasonal variations, actual promotional activities and programs with the Company’s customers; the success of new services and businesses and the pace of their implementation; the Company’s ability to maintain favorable client relationships; the Company’s ability to avoid or mitigate material adverse judgments against, or other adverse results affecting, the Company in the existing United States Securities and Exchange Commission (“SEC”) investigation and shareholder and derivative litigation described in Item 3 — “Legal Proceedings,” or any additional regulatory action, litigation or other proceeding that may be commenced; the Company’s ability to fully address and correct deficiencies and weaknesses in our internal controls and to thereafter maintain an effective internal controls structure; the Company’s ability to attract, motivate and/or retain key employees.

The Company undertakes no obligation to make public indication of changes in, update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise.

In this Annual Report on Form 10-K, words such as “today,” “current” or “currently,” or phrases such as “as of the date hereof” or “as of the date of this report,” refer to the date we are filing this Annual Report on Form 10-K with the SEC.

Catalina Marketing Corporation is filing this Annual Report on Form 10-K for its fiscal year ended March 31, 2003. The filing of this Annual Report on Form 10-K was delayed as a result of the Company’s internal investigations of its financial results for fiscal year 2003, and the resignation of our former independent certified public accountants. Accounting issues arising during the audit of our fiscal year 2003 financial statements and the resignation of our former independent certified public accountants have been disclosed separately under a report on Form 8-K filed by the Company on August 26, 2003, as subsequently amended. Subsequent to the resignation of our former independent certified public accountants, we enlisted the services of PricewaterhouseCoopers LLP (“PwC”), who have completed the audit of our financial statements for fiscal year 2003 and re-audits of our financial statements for fiscal years 2002 and 2001. Such internal

investigations, audit and re-audits have led to the restatement of our (1) selected financial data for the fiscal years 2002, 2001 and 2000; (2) financial statements for the fiscal years ended March 31, 2002 and 2001, and (3) unaudited selected quarterly information for each of the four quarters of fiscal year 2003 and fiscal year 2002. No specific adjustments have been identified that relate to fiscal year 1999; however, we believe that certain payments were made by the seller of Direct Marketing Services (“DMS”) to DMS employees and are not reflected in the 1999 financial statements. We believe further that the total amount of these payments in fiscal year 1999 were less than $1.0 million. See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 to our Consolidated Financial Statements included elsewhere herein for additional discussion.

Our Quarterly Reports on Form 10-Q for the fiscal quarters ended December 31, 2003, September 30, 2003 and June 30, 2003, also have been delayed as a result of our internal investigations and the re-audits. We intend to file these quarterly reports as soon as possible.

Ongoing review of our public filings by the SEC may require us to further amend or restate our periodic reports. Additionally, we are not currently in compliance with the listing requirements of the New York Stock Exchange (the “NYSE”), the exchange on which our common stock is listed. As a result, the NYSE may delist our common stock or take other adverse action if we are unable to return to compliance with its listing requirements. These requirements include the obligation to file our periodic reports on a timely basis and hold our annual meeting of stockholders during each fiscal year. We cannot assure you when we will be able to file our delayed quarterly reports. Also, we will not be able to hold our annual meeting of stockholders until after our Annual Report on Form 10-K for the fiscal year ended March 31, 2004 has been filed. We cannot assure you when we will file this report, although we plan to do so as soon as practicable. The NYSE has not taken any delisting or other action against the Company, but there can be no assurance that the NYSE will not take any such action in the future. If we are required to amend or restate our periodic filings, or if the NYSE delists, or attempts to delist, our common stock, investor confidence may be reduced, our stock price may substantially decrease and our ability to access the capital markets may be limited.

While the selected financial information for fiscal year 2000 included in this Annual Report on Form 10-K is unaudited, the financial information presented for this period is presented on a basis that is consistent with our audited Consolidated Financial Statements for the fiscal years ended 2003, 2002 and 2001 included in this Annual Report on Form 10-K. We have not amended, and do not intend to amend, any of our previously filed annual or quarterly reports. Therefore, financial information that has been previously filed or otherwise reported for these periods should no longer be relied upon and is superseded by the information in this Annual Report on Form 10-K.

Catalina Marketing Corporation, a Delaware corporation, and subsidiaries (the “Company”), is a global leader in the development and distribution of behavior-based communications for consumer packaged goods manufacturers, pharmaceutical manufacturers and marketers, and retailers. Catalina Marketing was founded on the premise that the combination of access to information regarding consumers and insight into their actual purchase behavior, would enable more effective, cost-efficient promotions than traditional marketing approaches. Since the first installation of our network equipment in retail stores in 1984, Catalina Marketing has continued to develop and expand our product offerings. The services of our networks are driven by proprietary, internally developed software.

The Company’s primary business initially was developed to provide consumers with in-store coupons delivered based upon purchase behavior and distributed primarily in supermarkets. Today, the Company offers behavior-based, targeted-marketing services and programs globally. Employing proprietary technology developed for the Company’s in-store network, the Catalina Marketing Network®, we also offer on-line and at-home access to consumers. These marketing solutions, including discount coupons, loyalty marketing programs, attitudinal research programs, sampling, advertising, in-store instant-win games and other incentives, are delivered directly to shoppers by various means. By specifying how a particular consumer transaction

will “trigger” a promotion to print, manufacturers and retailers can deliver customized incentives and messages to only the consumers they wish to reach. The Company tracks actual purchase behavior and uses Universal Product Code-based scanner technology to target consumers at the checkout and via direct mail. Personally identifiable data that may be collected from the Company’s targeted marketing programs, as well as its research programs, is used in conformity with all the Company’s privacy policies.

The Company is organized and managed by segments, which include the following operations: Manufacturer Services, Retail Services, Direct Marketing Services (“DMS”), Catalina Health Resource (“CHR”), Catalina Marketing Research Solutions (“CMRS”), international operations, which include both manufacturer and retail services similar to those services provided in the United States (“International”) and Japan Billboard, a billboard and outdoor media business operated in Japan (“Japan Billboard” or “PMKK”). The domestic operations of the Company include Manufacturer Services, Retail Services, DMS, CHR and CMRS. The international operations of the Company are organized and managed by country and include International and Japan Billboard. These segments of our business coordinate their work efforts by providing clients the entire scope of targeted marketing services and enabling clients to better understand, target and change consumer behavior.

In the United States, as of March 31, 2003, the Catalina Marketing Network®, which supports Manufacturer and Retail Services, was installed in approximately 17,500 retail stores, primarily supermarkets, reaching more than 202 million shoppers weekly. The Health Resource Network was installed in over 17,800 pharmacy outlets reaching more than 19 million prescription medication users weekly as of March 31, 2003. Internationally, our network was installed in over 4,000 retail locations, primarily supermarkets, in Europe and Japan reaching more than 46 million shoppers weekly.

As of March 31, 2003, the Company employed approximately 1,700 people in offices throughout the United States, Europe and Japan.

In June 2003, we announced our intent to delay the filing of our Annual Report on Form 10-K for the fiscal year ended March 31, 2003 as a result of certain issues identified by the Company’s management related to the timing of revenue recognition at CHR. At that time, management continued its evaluation of financial data of CHR relating to fiscal year 2003, while the Company’s Audit Committee engaged Ernst & Young LLP (“E&Y”), which replaced Arthur Andersen LLP as our independent certified public accountants in May 2002, to assist in the review and evaluation of the results. In addition, on June 30, 2003, the Company initiated discussions with the Staff of the SEC to advise them of these matters and has continued discussions with the Staff of the SEC throughout this process.

In July 2003, E&Y expressed concerns over additional areas of accounting, including revenue recognition in Manufacturer Services. On August 26, 2003, we filed a report on Form 8-K with the SEC reporting E&Y’s resignation as our independent certified public accountants and disclosing the following accounting issues identified by E&Y: (i) the timing of the Company’s accounting for revenues derived from its customer arrangements at CHR in light of the discovery by the Company’s management of certain agreements with customers that were not reflected in written agreements and/or considered in connection with the Company’s accounting for the arrangements, and certain other elements of a significant multi-year arrangement, (ii) the timing of the Company’s accounting with respect to revenue recognition at CHR and Manufacturer Services to the extent that certain customer contracts had not been executed by both parties during the period in which the revenue was first recognized for such contracts, (iii) the timing of the Company’s accounting treatment of its customer arrangements in Manufacturer Services and at CHR with respect to certain exclusivity rights granted to customers for the contractual periods of customer arrangements, (iv) the Company’s accounting treatment for certain non-cash transactions in Retail Services, and (v) the Company’s disclosure of segment information for financial reporting.

The Company has worked with its new independent certified public accountants, PwC, and, with regard to exclusivity provisions included in contracts of Manufacturer Services, has consulted with the Office of the Chief Accountant of the SEC. Furthermore, the Company has cooperated with the SEC in connection with its investigation by providing the SEC with information and numerous documents, as requested, participating in meetings with the SEC Staff, and making available as witnesses those individuals under its control in response to the SEC’s inquiries and requests in an effort to resolve these matters, as well as other areas identified during the audits of the financial statements for each of the fiscal years 2003, 2002 and 2001. As a result, we are restating our (1) selected financial data for fiscal years 2002, 2001 and 2000; (2) financial statements for the fiscal years ended March 31, 2002 and 2001, and (3) unaudited selected quarterly information for each of the four quarters of fiscal year 2003 and the four quarters of fiscal year 2002. These matters are discussed in more detail in Item 3 — “Legal Proceedings,” Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

The adjustments necessary to restate our financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) are discussed in detail in Item 7 — “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”

The effects of these adjustments on our Consolidated Financial Statements included in this Annual Report on Form 10-K are presented in Note 3 to the Consolidated Financial Statements and have been reflected where applicable in this Annual Report on Form 10-K.

Furthermore, in previous filings with the SEC, the Company has disclosed its conclusion that it operated in one reportable segment, targeted marketing services. Upon a closer evaluation of the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company has concluded that its business is managed by operating segments, which do not meet all of the aggregation criteria pursuant to SFAS No. 131. As such, segment information has been provided in this Annual Report on Form 10-K pursuant to the requirements of SFAS No. 131. In addition, fiscal years ended March 31, 2002 and 2001 have been restated to provide business segment information on a basis comparable to the fiscal year ended March 31, 2003 reportable segment structure.


	•	In June 2002, we commenced a tender offer to purchase certain eligible outstanding common stock of CHR, at a purchase price of $33.00 per share. Certain current and former employees and directors of CHR owned the outstanding shares that were purchased in the tender offer. During the fiscal year ended March 31, 2003, the Company purchased 731,921 of the outstanding shares of CHR common stock for approximately $24.2 million. As of March 31, 2003, the Company held 5,771,921 of the total 5,954,047 outstanding shares, or 97%, of CHR common stock. The tender offer expired on October 16, 2002. Since October 2002, no further repurchases of CHR common stock have been made pursuant to this tender offer. The Company intends to purchase the remaining outstanding shares of CHR common stock in fiscal year 2005.

	•	On July 25, 2002, the Board of Directors authorized $85.7 million of funds to be available for the repurchase of our common stock, in addition to the $14.3 million previously authorized, for a total of $100 million of repurchase authorization. During the fiscal year ended March 31, 2003, the Company repurchased 3,132,100 shares of its common stock for a total of $72.0 million, $42.7 million of which was included under the $100 million authorization. During the fiscal year ended March 31, 2004, the Company repurchased 749,200 shares of its common stock for a total of $13.3 million. As of March 31, 2004, approximately $43.9 million remains available under the authorization for the Company to repurchase shares of the Company’s common stock.

	•	In May 2003, the Company, through one of its wholly-owned subsidiaries, purchased the remaining 49% of the voting equity interest in Pacific Media KK (“PMKK”) held by certain minority


		shareholders of PMKK, pursuant to the exercise of a call option contained in the Purchase Agreement dated October 10, 1996, among the Company, PMKK and certain minority shareholders of PMKK for an aggregate purchase price equal to $23.2 million in cash, based on foreign exchange rates on the payment date. PMKK is now wholly owned by the Company.

	•	In September 2003, the Company’s credit agreement with a syndicate of commercial banks (the “Corporate Facility”), expired and we entered into an agreement to extend the Corporate Facility for 60 days. Our aggregate borrowing capacity was reduced from $150.0 million to $30.0 million. In November 2003, we entered into a Second Amended and Restated Credit Agreement with Bank One, N.A., as Administrative Agent and Wachovia Bank, National Association, as Syndication Agent and Documentation Agent. The Company’s obligations under the Corporate Facility are guaranteed by the Company and certain of its domestic subsidiaries and by assets pledged as collateral. The Corporate Facility expires in August 2004. In November 2003, Catalina Marketing Japan, K.K. (“Catalina Japan”) entered into a credit agreement with Bank One, N.A. (the “Japan Agreement”). The aggregate borrowing capacity under the Japan Agreement is 3.5 billion yen or approximately $31.9 million. Catalina Japan’s obligations under the Japan Agreement are guaranteed by the Company and certain of the Company’s subsidiaries and by assets pledged as collateral. The revolving loan commitment under the Japan Agreement (1.5 billion yen, or approximately $13.7 million) expires in August 2004 and the term loan under the Japan Agreement (2.0 billion yen, or approximately $18.2 million) expires in March 2005. The Japan Agreement replaced the prior credit facility that matured, with extensions, in November 2003 as well as the term loan that would have matured in March 2005.

	•	In November 2003, the Company announced its intent to divest of certain businesses that were deemed not to be strategically aligned with the Company’s current core competencies, including: DMS, CMRS and Japan Billboard. The Company is currently evaluating options with respect to the sale or other methods of divestiture of these businesses.

	•	On March 31, 2004, we sold our loyalty card and data-entry services business located in Farmingdale, New Jersey. Catalina Marketing’s loyalty card and data-entry services business provided application and data processing, card production and fulfillment services related to loyalty card programs for retailers. We intend to continue to work with our retail customers to transition our loyalty card and data-entry services.

	•	Throughout fiscal year 2004, there were significant changes to our senior management team and several members of our Board of Directors. In addition, during this same period, our senior management team devoted a significant amount of time conducting internal investigations, restating our financial statements, reviewing corporate governance procedures and responding to government inquiries. See Item 10 — “Directors, Executive Officers and Other Significant Employees” in Part III of this Annual Report on Form 10-K for a description of our current executive officers and members of our Board of Directors.

The Company offers behavior-based, targeted-marketing services and programs globally. The Company is organized and managed by segments, which include the following operations: Manufacturer Services, Retail Services, DMS, CHR, CMRS, International and Japan Billboard. The domestic operations of the Company include Manufacturer Services, Retail Services, DMS, CHR and CMRS. The international operations of the Company are organized and managed by country and include International and Japan Billboard. These segments of our business coordinate their work efforts by providing clients the entire scope of targeted marketing services and enabling clients to better understand, target and change consumer behavior.

Financial information regarding segment revenues, net income and total assets and geographic information regarding geographic revenues and long-lived assets for each of the fiscal years 2003, 2002 and 2001 is presented in Note 17 to the Consolidated Financial Statements.

Manufacturer Services serves the needs of domestic consumer product manufacturers, primarily within the consumer packaged goods industry. Using the Catalina Marketing Network®, this operating group specializes in behavior-based marketing communications that are delivered at the point-of-sale. The primary service line of the Catalina Marketing Network® is the in-store delivery of incentives at the checkout lane of a retailer, typically a supermarket. Catalina Marketing links its proprietary software, computers, central databases and thermal printers with a retailer’s point-of-sale controller and scanning equipment. The network prints customized promotions at the point of sale based on product Universal Product Codes or other scanned information. The printed promotions are handed to consumers by the cashier at the end of the shopping transaction. Our customers contract with us to deliver promotions for them and typically pay us a fee for each promotion delivered. In general, Manufacturer Services recognizes revenue at the time a promotion is delivered at the checkout counter of the retail store based on a per promotion charge.

The primary objective of Manufacturer Services’ sales efforts is to assist consumer packaged goods manufacturers with the design of programs that deliver results that achieve their brand objectives. The sales and client service teams consult with current and prospective clients to develop and implement customized, targeted marketing programs that meet specific brand strategies and objectives.

The Company’s Manufacturer Services segment generates revenue primarily by providing in-store, electronic marketing delivery services via the Catalina Marketing Network®. The amount of revenue recognized is based on the total incentives delivered times a per-print fee. Delivered incentives include targeted promotions, messages and sweepstakes. The Company generally bills customers a minimum category fee in advance of the actual delivery. Contracts for delivery include a minimum number of targeted promotions or messages for a specified category, or categories, within a four-week period referred to as a “cycle.” The delivery is based upon particular triggering transactions that are registered at the point of sale (i.e., the checkout counter of a retail store). The majority of our contracts cover multiple cycles.

Redemption processing of these promotions is similar to that of traditional manufacturer coupons. In this regard, retailers provide discounts to consumers who present the coupons. The retailers send redeemed coupons to clearinghouses, and receive reimbursements for the discounts provided, including handling fees from the manufacturers.

The two predominant programs of Manufacturer Services are: Checkout Coupon® and Checkout Direct®. Through its Checkout Coupon® service, Catalina Marketing delivers marketing communications to consumers at checkout, based on the products included in their current shopping basket. Catalina Marketing delivers marketing communications to consumers at the checkout counter based on past purchase behavior though its Checkout Direct® service.

Manufacturer Services had a single client, Nestlé, that accounted for approximately 17.1%, 13.1% and 11.5% of revenues generated by this segment for the fiscal years ended March 31, 2003, 2002 and 2001, respectively. In addition, sales to another client accounted for 9.6%, 9.5% and 10.4% of revenues generated by this segment for the fiscal years ended March 31, 2003, 2002 and 2001, respectively. We believe that the loss of either Nestlé or the other client referred to above would have a material adverse effect on Manufacturer Services. In addition, we believe the loss of Nestlé would have a material adverse effect on the Company taken as a whole.

Retail Services provides innovative customer marketing solutions to over 80 retail chains nationwide. The primary objective of this operating group is to support, maintain and expand the Catalina Marketing Network® used by Manufacturer Services. In addition to this primary objective, this operating group provides services to

retailers, including promotional prints, analytical services, loyalty card production and data management services that enable retailers to focus on changing their customers’ shopping patterns with targeted communications that motivate the customers to visit the store more frequently, purchase specific products, increase purchases and develop store loyalty. On March 31, 2004, we sold our loyalty card and data-entry services business. See “Significant Business Developments and Events Through March 31, 2004.”

Catalina Marketing typically enters into agreements with retail chains to install its network in the retail stores of the chain for an initial period of three or more years. In certain circumstances, the retailer pays a one-time fee as a partial reimbursement for the cost of the installation. In general, Catalina Marketing pays distribution fees to, and exchanges services with, the retailer based on the number of promotions printed. Because of the concentration of ownership in the retail grocery industry, we are dependent on a limited number of retailers that supply the points of distribution for our manufacturer customers’ printed promotional materials. Approximately 55% of the printed in-store promotional incentives we provided for our customers during the fiscal year ended March 31, 2003, were generated from within the stores belonging to five retail chains. If any of these retail chains were to decide to not renew their contract with us to provide point-of-sale services, or if they reduce the number of point-of-sale locations, a material reduction in our revenues could result if we were unable to replace these point-of-sale locations.

Catalina Marketing owns the equipment installed in each retail store which consists of a thermal printer at each checkout lane linked by a computer on the retailer’s premises to the retailer’s point-of-sale controller and scanning equipment. Catalina Marketing operates two data processing facilities in the United States that employ various technologies to transmit promotional instructions to personal computers installed in retail stores and retrieve program data. All of the equipment and supplies, including computers, printers and paper, used in a retail installation, are purchased by the Company from outside sources. All of the store equipment and supplies used by our network are managed, installed and maintained by our corporate support staff for all of our operating segments. While we currently use a limited number of primary suppliers, Catalina Marketing believes that alternate sources of supply are available without material interruption to the Company’s business.

DMS provides services designed to reach consumers in their homes. DMS analyzes frequent shopper databases and identifies consumer lifestyle changes to develop strategic programs that meet multiple objectives for both brand manufacturers and retailers. These targeted direct mail programs are based on actual purchase behavior or consumer lifestyle changes. DMS provides services which enable manufacturers and retailers to influence the purchase patterns of targeted customers based on their actual purchase behavior and history. Clients use these services to support new product launches and line extensions, build loyalty to a brand and deliver timely messages to consumers.

The Company’s specific product offerings include Sample Logic®, Retail Solutions and One-to-One Direct®. Sample Logic® uses consumer purchase data provided by our retailers to deliver targeted product samples and promotions to consumers’ homes. Retail Solutions develops and delivers direct mail customer campaigns, as well as customer reward and loyalty strategies. One-to-One Direct® delivers coupons from multiple consumer products goods manufacturers, using data provided by our retailers, to consumers in their home in a single mailing. The Company suspended the One-to-One Direct® service in December 2003.

DMS had a single client that accounted for approximately 16.2%, 0.6% and 0.7% of revenues generated by this segment for fiscal years ended March 31, 2003, 2002 and 2001, respectively. We believe that the loss of this client would have a material adverse effect on DMS, but not on the business of the Company taken as a whole.

In November 2003, the Company announced its intention to divest the DMS operations. See “Significant Business Developments and Events Through March 31, 2004.”

CHR services allow pharmaceutical and consumer product goods manufacturers, as well as retail pharmacies, to provide consumers with condition-specific health information and direct-to-patient communications. CHR’s programs and services give the Company’s customers the ability to acquire and retain patients by providing educational information about their treatment along with the benefits of compliance, and by encouraging dialogue between patients and their health care professionals.

CHR’s primary product offerings use an in-store, prescription-based technology to provide targeted, direct-to-patient communications on behalf of the Company’s customers. These communication services include messages and educational information to healthcare patients at pharmacies throughout the Health Resource Network. The Health Resource Network is a proprietary software system that gives pharmaceutical manufacturers and retailers the opportunity to effectively communicate with patients based on their prescription buying behavior and assists patients in making more informed healthcare decisions while preserving their privacy.

CHR primarily generates revenues by printing messages for pharmaceutical manufacturers and consumer packaged goods manufacturers. These messages are created for the pharmacy’s customer when a prescription is purchased, based on that particular drug’s National Drug Code symbol. The message promotes prescription medications or other products in the retail store.

The Health Resource® Newsletter is CHR’s primary client offering. Distribution of the newsletter is triggered by the National Drug Code found on all prescription drugs and targeted to the consumer based on the National Drug Code, age, gender, third-party payer, or whether the medicine is prescribed for the first time or a refill, but not by name, address, or other personally identifiable information. When a prescription is processed via the Health Resource Network, this customized newsletter with prescription information, therapeutically relevant editorial content and product information, is printed in the pharmacy and given to consumers by their pharmacist when they get their medication.

CHR enters into agreements with pharmacy retail chains to install the Health Resource Network in pharmacies within the chain. Upon installation, the retailer generally agrees to use the Health Resource Network in its pharmacy for a minimum period of time, typically three years. CHR pays distribution fees to, and exchanges services with, the pharmacy based on the number of Health Resource® newsletters printed.

The Health Resource Network operates using a printer linked by an on-premises computer to the pharmacy’s point-of-sale controller and scanning equipment. Certain versions of the software eliminate the need for a computer in each location, in which case, only a printer is located in those pharmacies. CHR operates a data processing facility that communicates via various technologies with the computers installed in the pharmacies to send promotional instructions and retrieve program data. In some cases, CHR installs and owns the equipment. In other cases, the equipment is owned by the pharmacy retailer. All of the equipment owned by us is generic and purchased from third-party vendors. Typically, pharmacies are contractually obligated to provide supplies, including toner and paper. The Company believes that we can secure alternate sources of equipment and supplies without significant interruption to CHR’s business.

CHR’s client base varies from year to year and as such a client may be significant in one year and not in another. CHR’s top five clients accounted for 52.1%, 53.7% and 43.6% of revenue in fiscal years 2003, 2002 and 2001, respectively.

The primary objective of CMRS is to increase penetration within existing client relationships and develop new client relationships. New business development strategies include targeting leaders in a number of service industries such as healthcare, technology and restaurants as well as consumer packaged goods manufacturers.

In addition to new client acquisitions, CMRS is also focused on penetrating additional product segments within the existing manufacturing and retail client base. By combining traditional research services with the other segments’ services, clients are given an integrated solution geared toward their specific need.

CMRS had a single client that accounted for approximately 18.7%, 15.5% and 12.5% of revenues generated by this segment for the fiscal years ended March 31, 2003, 2002 and 2001, respectively. We believe that the loss of this client would have a material adverse effect on CMRS, but not on the business of the Company taken as a whole.

In November 2003, the Company announced its intention to divest the CMRS operations. See “Significant Business Developments and Events Through March 31, 2004.”

All financial and statistical results of the Company’s wholly and majority owned foreign subsidiaries are included for the twelve-month period ending December 31 which is their fiscal year end.

As of the end of fiscal year 2003, the Company provided in-store electronic targeted marketing services for consumers in the United Kingdom, France, Italy and Japan. The Catalina Marketing Network® operates internationally in a similar manner as the domestic business in offering a full range of targeted marketing solutions to many of the top 100 consumer packaged goods manufacturers and enjoys relationships with major supermarket retailers based on a syndicated platform. At the end of fiscal year 2003, the network was installed in 3,551 retail locations in Europe and 518 locations in Japan and reached more than 46 million consumers weekly. In France, the Company has been operating since 1994 and as of the end of fiscal year 2003 the Catalina Marketing Network® was installed in 2,632 retailers across 12 supermarket and hypermarket chains. In Italy, Catalina began operations in 2000 and was partnered with seven major retail chains and 318 stores at the end of the fiscal year. In the United Kingdom, the Catalina Marketing Network® was installed in 601 stores. In Japan, the network was launched in 1997 and was in 518 stores across six retail chains, of which three were among the top five general merchandise chains. In fiscal year 2004, the Company continued to expand its behavior-based targeting capabilities in Europe by launching a pilot test in Germany.

International had a single client, Nestlé, that accounted for approximately 10.1%, 12.1% and 6.7% of revenues generated by this segment for the fiscal years ended March 31, 2003, 2002 and 2001, respectively. We believe that the loss of this client would have a material adverse effect on this business segment. However, the loss of the International revenue generated by Nestlé would not have a material effect on the Company, taken as a whole. See “Manufacturer Services.”

In fiscal year 2003, International sales accounted for approximately 6.4% of our total revenues. Our international operations are subject to the normal risks of foreign operations, including: changes in local business and economic conditions, political uncertainties, adapting to different regulatory requirements, interest rate movements, uncertainties of litigation, increasing consolidation of retailers and consumer products goods manufacturers, competition, pricing pressure, seasonality and changing customer and client preferences. Certain of these risks have affected our business in the past and may also have a material adverse effect on our business, results of operations and financial condition in the future. In addition, sales in our international operations are billed in foreign currencies and are subject to currency exchange fluctuations as are intercompany royalties and financing activities. In prior years, changes in the value of the U.S. dollar compared to foreign currencies have had an impact on our sales and margins. We cannot predict the direction or magnitude of currency fluctuations. The Company, where practical, purchases goods and services in local currencies. The Company borrows locally to meet its financing requirements in Japan to obtain certain natural and economic hedges.

In all jurisdictions in which we operate, we are also subject to the laws and regulations that govern foreign investment, foreign trade and currency exchange transactions. These laws and regulations may limit our ability to repatriate cash as dividends or otherwise to the United States and may limit our ability to convert foreign currency cash flows into U.S. dollars.

Pacific Media, KK is a wholly-owned subsidiary of the Company that operates a billboard and outdoor media business in Japan. PMKK primarily owns and rents billboards which are displayed on rooftops or faces of buildings in locations suitable for advertising. Advertising is sold either directly to a broad range of leading clients across multiple industries or through advertising agencies. In general, billboards are designed by and produced under the supervision of PMKK. Upon completion and installation, the billboards are financed through third-party financing companies. PMKK is required to make rental payments to building owners for the space on the rooftops and faces of buildings where the billboards are installed. PMKK provides the maintenance for their billboards during the life of the contract, which generally ranges from three to five years.

Japan Billboard had a single client that accounted for approximately 74.9%, 71.9% and 67.7% of revenues generated by this segment for the fiscal years ended March 31, 2003, 2002 and 2001, respectively. This client produces tobacco products and is subject to the rules and regulations that govern that industry. This client has substantially reduced its spending with PMKK and this has had a material adverse effect on Japan Billboard, but not the business of the Company taken as a whole.

The passage and implementation of the Voluntary Global Tobacco Marketing Initiative (the “Initiative”) in fiscal year 2002 has significantly affected the manner in which tobacco companies in Japan are permitted to market, promote and advertise its products. As a result of the implementation of this Initiative, PMKK’s primary client began to reduce their advertising expenditures for billboards significantly, as well as other media and promotional spending. The Initiative, as it relates to outdoor tobacco advertising, mandates that the maximum visual dimension of any billboard advertisement be limited to 35 square meters. As a result, a significant number of PMKK’s sales contracts covering a broad network of large-sized billboards with this client were either terminated or not renewed. In those cases, PMKK has actively sought replacement business to forestall the significant cost of sign removal and cultivate new revenue streams.

In January 2004, Japan’s Ministry of Health announced its intention to sign and ratify the international Framework Convention on Tobacco Control recently adopted by the World Health Organization. This convention will become effective once it has been adopted by 40 countries. The adoption of this convention will further limit tobacco companies’ ability to advertise tobacco products on billboards in Japan. The effects of this ruling are significant to Japan Billboard, and the Company expects a further reduction in revenues from its single significant client.

In November 2003, the Company announced its intention to divest the PMKK operations. See “Significant Business Developments and Events Through March 31, 2004.”

Competition in the targeted marketing services business is intense and includes many competitors. Catalina Marketing competes for manufacturers’ advertising and consumer promotion budgets with a wide range of media including television, radio, print and direct mail advertising, as well as several alternative in-store and point-of-sale programs. The Company’s segments, Manufacturer Services, Retail Services, DMS and International, compete with various traditional coupon delivery methods including free-standing inserts, newspapers, direct mail, magazines and in- or on-product packaging, as well as other in-store marketing companies that use a variety of coupon, promotion or other advertising delivery methods. CHR competes for pharmaceutical budget dollars with a wide range of media, including television, publications, direct mail, and other alternate sources of direct-to-consumer communication. Competition for CMRS comes from a broad array of national, regional and local marketing research firms.

Catalina Marketing competes for advertising, promotional and research dollars based on the efficiencies of the Company’s networks, its ability to accurately and effectively target potential consumers, the number of shoppers reached, and the Company’s ability to deliver consumer insights and influence consumer buying behavior.

The Company’s research and development efforts are generally for pilot-project execution to create, test and support new applications for the Catalina Marketing and Health Resource Networks, market research, software development, and system upgrades. For each of the fiscal years ended March 31, 2003, 2002 and 2001, expenditures for research and development were $5.1 million, $4.5 million and $4.4 million, respectively.

Catalina Marketing currently holds, and has pending, numerous United States and foreign patents relating to Catalina Marketing products and services. These patents include the initial targeted incentive core patents as well as improvements and additional inventions related to Catalina Marketing’s current and contemplated business, programs and services. In addition, the Company regards certain computer software in the Catalina Marketing Network® and each additional service application as proprietary and subject to copyright protection. Catalina Marketing also holds, and has pending, numerous service marks and trademarks related to its entities, businesses, products, and services that have associated goodwill in the relevant marketplace. Catalina Marketing believes that certain intellectual property owned or licensed by the Company gives us a competitive advantage in key geographic regions in which we operate. While we continue to pursue protection for intellectual property rights developed by the Company, certain of our patents, over time, will expire and there is no guarantee that we will be able to secure additional patent rights. The expiration of a core patent or loss of patent protection resulting from a legal challenge may result in significant competition from third parties with respect to the covered product or service in a short period of time. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the relevant country. Although we believe that the Company’s intellectual property provides us with a competitive advantage, we believe that we are not dependent upon a single patent, or a specific series of patents, the loss of which would have a material adverse effect on our business. In appropriate situations, we seek to protect our proprietary intellectual property rights vigorously.

Our operations are subject to regulation in the United States and in other countries in which we do business. Generally, we are subject to federal and state laws governing the privacy and the use of consumer information collected by us. In the United States, various federal agencies including the United States Food and Drug Administration (“FDA”) and various state agencies have promulgated regulations that restrict the advertising of tobacco, dairy and alcohol products. Specifically, CHR operates in a highly regulated business environment and is subject to direct regulation by the FDA and anti-kickback laws. For a discussion of government regulations on our international operations, see “Business Segment Information-International.”

The Company is subject to the information requirements of the Exchange Act. Therefore, the Company files periodic reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

The Company’s website is www.catalinamarketing.com. The Company makes available, free of charge, on or through its website, its annual, quarterly and current reports and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. Information posted on the Company’s website is not part of this report.

The Company’s headquarters is located in St. Petersburg, Florida. This 142,857 square foot facility houses the Company’s principal administrative, marketing, information technology and product development offices. The Company leases this facility through a variable interest entity which is partially funded by a third party financial institution. The Company has included the value of the building and the related indebtedness in its Consolidated Financial Statements in accordance with FASB Interpretation No. 46: Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51 (“FIN 46”). As of March 31, 2004, the Company leased an additional 18 sales and support offices across the United States, consisting of approximately 245,000 square feet in the aggregate, and five offices for its foreign operations. The Company believes that the headquarters facility, along with the existing sales and support offices, are adequate to meet its current requirements and that suitable additional space will be available as needed to accommodate growth of its operations and sales and support office requirements for the foreseeable future.

As previously disclosed, on March 4, 2004, the SEC issued a formal order of private investigation that made formal an informal investigation previously initiated by the SEC. The informal investigation was initiated by the SEC after representatives of the Company contacted the SEC on June 30, 2003, to inform the Staff of certain revenue recognition timing issues that management of the Company identified at CHR. The Company believes that the SEC inquiry is focused primarily on the revenue recognition timing issues at CHR during fiscal years 2003, 2002 and 2001, which fiscal years are the subject of the various adjustments and restatements described in this Annual Report on Form 10-K. See Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below for more information about our restatement. Since the initiation of the informal investigation and through the date of the filing of this Annual Report on Form 10-K, the Company has been cooperating with the SEC in connection with its investigation, including through in-person meetings between Company representatives and the SEC Staff, and the provision to the SEC of information and numerous documents. In addition, the Company has made available as witnesses those individuals under its control in response to the SEC inquiries and requests. Other than the SEC investigation, as of the date hereof, the Company is not aware of any additional inquiry or investigation having been commenced against the Company related to these matters, but it cannot predict whether or not any such regulatory inquiry or investigation will be commenced or, if it is, the outcome of any such inquiry or investigation. If the investigation was to result in a regulatory proceeding or action against the Company, the Company’s business and financial condition could be harmed.

The Company, and certain present and former officers and directors of the Company and CHR, were named as defendants in numerous complaints purporting to be class actions which were filed in the United States District Court for the Middle District of Florida, Tampa Division, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The actions are brought on behalf of those who purchased the Company’s common stock between January 17, 2002 and August 25, 2003, inclusive. The complaints contain varying allegations, including that, during the alleged class period, the defendants issued false and misleading statements concerning the Company’s business and operations with the result of artificially inflating the Company’s share price and maintained inadequate internal controls. The complaints seek unspecified compensatory damages and other relief. In October 2003, the complaints were consolidated in the United States District Court for the Middle District of Florida and given the caption In re Catalina Marketing Corporation Securities Litigation, Case No. 8:03-CV-1582-T-27TBM. In December 2003, Virginia P. Anderson and the Alaska Electric Pension Fund were named as co-lead plaintiffs (the “Lead Plaintiffs”). In January 2004, the Court ordered that Lead Plaintiffs file their Consolidated Amended Class Action Complaint 30 days after the filing of the Company’s revised financial statements. We intend to vigorously defend against these lawsuits. We cannot currently predict the impact or resolution of this litigation

Certain present and former officers and directors of the Company and CHR, and Catalina Marketing, as a nominal defendant, have been named in two shareholder derivative actions entitled The Booth Family Trust v. Frank H. Barker, et al., Case No. 20510-NC, commenced in the Court of Chancery for the State of Delaware in and for New Castle County, and Craig Deeds v. Frank H. Barker, et al., Case No. 04-000862 commenced in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida. These shareholder derivative lawsuits allege that the defendants breached various fiduciary duties based upon the same general set of alleged facts and circumstances as the federal shareholder suits. The plaintiffs seek unspecified compensatory damages, restitution of improper salaries, insider trading profits and payments from the Company, and disgorgement under the Sarbanes-Oxley Act of 2002. In December 2003, these actions were stayed pending a ruling by the district court on the anticipated motion to dismiss the Consolidated Amended Class Action Complaint in the federal securities action. We cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material, and the resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition.

In May 2002 the Company was sued by Expanse Networks, Inc. (“Expanse”) for patent infringement in the United States District Court for the Eastern District of Pennsylvania. The case is currently scheduled for trial in July 2004. Expanse alleges that the Company infringes two Expanse patents directed to certain specific computer implemented methods for mathematically processing consumer purchase history data to generate and then use a consumer profile. Expanse seeks damages and injunctive relief in the case. The Company has denied Expanse’s claims based on, among other defenses, its assertion that the Company is not infringing the Expanse patents at issue in this action. In addition, the Company believes that, in the event that the Court determines that any of the Company’s various business activities are covered by the Expanse patents, the Expanse patents are invalid for various reasons, including that they are subject to prior use and activities that render the patents invalid. The Company intends to continue to vigorously defend itself in connection with this matter and does not believe that this matter will be resolved in a manner which is materially adverse to the Company.

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2003 or through the date of the filing of this Annual Report on Form 10-K.

The Company’s common stock, par value $0.01 per share (“common stock”), is traded on the New York Stock Exchange (“NYSE”) under the symbol “POS.” The following table sets forth, for each quarter period of the last two fiscal years and for each quarter of fiscal year 2004, the high and low closing prices as reported by the NYSE for the common stock for the quarters ended as follows:

As of March 31, 2004, there were approximately 800 registered holders of shares of common stock.

The Company has not paid any cash dividends to date, and there are no current plans to pay cash dividends in the future. For a discussion of restrictions on the Company’s and its subsidiaries’ ability to pay dividends contained in certain of our debt instruments, see Note 9 to the Consolidated Financial Statements.

This table sets forth information relating to the Company’s equity compensation plans as of March 31, 2003.


*	Included in this total are (i) 226,058 shares remaining available for issuance under the Company’s Employee Payroll Deduction Stock Purchase Plan, (ii) 250,000 shares remaining available for issuance under the Company’s 2002 Director Stock Grant Plan and (iii) 5,417,326 shares remaining available for issuance under the Company’s 1999 Stock Option Plan.

The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. The following selected consolidated financial data for the fiscal years ended March 31, 2003, 2002 and 2001 is derived from our audited Consolidated Financial Statements.


(1)	As of April 1, 2001, goodwill is no longer amortized but instead is subject to impairment tests at least annually. The effects of this change in accounting principle are shown as adjusted on the income statements.

(2)	See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 to the Consolidated Financial Statements for a discussion and the effect of the restatements on the fiscal years 2002 and 2001.

(3)	See Note 4 to the Consolidated Financial Statements regarding the Company’s plan, subsequent to March 31, 2003, to divest certain of its operations.

(4)	No specific adjustments have been identified that relate to 1999; however, we believe that certain payments were made by the seller of DMS to DMS employees and are not reflected in the 1999 financial statements. We believe further that the total amount of these payments in this fiscal 1999 year was less than $1.0 million. For further discussion, see Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The following table provides selected financial data comparing amounts previously reported with the amounts as restated for the fiscal year ended March 31, 2000. These amounts are unaudited. The nature of the restatements made are discussed further in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in Note 3 to the Consolidated Financial Statements. The restatements to this period resulted from the investigations made by the Company and the re-audits performed by PwC for the fiscal years ended March 31, 2003, 2002 and 2001. Adjustments have also been made to fiscal year 2000 to reflect issues that arose during the investigations and re-audits.


(1)	As of April 1, 2001, goodwill is no longer amortized but instead is subject to impairment tests at least annually. The effects of this change in accounting principle are shown adjusted on the income statement.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These statements may be identified by the use of words, such as “anticipate,” “estimates,” “should,” “expect,” “guidance,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning, in connection with any discussion of the Company’s future business, results of operations, liquidity and operating or financial performance. Such forward-looking statements involve significant material known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. We cannot assure you that any future results, performance or achievements will be achieved. For a discussion of certain of these risks, uncertainties and other factors, see Part I — “Special Note Regarding Forward Looking Statements.”

The following discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and related Notes that appear elsewhere in this report.

Catalina Marketing is a global leader in the development and distribution of behavior-based communications for consumer packaged goods manufacturers, pharmaceutical manufacturers and marketers, and retailers. The Company offers behavior-based, targeted-marketing services and programs globally. The Company is organized and managed by segments, which include the following operations: Manufacturer Services, Retail Services, Direct Marketing Services (“DMS”), Catalina Health Resource (“CHR”), Catalina Marketing Research Solutions (“CMRS”), international operations, which include both manufacturer and retail services similar to those services provided in the United States (“International”) and Japan Billboard, a billboard and outdoor media business operated in Japan (“Japan Billboard” or “PMKK”). The domestic operations of the Company include Manufacturer Services, Retail Services, DMS, CHR and CMRS. The international operations of the Company are organized and managed by country and include International and Japan Billboard. These segments of our business coordinate their work efforts by providing clients the entire scope of targeted marketing services and enabling clients to better understand, target and change consumer behavior.

Delay in Filing Our Financial Statements for the Fiscal Year Ended March 31, 2003 and Restatements of Our Financial Statements for the Fiscal Years Ended March 31, 2002 and March 31, 2001.

In June 2003, we announced our intent to delay the filing of our Annual Report on Form 10-K for the fiscal year ended March 31, 2003, as a result of certain issues identified by management related to the timing of revenue recognition at CHR. At that time, management continued its evaluation of the financial data of CHR relating to fiscal year 2003, while the Company’s Audit Committee engaged E&Y, which replaced Arthur Andersen LLP as our independent certified public accountants in May 2002, to assist in the review and evaluation of the results.

On June 30, 2003, the Company initiated discussions with the Staff of the SEC to advise them of these matters and has continued discussions with the Staff of the SEC throughout this process. The Company has cooperated with the SEC in connection with its investigation by providing the SEC with information and numerous documents, as requested, participating in meetings with the SEC Staff, and making available as witnesses those individuals under its control in response to the SEC inquiries and requests.

In July 2003, E&Y expressed concerns over additional areas of accounting, including revenue recognition in Manufacturer Services and CHR, with respect to certain exclusivity rights granted to customers for the contractual periods of customer arrangements. In addition, E&Y questioned the Company’s accounting

treatment for certain non-cash, or “barter,” transactions in Retail Services as well as whether one specific Manufacturer Services and one specific CHR contract had been properly executed by both parties. Further, the Company and E&Y were reviewing the Company’s disclosure of segments under SFAS No. 131.

On August 26, 2003, we filed a report on Form 8-K with the SEC reporting E&Y’s resignation as our independent certified public accountants and disclosing the following accounting issues raised by E&Y: (i) the timing of the Company’s accounting for revenues derived from its customer arrangements at CHR in light of the discovery by the Company’s management of certain agreements with customers that were not reflected in written agreements and/or considered in connection with the Company’s accounting for the arrangements, and certain other elements of a significant multi-year arrangement, (ii) the timing of the Company’s accounting with respect to revenue recognition at CHR and Manufacturer Services to the extent that certain customer contracts had not been executed by both parties during the period in which the revenue was first recognized for such contracts, (iii) the timing of the Company’s accounting treatment of its customer arrangements at Manufacturer Services and CHR with respect to certain exclusivity rights granted to customers for the contractual periods of customer arrangements, (iv) the Company’s accounting treatment for certain non-cash transactions in Retail Services, and (v) the Company’s disclosure of segment information for financial reporting.

On October 2, 2003, subsequent to the resignation of our former independent certified public accountants, the Audit Committee retained the services of PwC, who have audited our financial statements for fiscal year 2003 and re-audited the financial statements for fiscal years 2002 and 2001.

The following discussion summarizes the resolution of each of the accounting issues noted in the Form 8-K filed on August 26, 2003.


	•	Timing of the Company’s accounting for revenues derived from its customer arrangements at CHR in light of the discovery by the Company’s management of certain agreements with customers that were not reflected in written agreements and/or considered in connection with the Company’s accounting for the arrangements, and certain other elements of a significant multi-year arrangement — When the Company previously recognized revenues from certain of its customer arrangements at CHR that were not reflected in written agreements and/or considered in connection with the Company’s accounting for the arrangements, the Company restated its financial statements to defer the previously recognized revenue until the period when persuasive evidence of the arrangement became available and the purchase price became fixed or determinable. Substantially all of these revenue adjustments related to the timing of revenue recognition and not to the existence of revenue.

	•	The timing of the Company’s accounting with respect to revenue recognition at CHR and Manufacturer Services to the extent that certain customer contracts had not been executed by both parties during the period in which the revenue was first recognized for such contracts — The Company concluded that the two specific CHR and Manufacturer Services contracts associated with this issue were properly executed. Accordingly, the Company’s accounting with respect to the timing of revenue recognition was appropriate. While the timing of revenue recognition was adjusted with respect to a number of contracts in our evaluation of certain CHR, DMS, CMRS and Manufacturer Services contracts, no adjustment to our consolidated operating results was made in response to this specific issue.

	•	The timing of the Company’s accounting treatment of its customer arrangements at Manufacturer Services and CHR with respect to certain exclusivity rights granted to customers for the contractual periods of customer arrangements — In February 2004, the Company received a response from the Staff of the Office of the Chief Accountant of the SEC stating that it does not object to the Company’s revenue recognition methodology for certain Manufacturer Services customer contracts containing exclusivity provisions. Therefore, based in part on the investigation and the response received from the SEC Staff, the Company has determined it was not necessary to change its accounting treatment of customer contracts containing exclusivity provisions. Accordingly, no adjustments to our consolidated operating results were made in response to this specific issue.


	•	The Company’s accounting treatment for certain non-cash transactions in Retail Services — Our existing accounting treatment for certain non-cash, or “barter,” transactions in Retail Services did not result in revenue recognition as we determined the transactions were deemed to be an exchange of services for which the fair values could not be reasonably determined. Accordingly, no adjustments to our consolidated operating results were made in response to this specific issue.

	•	The Company’s disclosure of segment information for financial reporting — In previous filings, we disclosed our conclusion that we considered SFAS No. 131 and had concluded that the Company operated in one reportable segment, targeted marketing services. Throughout the preparation of the financial statements, we have reconsidered SFAS No. 131, and the Company has now concluded that its business is managed by operating segments, which do not meet all of the aggregation criteria pursuant to that Statement. As such, segment information has been provided in this Annual Report on Form 10-K for fiscal year 2003 pursuant to the requirements of SFAS No. 131 and Regulation S-K. Fiscal years 2002 and 2001 have been restated to provide business segment information on a basis comparable to the fiscal year 2003 reportable segment structure.

For additional discussion, see Item 1 — “Restatement of Financial Information for Fiscal Years 2002, 2001 and 2000,” Item 1 — “Business” and Item 9 — “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.”

As a result of our investigation and the re-audits of our financial statements for the fiscal years ended March 31, 2002, and March 31, 2001, respectively, and the Company’s conclusions that there were accounting errors in our financial information requiring restatements for those fiscal years, in part based on the conclusions discussed above, we are restating our (1) selected financial data for the fiscal years 2002, 2001 and 2000, (2) financial statements for the fiscal years ended March 31, 2002 and 2001, and (3) our unaudited selected quarterly information for each of the four quarters of fiscal year 2003 and the four quarters of fiscal year 2002. These matters are discussed in more detail in Item 3 — “Legal Proceedings” and Note 3 to our Consolidated Financial Statements included in this Annual Report on Form 10-K. The adjustments necessary to restate our financial statements in accordance with U.S. GAAP are summarized below with descriptions of the nature of the adjustments immediately following:

In addition to the change in net income, we decreased the retained earnings balance at March 31, 2000 by $18.2 million, which includes a tax benefit of $7.1 million, primarily related to the impairment of intangible assets. See “Other Adjustments and Restatements — Depreciation and amortization”, below.

As a result of our investigation of our revenue recognition policies and practices, we identified numerous instances where the timing or amount of revenue was not recognized in accordance with U.S. GAAP. SEC Staff Accounting Bulletin No. 104, “Revenue Recognition,” (“SAB 104”) expresses the SEC Staff’s views regarding the application of U.S. GAAP to revenue recorded in financial statements. A summary of the nature of the adjustments to revenue that were recorded to our Consolidated Financial Statements is set forth below:

Persuasive Evidence of Arrangements. Generally, we rely on a written contract or purchase order from our customer as evidence that a sales arrangement exists. Our investigation identified situations where the customer arrangements were not available, were not documented or were amended by separate written or verbal agreements. The existence of these separate amended agreements and arrangements indicated that the original agreement was not binding and, therefore, the recognition of certain revenue was recorded prematurely at that time and has been deferred until the period when persuasive evidence of the arrangement exists.

Delivery Had Not Occurred or Services Had Not Been Rendered. Generally, we recognize revenue when the earnings process is complete. As a result of our investigation, we identified instances in which we recognized revenue prior to the completion of the earnings process. For example, in certain cases, we recognized revenue at CHR prior to CHR completing its contractual obligations. Additionally, certain contracts at CHR and one contract at Manufacturer Services were entered into with a program performance guarantee. There were instances where the Company recognized revenue prior to the attainment of the guaranteed level of performance and acceptance by the client. At DMS, we recognized revenue prior to mailing direct-marketing materials to customers. Also, in certain instances, we recognized revenue at CMRS prior to delivery of the completed research project to the client. In each of these instances, we have deferred the recognition of revenue until the printing of promotional materials, achievement of performance criteria and acceptance by the client, mailing date, or delivery of the research report, as applicable.

The Seller’s Price to the Buyer was not Fixed or Determinable. Generally, it is our practice to collect revenue from clients based on contracted amounts for our services. As outlined above, we discovered several instances of separate written or verbal agreements that amended the original contract. In these cases, the price for our services was not fixed or determinable and, as a result, we have deferred recognition of revenue until the period when the purchase price was fixed and determinable.

Collectibility is Reasonably Assured. In general, we perform various credit-checking procedures to obtain reasonable assurance that our customers are credit worthy and that invoices are collectible. In the course of our investigation, we did not identify any material instances where collectibility was an issue. In many instances, specifically in DMS and CMRS, payment was the primary evidence of an agreement since, as described above, written contracts did not always exist.

As a result of our investigation of our revenue recognition policies and practices and the restatement of certain of our financial information described above, our consolidated revenue decreased by $4.0 million for the fiscal year ended March 31, 2002 and decreased by $4.8 million for the fiscal year ended March 31, 2001. The majority of these revenue adjustments relate to the timing of revenue recognition and not to the existence of revenue. As such, these adjustments resulted in deferred revenue and, to the extent not already realized, will be recognized in fiscal year 2003 and future periods. At March 31, 2002 and 2001, the restatement adjustments to increase deferred revenue were $12.2 million and $7.7 million, respectively.

Direct cost adjustments. Direct cost adjustments decreased expenses by $1.6 million and $1.8 million for the fiscal years ended March 31, 2002 and 2001, respectively. These adjustments relate primarily to fees paid to retailers as compensation for placement of our Health Resource Network in their stores, correcting the classification for incentive rebates, postage charges, and adjustments to inventory to reflect quantities on hand.

Accruals and prepayments. In the normal course of preparing our financial statements, we record accruals for costs that have been incurred but not paid and record prepayments for goods or services that have

been paid for but have not been received or rendered. As a result of our investigations, we identified errors in the accounting for certain of these accruals and prepayments; primarily related to compensation, taxes, legal, consulting, allowance for doubtful accounts, and other selling, general and administrative expenses. Expenses for the fiscal year ended March 31, 2002 increased by $2.2 million and for the fiscal year ended March 31, 2001 decreased by $0.8 million as a result of correcting these errors.

Previously capitalized bonus compensation. In July 1998, we acquired 100% of the outstanding stock of DMS, formerly known as Market Logic, Inc., for $2.9 million in initial cash consideration. In addition to the initial payment, the acquisition agreement required that we pay to the seller, on an annual basis, contingent purchase price payments, based on the annual operating results of DMS. We made contingent purchase price payments totaling $30.1 million through March 31, 2004. The seller, on his own accord, paid DMS employees a portion of these payments and such portion was not treated as expense of DMS. As a result of our investigation, we determined that these payments from the seller to DMS employees, totaling $1.4 million in fiscal year 2001, should have been treated as operating expense of DMS and not as additional purchase price (i.e., goodwill). In addition, we have adjusted our results for the fiscal year ended March 31, 2000 by $1.6 million for similar payments made by the seller to DMS employees.

In July 1999, we acquired certain assets and assumed certain liabilities of CMRS, formerly known as Alliance Research, Inc., an attitudinal research company, for $7.7 million in initial cash consideration. In addition to the initial payment, the acquisition agreement required that we pay to the seller, on an annual basis, contingent purchase price payments, based on the annual operating results of CMRS. Under the provisions of the contract, the contingent purchase price payments, totaling $17.2 million, were accelerated and finalized in the third quarter of fiscal year 2002. The seller, on his own accord, paid CMRS employees a portion of these payments and such portion was not treated as expense of CMRS. As a result of our investigation, we determined that these payments from the seller to CMRS employees, totaling $0.7 million in fiscal year 2002, should be treated as operating expense of CMRS and not as additional purchase price (i.e., goodwill).

Postretirement healthcare obligation. This adjustment was for the proper amortization of prior service costs related to the implementation of our postretirement healthcare benefit plan. Our expenses decreased $1.1 million in fiscal year 2002 as a result of this correction.

Asset impairment and related change in amortization. This adjustment was primarily related to the impairment charge that should have been recorded in fiscal year 2001, net of the related change in amortization, resulting from the impairment testing of patents and goodwill acquired from CompuScan Marketing, Inc. Under SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” we determined that the carrying value of the goodwill and patents exceeded the fair values of those assets.

Depreciation and amortization. Our investigation included a re-examination of the SFAS No. 121 impairment analysis that we had performed in prior fiscal years related to property and equipment, identifiable intangible assets, and the goodwill purchased in conjunction with our 1996 acquisition of the remaining 46% minority interest of Catalina Marketing U.K., Inc (“U.K.”). As a result of this re-examination, we recorded an impairment charge of $16.9 million in fiscal year 2000. The restatement adjustments for fiscal years 2002 and 2001 reflect a reduction in depreciation and amortization expense resulting from the decreased asset values. The amount for fiscal year 2002 includes a gain on the sale of assets that were previously considered entirely impaired.

During our re-examination of the lease transaction of our corporate headquarters, we determined that the lease should have been accounted for as a capital lease rather than as an operating lease. We have retroactively adopted FIN 46 effective as of fiscal year 2001, to account for the consolidation of the variable interest entity from which we lease our corporate headquarters. Had we not chosen early adoption, the restatement required would have converted the lease obligation from operating to capital. Accordingly, depreciation expense has been restated to reflect the effect of the adoption of FIN 46.

In addition, as a result of our investigation, we recorded deferred tax liabilities associated with our acquisition of certain non-deductible, identifiable intangible assets. The establishment of such required deferred tax liabilities resulted in an increase to goodwill of $7.1 million. A portion of this goodwill was written off in fiscal year 2000 due to the determination that the carrying value exceeded the fair value pursuant to an analysis performed in accordance with SFAS No. 121 for the U.K. The remainder was written off in fiscal year 2001 as a result of accelerated amortization in the U.K. and a determination that the carrying value of the goodwill arising from the CompuScan Marketing, Inc. acquisition was impaired. Amortization of goodwill for fiscal year 2001 has been adjusted to reflect this change in goodwill.

Capitalized software costs. We develop software that is used to operate, support and generate reports from our proprietary network. The accounting for the costs incurred is prescribed by Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Our investigation included a re-examination of capitalized software costs. As a result of our investigation, expense related to software development costs decreased by approximately $0.5 million, net of additional depreciation expense, in fiscal year 2002, and increased by approximately $1.0 million in fiscal year 2001, net of additional depreciation expense.

Income tax impact of adjustments. We recorded income tax benefits of $2.3 million and $3.6 million for the fiscal years ended March 31, 2002 and 2001, respectively, as a result of the net effect of the restatements to our consolidated income for those periods.

Minority interest liability. As a result of our investigation, we noted that a minority interest liability had been incorrectly recorded for certain issuances of shares of one of our subsidiaries and for a partial sale of our investment in another subsidiary. At the time of the transactions, each of those subsidiaries had negative stockholders’ equity. As a result, we have reduced our minority interest liability and increased our paid-in capital by $1.1 million in fiscal year 2002 and $0.3 million in fiscal year 2001. In addition, minority interest has been increased by $0.9 million to reflect the ownership of the variable interest entity.

Consolidated income statement reclassifications. As a result of our investigation, we reclassified certain categories of expenses in the Consolidated Income Statements. Specifically, gains and losses on the sales of assets were reclassified as operating expenses.

Reportable segments. In previous filings, we disclosed our conclusion that we considered SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and had concluded that the Company operated in one reportable segment, targeted marketing services. In our investigation, we have reconsidered SFAS No. 131, and the Company has now concluded that its business is managed by operating segments, which do not meet all of the aggregation criteria pursuant to SFAS No. 131. As such, segment information has been provided in this Form 10-K for fiscal year 2003 pursuant to the requirements of SFAS No. 131 and Regulation S-K. Fiscal years 2002 and 2001 have been restated to provide business segment information on a basis comparable to the fiscal year 2003 reportable segment structure.

Stock option disclosures. We noted certain errors in our previous disclosure of stock options pursuant to the requirements of SFAS No. 123, “Accounting for Stock-Based Compensation.” The correction of this disclosure did not affect the reported amounts included in the Consolidated Financial Statements.

For further discussion of restatements of our Financial Statements see Note 3 to the Consolidated Financial Statements.

The following table includes the revenues, operating profit (loss) and net income (loss) for each of the Company’s significant reportable segments for each of the fiscal years ended March 31, 2003, 2002 and 2001. See also Note 17 to the Consolidated Financial Statements for additional segment financial information. Results of operations are discussed for each of the Company’s significant operating segments.


(1)	Other includes Retail Services and CMRS which were not significant operating segments.

In general, we expect our revenues to be greater during periods of higher promotional activity by manufacturers. The pattern of coupon distribution is irregular and may change from period to period depending on many factors, including the economy, competition, the timing of new product introductions and the timing of manufacturers’ promotion planning and implementation. To some extent, this pattern may be affected by seasonal factors relating to matters such as holiday-related promotion, seasonal product advertising and annual budgeting processes affecting when our customers use promotional and consumer-related expenditure budgets. Furthermore, the accounts of the wholly and majority owned foreign subsidiaries are

included for the twelve months ended December 31, which is their fiscal year end, to facilitate the timing of the Company’s closing process. The seasonality of our international operations may be different than that of our domestic operations for many reasons, but the impact of seasonality on our reporting may also be exacerbated by this difference in fiscal years. These factors, as well as the overall growth in the number of retailer and manufacturer contracts with the Company, and the timing of growth in the size of the installed store base, tend to influence our revenues and profits from period to period.

In fiscal year 2003, consolidated revenues totaled $470.7 million, an increase of 6.3% over fiscal year 2002 of $442.7 million. As described more fully in the segment discussion below, revenue growth was driven by DMS, International and Retail Services, which more than offset revenue declines in Manufacturer Services, CHR and Japan Billboard.

Fiscal year 2002 consolidated revenues of $442.7 million represented a 7.2% increase over fiscal year 2001 revenue of $413.1 million. This increase was driven almost entirely by CHR, which experienced revenue growth of $32.1 million, or 98.1%, in its year-over-year revenue due to an increase in the number of participating pharmacies in the Health Resource Network. In addition, DMS and Retail Services experienced annual revenue growth in fiscal year 2002, while International and Japan Billboard revenue declined during the same period.

Direct operating expenses increased 5.0% to $208.4 million in fiscal year 2003 from $198.4 million in fiscal year 2002. Direct operating expenses were 44.3% of revenues in fiscal year 2003, compared with 44.8% of revenues in fiscal year 2002. The dollar increase was primarily the result of increased third-party costs for product mailings at DMS. This increase was partially offset by a decrease in direct operating expenses in Japan Billboard. As a percentage of revenue, several expense areas, such as paper expense, data communication and retailer fees, decreased in fiscal year 2003 as compared with fiscal year 2002.

For fiscal year 2002, direct operating expenses increased by 12.8% from the fiscal year 2001 total of $175.9 million. As a percentage of revenues, direct expenses were 44.8% in fiscal year 2002 compared with 42.6% in fiscal year 2001. The largest increase in dollars and percentage of revenue was for fees paid to our retail customers. The increase was primarily the result of a large increase in the number of stores in the CHR network in fiscal year 2002, which resulted in significantly higher retailer fees. In addition, third-party costs, primarily for product mailings in DMS, increased approximately 31.9% over fiscal year 2001.

Selling, general and administrative (“SG&A”) expenses were $125.4 million in fiscal year 2003, an increase of approximately 16.3% over fiscal year 2002 SG&A expenses of $107.9 million. As a percentage of revenue, SG&A expense increased to 26.7% in fiscal year 2003 from 24.4% in fiscal year 2002. The increases were due to a 15.4% increase in personnel costs resulting from an increase in our sales force expense and a 21.8% increase in information technology costs.

Fiscal year 2002 SG&A expenses of $107.9 million represented a 1.4% increase over fiscal year 2001 SG&A expenses of $106.3 million. As a percentage of revenue, SG&A expenses in fiscal year 2002 decreased to 24.4% of revenue from 25.7% of revenue in fiscal year 2001. The net increase in dollars was the result of a 27.3% increase in our sales force expense, which more than offset a combined 38.3% decrease in incentive compensation, legal fees and new business development costs.

We recognized an impairment charge of $1.2 million in fiscal year 2003 due to a plan of disposal of certain billboards at our Japan Billboard business. See discussion in Segment Results under Japan Billboard.

In fiscal year 2001, the Company recorded an impairment charge of $5.7 million for certain patents and goodwill acquired from CompuScan Marketing, Inc. in fiscal year 2000. Under SFAS No. 121 the Company reviewed these assets for impairment since the cash flow generation from these assets was less than originally expected. As a result of our review, the Company determined that the carrying value of the goodwill and the patents exceeded the fair values of those assets.

Depreciation and amortization expense increased to $43.3 million in fiscal year 2003, up 5.8% from fiscal year 2002 depreciation and amortization expense of $40.9 million. The increase in depreciation expense was primarily the result of increased asset bases as a result of increased capital expenditures for store equipment and information technology equipment in fiscal years 1999 through 2001.

Fiscal year 2002 depreciation and amortization expense decreased $2.8 million from fiscal year 2001 expense of $43.6 million. This change is due to an increase in depreciation expense of approximately $2.4 million in fiscal year 2002, offset by a $5.1 million decrease in amortization expense largely as a result of our adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” in fiscal year 2002. Under SFAS No. 142, goodwill and indefinite-life intangible assets acquired in a business combination will no longer be amortized as operating expenses but will be subject to assessment for impairment at least annually.

Interest expense decreased to $2.2 million in fiscal year 2003 from $3.4 million in fiscal year 2002 and $3.4 million in fiscal year 2001. The decrease in fiscal year 2003 resulted from lower outstanding principal balances on our Corporate Facility and lower interest rates.

The consolidated provision for income taxes for fiscal year 2003 of $34.2 million increased to 38.3% of income before taxes and minority interest compared with $33.3 million or 36.2% of income before taxes and minority interest for fiscal year 2002. The rate change was primarily due to an increase in the Company’s reserve for certain state income tax matters deemed reasonably estimable and probable and to the change in the sales mix between domestic, state and foreign operations. To a lesser extent, the rate increased as a result of the decrease in post-acquisition earnout payments that are deductible as original issue discount payments for tax purposes. The Company’s effective tax rate is higher than the federal statutory rate due to state and foreign income taxes and the effect of various nondeductible expenses.

The consolidated income tax provision for fiscal year 2002 increased to $33.3 million or 36.2% of income before income taxes and minority interest compared with $31.3 million or 40.5% of income before income taxes and minority interest in fiscal year 2001. The rate decrease is primarily the result of the reduction of non-deductible amortization of goodwill for financial reporting purposes due to the change in accounting principle under SFAS No. 142 and to a lesser extent a decrease in the company’s overall income tax contingency.

Manufacturer Services serves the needs of domestic consumer product manufacturers, primarily within the consumer packaged goods industry. Using the Catalina Marketing Network®, this operating group specializes in behavior-based marketing communications that are delivered at the point-of-sale. The primary service line of the Catalina Marketing Network® is the in-store delivery of incentives at the checkout lane of a retailer, typically a supermarket. Catalina Marketing links its proprietary software, computers, central databases and thermal printers with a retailer’s point-of-sale controllers and scanners. The network prints customized promotions at the point-of-sale based on product Universal Product Codes or other scanned information. The printed promotions are handed to consumers by the cashier at the end of the shopping transaction. Our manufacturing customers contract with us to deliver promotions for them and typically pay us a fee for each promotion delivered. In general, Manufacturer Services recognizes revenue at the time a promotion is delivered at the checkout counter of the retail store based on a per promotion charge.

As we discussed in Item 1 — “Business Segment Information,” we had two clients in Manufacturer Services that individually accounted for more than 10.0% of revenues of Manufacturer Services. One of those clients had revenues that accounted for 9.6%, 9.5% and 10.4% of Manufacturer Services total revenues in fiscal years 2003, 2002 and 2001, respectively. This client has notified us that, beginning in fiscal year 2005, it does not intend to purchase our services at the levels it had spent with us in fiscal years 2004, 2003, 2002 and 2001.

At this time, we cannot determine the impact of this spending reduction on our revenues. We will attempt to sell the product categories and cycles previously purchased by this client to other packaged goods manufacturers, but we cannot provide assurance that this will occur. If we are unable to replace those revenues, the reduction in business with this client will have a material adverse effect on Manufacturer Services.

Revenues were $258.5 million in fiscal year 2003, down 3.2% from revenues of $267.1 million in fiscal year 2002. The decrease was primarily the result of Manufacturer Services discontinuing the sale of direct mail products and Internet promotions in fiscal year 2003. In fiscal year 2002, direct mail revenues were approximately $13.4 million and Internet revenues were $2.7 million. These decreases offset an increase in promotional print revenues of 3.8% due mainly to an increase in coupon volume from 2,868 million prints in fiscal year 2002 compared with 2,980 million prints in fiscal year 2003, an increase of 3.9%. In the United States, the Catalina Marketing Network® was installed in 17,498 stores at March 31, 2003, which reached approximately 203 million shoppers each week as compared with 16,488 stores reaching approximately 204 million shoppers each week at March 31, 2002. In fiscal year 2003, the Company installed its Catalina Marketing Network® in 1,010 stores (net of deinstallations) in the United States as compared with 1,013 net stores in fiscal year 2002. Deinstallation activity can and does occur primarily due to the consolidation and business combination of supermarket chains as well as store closures made by retailers in the ordinary course of business. The pace of installations varies depending on the timing of contracts entered into with retailers and the scheduling of store installations by mutual agreement. Maintaining our retail store base is critical to the Company as well as the Manufacturer Services segment. The loss of any of the major retail chains from our network could have a material adverse effect on Manufacturer Services as well as the Company.

Operating profit was $137.1 million in fiscal year 2003, up 3.7% over operating profit of $132.2 million in fiscal year 2002. The increase in operating profit was due to a decrease in operating expenses which decreased by 10.0% year over year primarily due to the elimination of operating expenses associated with direct mail, which Manufacturer Services discontinued selling in fiscal year 2002.

Net income was $81.6 million in fiscal year 2003, up 4.6% over net income of $78.0 million in fiscal year 2002. The increase in net income was due mainly to the increases in operating profit discussed above.

Revenues were $267.1 million in fiscal year 2002, compared with revenues of $265.7 million in fiscal year 2001. Revenue from promotions printed were flat as gains in pricing were substantially offset by a 2.6% decrease in the number of promotions printed. In the United States, the Catalina Marketing Network® was in 16,488 stores at March 31, 2002, which reached approximately 204 million shoppers each week as compared with 15,475 stores reaching approximately 185 million shoppers each week on March 31, 2001. In fiscal year 2002, the Company installed its Catalina Marketing Network® in 1,013 net stores in the United States as compared with 1,959 net stores in fiscal year 2001.

Operating profit was $132.2 million in fiscal year 2002, up 4.2% from operating profit of $126.9 million in fiscal year 2001. The increase in operating profit is due mainly to an impairment charge of $5.7 million which reduced to the carrying value of certain goodwill and patents in fiscal year 2001. The improvement in operating income was partially offset by an increase in SG&A expenses of $3.4 million year over year, primarily due to increased personnel expenses related to our sales force.

Net income was $78.0 million in fiscal year 2002, up 12.3% over net income of $69.5 million in fiscal year 2001. The increase in net income is due mainly to the increase in operating profit discussed above and a lower effective tax rate.

DMS provides services designed to reach consumers in their homes. DMS analyzes frequent shopper databases and identifies consumer lifestyle changes to develop strategic programs that meet multiple

objectives for both brand manufacturers and retailers. These targeted direct mail programs are based on actual purchase behavior or consumer lifestyle changes. DMS provides services which enable manufacturers and retailers to influence the purchase patterns of targeted customers based on their actual purchase behavior and history. Clients use these services to support new product launches and line extensions, build loyalty to a brand and deliver timely messages to consumers.

DMS’s specific product offerings include Sample Logic®, Retail Solutions and One-to-One Direct®. Sample Logic® uses consumer purchase data provided by our retailers to deliver targeted product samples and promotions to consumers’ homes. Retail Solutions develops and delivers direct mail customer campaigns, primarily change in lifestyle (i.e., new homeowner), as well as customer reward and loyalty strategies. One-to-One Direct® is designed to deliver coupons from multiple consumer products goods manufacturers in a single mailing, using data provided by our retailers, to consumers in their home. The Company suspended the One-to-One Direct® service in December 2003.

In November 2003, the Company announced its intention to divest the DMS operations. See Item 1 — “Significant Business Developments and Events Through March 31, 2004.”

Revenues were $50.3 million in fiscal year 2003, up 43.7% over revenues of $35.0 million in fiscal year 2002. The increase in revenues was due mainly to increased demand for the Sample Logic® product which was introduced late in fiscal year 2002. Revenues from Sample Logic® reached $33.1 million fiscal year 2003, compared with $5.8 million in fiscal year 2002.

Operating profit was $1.9 million in fiscal year 2003, down 6.3% from operating profit of $2.1 million in fiscal year 2002. The decrease in operating profit was a function of increased revenues, described above, which was more than offset by an increase in operating expense. Operating expenses increased from fiscal year 2002, mainly as a result of a 46.3% increase in production and delivery costs of direct mail products, primarily Sample Logic®, and a 15.1% increase in sales personnel costs.

Net income was $1.2 million in fiscal year 2003, approximately equal to net income of $1.2 million in fiscal year 2002.

Revenues were $35.0 million in fiscal year 2002, up 13.1% over revenues of $30.9 million in fiscal year 2001. The increase in revenues was due mainly to the introduction of Sample Logic® in the second half of fiscal year 2002.

Operating profit was $2.1 million in fiscal year 2002, down 27.2% from operating profit of $2.9 million in fiscal year 2001. The decrease in operating profit resulted from increased revenue offset by increased operating expenses. Operating expenses increased primarily as a result of an 18.7% increase in third-party costs for production and delivery related to Sample Logic®. In addition, operating profit was negatively affected by a 41.3% increase in personnel costs related to hiring and training sales personnel.

Net income was $1.2 million in fiscal year 2002, down from net income of $1.6 million in fiscal year 2001. The decrease in net income was due mainly to the decrease in operating profit described above.

include messages and educational information to healthcare patients at pharmacies throughout the Health Resource Network. The Health Resource Network is a proprietary software system that gives pharmaceutical manufacturers and retailers the opportunity to effectively communicate with patients based on their prescription buying behavior and assists patients in making more informed healthcare decisions while preserving their privacy.

CHR primarily generates revenues by printing messages for pharmaceutical manufacturers and consumer packaged goods manufacturers. These messages are generated for the pharmacy’s customer when a prescription is purchased, based on that particular drug’s National Drug Code symbol. The message promotes prescription medications or other products in the retail store.

Revenues were $63.0 million in fiscal year 2003, down 2.7% compared with revenues of $64.8 million in fiscal year 2002. The decrease in revenues was due mainly to a decrease in revenue producing newsletters. The reduction in revenue producing newsletters resulted primarily from certain retail clients limiting or excluding the type of messages being delivered to patients of their pharmacies. The Health Resource Network was installed in 17,827 pharmacies on March 31, 2003, as compared with 17,716 pharmacies on March 31, 2002. The Company installed its Health Resource Network in 111 additional pharmacies (net of deinstallations) in fiscal year 2003 as compared with 5,138 additional pharmacies in fiscal year 2002.

Subsequent to March 31, 2003, the Health Resource Network was deinstalled in two retail pharmacy chains, Eckerd and CVS, which represented approximately 6,500 stores in the Health Resource Network. Revenues generated from newsletters delivered at Eckerd and CVS were approximately $10.4 million or 16.5% of total CHR revenue in fiscal year 2003. At April 30, 2004, the Health Resource Network was installed in 11,967 pharmacy outlets. Maintaining and growing our retail pharmacy base is critical to CHR as the size and capabilities of our network provide us with a substantial competitive advantage in the industry.

Operating loss was $8.5 million in fiscal year 2003, compared with an operating loss of $3.5 million in fiscal year 2002. The increase in operating loss was due mainly to decreased revenues from fiscal year 2002 and a 6.6% increase in fees paid to retail clients, a 44.3% increase in information technology costs and a 36.8% increase sales personnel costs.

Net loss was $5.1 million in fiscal year 2003, as compared with a net loss of $2.1 million in fiscal year 2002. The increase in net loss was due mainly to an increase in operating loss discussed above.

Revenues were $64.8 million in fiscal year 2002, up 98.1% over revenues of $32.7 million in fiscal year 2001. The increase in revenues was due mainly to an increase in revenue producing newsletters as a result of a 40.8% increase in participating pharmacies. The Health Resource Network was in 17,716 pharmacies on March 31, 2002, as compared with 12,578 pharmacies on March 31, 2001. The Company installed its Health Resource Network in 5,138 net additional pharmacies in fiscal year 2002 as compared with 1,320 net additional pharmacies in fiscal year 2001 in addition to the 4,587 stores added in connection with the fiscal year 2001 purchase of HealthCare Data Corporation.

Operating loss was $3.5 million in fiscal year 2002, a 54.1% improvement over an operating loss of $7.7 million in fiscal year 2001. The improvement in operating results was due mainly to the increase in revenues described above. This increase was partially offset by a 69.2% increase in operating costs primarily due to a rise in fees paid to retailers as a result of the growth in the number of pharmacies participating in the Health Resource Network.

Net loss was $2.1 million in fiscal year 2002, a 50.1% improvement over the net loss of $4.2 million in fiscal year 2001. The change in net loss was due mainly to the improvement in operating results described above.

The financial and statistical results of the Company’s wholly and majority owned foreign subsidiaries are included for the twelve-month period ending December 31 which is their fiscal year end.

At the end of fiscal year 2003, the Company provided in-store electronic targeted marketing services for consumers in the United Kingdom, France, Italy and Japan. The Catalina Marketing Network® operates internationally in a similar manner to the domestic business by offering a full range of targeted marketing solutions to many of the top 100 consumer packaged goods manufacturers and enjoys relationships with major supermarket retailers based on a syndicated platform. As of the end of fiscal year 2003, the network was installed in 3,551 retail locations in Europe and 518 locations in Japan and reached more than 46 million consumers weekly. In France, the Company has been operating since 1994. As of the end of fiscal year 2003 our network was installed in 2,632 retail locations across 12 supermarket and hypermarket chains. In Italy, Catalina began operations in 2000 and was partnered with seven major retail chains in 318 stores at fiscal year end 2003. In the United Kingdom, the Catalina Marketing Network® was installed in 601 stores in a single chain. In Japan, the network was launched in 1997 and was installed in 518 stores across six retail chains, of which three are among the top five general merchandise chains. In fiscal year 2004, the Company continued to expand its behavior-based targeting capabilities in Europe by launching a pilot test in Germany.

Revenues were $30.0 million in fiscal year 2003, up 39.0% over revenues of $21.6 million in fiscal year 2002. The increase in revenues was due mainly to increased manufacturer and retailer promotions printed in France which resulted from additional network utilization by French retailer and manufacturer clients. To a lesser extent, revenue growth was a function of the addition of a large French retailer to the Catalina Marketing Network®. Outside of the United States, the Catalina Marketing Network® was installed in 4,069 stores at fiscal year end 2003, which reached over 46 million shoppers each week as compared with 3,338 stores reaching approximately 37 million shoppers each week at fiscal year end 2002. Internationally, the Company installed 731 net additional stores in fiscal year 2003 as compared with 791 additional stores (net of deinstallations) in fiscal year 2002.

Operating loss was $1.2 million in fiscal year 2003, compared with an operating loss of $3.3 million in fiscal year 2002. The decrease in the operating loss was due mainly to the increased revenue in France described above.

Net loss was $3.2 million in fiscal year 2003, compared with a net loss of $4.8 million in fiscal year 2002. The decrease in the net loss was due mainly to the increase in revenues in France described above.

Revenues were $21.6 million in fiscal year 2002, down 19.0% from revenues of $26.6 million in fiscal year 2001. The decrease in revenues was due mainly to the loss of the ASDA chain in the United Kingdom. Outside of the United States, the Catalina Marketing Network® was installed in 3,338 stores at fiscal year end 2002, which reached approximately 37 million shoppers each week as compared with 2,547 stores reaching approximately 31 million shoppers each week as of fiscal year end 2001. Internationally, the Company installed 791 net stores in fiscal year 2002 as compared with 71 net installations in fiscal year 2001.

Operating loss was $3.3 million in fiscal year 2002, a 33.0% improvement from the operating loss of $4.9 million in fiscal year 2001. The decrease in the operating loss was due mainly to the reduced goodwill amortization expense in fiscal year 2002 as result of the Company’s adoption of SFAS No. 142.

Net loss was $4.8 million in fiscal year 2002, compared with a net loss of $4.0 million in fiscal year 2001. The increase in net loss was due mainly to the decrease in revenues in the United Kingdom as described above.

Japan Billboard, also referred to as PMKK, is a wholly-owned subsidiary of the Company that operates a billboard and outdoor media business in Japan. PMKK primarily owns and rents billboards which are displayed on rooftops or faces of buildings in locations suitable for advertising. Advertising is sold either directly to a broad range of leading clients across multiple industries or through advertising agencies. In general, billboards are designed by and produced under the supervision of PMKK. Upon completion and installation, the billboards are financed through third-party financing companies. PMKK is required to make rental payments to building owners for the space on the rooftops and faces of buildings where the billboards are installed. PMKK provides the maintenance for their billboards during the life of the contract which generally ranges from three to six years.

In May 2003, the Company, through one of its wholly-owned subsidiaries, purchased the remaining 49.0% of the voting equity interest in PMKK held by certain minority shareholders of PMKK, pursuant to the exercise of a call option contained in the Purchase Agreement dated October 10, 1996, among the Company, PMKK and certain minority shareholders of PMKK for an aggregate purchase price equal to $23.2 million in cash, based on foreign currency exchange rates at the payment date. The Company exercised the call option to reduce the adverse financial impact that would have resulted from the exercise of a put option available to the minority shareholders. PMKK is now wholly owned by the Company. The purchase price was based on a pre-determined formula of enterprise value based on PMKK’s performance during the previous four quarters. Subsequent to the purchase of the remaining interest of PMKK, we determined that the carrying value of the Japan Billboard business had been impaired primarily because the purchase price paid under the predetermined formula described above was in excess of the fair value of the Japan Billboard business. In addition, the Voluntary Global Tobacco Marketing Initiative, described below, has had a significant negative impact on the Japan Billboard business.

The passage and adoption of the Voluntary Global Tobacco Marketing Initiative (the “Initiative”) in fiscal year 2002 has significantly affected the manner in which tobacco companies in Japan can market, promote and advertise their products. As a result of the implementation of this Initiative, PMKK’s primary client began to reduce their advertising expenditures for billboards significantly, as well as most other media and promotional spending. The Initiative, as it relates to outdoor advertising, mandated that the maximum visual dimension of any billboard advertisement be limited to 35 square meters. As a result, a significant number of PMKK’s sales contracts covering a broad network of large-sized billboards with this client were either terminated or not renewed. In those cases, PMKK has actively sought replacement business to both forestall the significant cost of sign removal and begin cultivating new revenue streams. In fiscal year 2003, PMKK recognized charges to earnings of $1.7 million as a result of the early retirement of several billboards affected by the Initiative.

In January 2004, Japan’s Ministry of Health announced its intention to sign and ratify its involvement in the World Health Organization’s recently adopted international Framework Convention on Tobacco Control (“FCTC”) that will come into effect when 40 countries have signed. The adoption of FCTC will limit the ability of tobacco companies to advertise tobacco products on billboards in Japan. The effects of FCTC are significant to Japan Billboard and the Company expects a further reduction in revenues from PMKK’s client. As a result of this information, the Company has performed impairment testing pursuant to SFAS No. 142 and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Additionally, the Company has calculated the effect of the retirement obligation pursuant to SFAS No. 143, “Accounting for Asset Retirement Obligations.” As a result, in fiscal year 2004, the Company expects to recognize a significant charge related to the above. During fiscal year 2004, the Company announced its intention to divest the Japan Billboard business.

Revenues were $21.1 million in fiscal year 2003, down 11.6% from revenues of $23.9 million in fiscal year 2002. The decrease in revenues was due mainly to a decline in tobacco advertising spending related to the Initiative which mandated full compliance by December 31, 2002 in Japan.

Operating profit was $0.5 million in fiscal year 2003, down 80.7% from an operating profit of $2.7 million in fiscal year 2002. The decrease in operating profit was due mainly to a decline in the high-margin revenues from tobacco clients, along with an increase in costs primarily associated with impairment charges and operating expenses recognized as a result of the early retirement of several billboards due to the Initiative.

Net income was $0.1 million in fiscal year 2003, down from net income of $1.1 million in fiscal year 2002. The decrease in net income was due mainly to a decline in the high-margin tobacco revenues, along with an increase in depreciation costs primarily associated with the premature take downs of terminated tobacco billboards.

Revenues were $23.9 million in fiscal year 2002, down 19.1% compared with revenues of $29.5 million in fiscal year 2001. The decrease in revenues was due mainly to a reduction in spending resulting from the effects of the Initiative adopted in September 2001, with full implementation required no later than December 31, 2002, as well as a decline in customer advertising spending.

Operating profit was $2.7 million in fiscal year 2002, almost unchanged from an operating profit of $2.8 million in fiscal year 2001. Operating profit remained flat as the decline in revenues, described above, was offset by a corresponding reduction in operating expenses associated with fewer billboards.

Net income was $1.1 million in fiscal year 2002, as compared with net income of $1.0 million in fiscal year 2001. The increase in net income was due mainly to a lower income tax expense.

Our consolidated revenues for the fiscal year ended March 31, 2003 were $470.7 million, which includes $51.1 million from our foreign operations.

The local currencies of our foreign operations are the euro, British pound sterling and Japanese yen. These currencies are, over time, subject to translation fluctuations determined by current markets. The local currencies strengthened against the dollar during our fiscal year ended 2003. Accordingly, revenues in dollars for our foreign operations would have been 2.2% lower for the fiscal year 2003, if translated using the average currency translation rates for the previous year. This effect of the change in translation rates on our revenues from our foreign operations was not significant with respect to consolidated revenues for the Company.

The local currencies of our foreign operations continued to strengthen against the dollar through fiscal year 2004. Revenues from our foreign operations for fiscal year 2003, if translated using the average rates for fiscal 2004 would have been 13.8% higher than when translated using the average rates for fiscal 2003. Assuming unit sales and product pricing are unchanged for fiscal year 2004 when compared with fiscal 2003, the effect of the strengthening local currencies against the dollar would have a significant impact on our revenues in our foreign operations for fiscal year 2004.

Our other revenue generating activities are comprised predominantly of Retail Services and CMRS. Total revenues from these businesses were $48.5 million, $44.2 million and $36.7 million in fiscal years 2003, 2002 and 2001, respectively. The increase in revenues was primarily from Retail Services, which experienced year over year growth of 17.2% in fiscal year 2003 and 17.5% in fiscal year 2002. The growth in revenues was primarily a result of increased sales of loyalty cards and data-entry services.

In fiscal year 2004, the Company announced plans to reorganize the Company and focus on businesses which maximize our proprietary and strategic advantages. Specifically, we announced our plan to realign and restructure our domestic and international businesses to focus primarily on point-of-sale applications within the consumer packaged goods, retail and pharmaceutical industries. As part of our reorganization, we sold our loyalty card and data-entry services business on March 31, 2004.

During fiscal year 2004, in an effort to optimize our selling efforts with our manufacturer and retail clients, we restructured our Retail Services and Manufacturer Services units by merging Retail Services into Manufacturer Services. It is anticipated that in future reports, Retail Services segment data will be combined with Manufacturer Services data.

In addition, in fiscal year 2004, we announced our intention to divest the Catalina Marketing Research Solutions business and the Direct Marketing Services business. We have retained an investment banker to assist us with these divestitures.

Operating expenses for the Company’s corporate group include costs for procurement, retail store support, retail fees, information technology, corporate accounting, client services, analytical services, marketing, human resources, and executive management, and are included in direct costs, selling, general and administrative costs and depreciation and amortization expense in the accompanying Consolidated Income Statements for the fiscal years ended March 31, 2003, 2002 and 2001. For purposes of segment reporting, these corporate costs are allocated to the Manufacturer Services, Retail Services, DMS, CHR and CMRS business segments using methods considered reasonable by management and which provide management with a realistic measure of utilization of corporate services by the respective business segments. Of the total corporate group operating expenses, 77.6%, 75.9% and 68.7% were allocated to our operating segments during the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

In addition, costs for items related to the financial restatements issue, such as legal fees, external audit fees, director meeting fees and other related costs will be significant in fiscal year 2004. These fees are also expected to continue into fiscal year 2005.

Our primary sources of liquidity have been cash flows generated from operations, lease arrangements and a credit agreement with a syndicate of commercial banks with a revolving loan credit facility of up to $150 million (“Corporate Facility”). The Corporate Facility was available to finance capital expenditures, current operating requirements in our domestic and European subsidiaries and other investments until it expired on September 25, 2003. At March 31, 2003, the balance outstanding under the Corporate Facility was $12.0 million of short-term debt.

As a result of the delay in completing our audited financial statements for fiscal year 2003, we were unable to complete our covenant compliance certificates as required per the terms of the Corporate Facility for the periods ended March 31, 2003 and June 30, 2003. We obtained waivers from the bank group on June 30, 2003 and September 3, 2003, respectively, to waive the Unmatured Default and the Default, as such terms are defined in the Corporate Facility agreement, created by such non-compliance. In conjunction with the September 3, 2003 waiver, available borrowings were reduced from $150 million to $60 million. On September 25, 2003, the expiration date of the Corporate Facility, we entered into an agreement with our bank group to extend the Corporate Facility for 60 days. The credit agreement originally was signed in September 2000 and, with the extension, was scheduled to expire on November 24, 2003.

Significant changes to the Corporate Facility resulting from the extension were as follows:


	•	Available borrowings were reduced from $60 million to $30 million

	•	Interest rate pricing increased from (1) LIBOR plus 0.5% to LIBOR plus 2.0% on Eurodollar loans and (2) from Prime to Prime plus 1.0% on floating loans

	•	Unused facility fees increased from 15 basis points to 50 basis points on the unused portion of the facility

	•	Cash in excess of $1.0 million, net of outstanding payroll and disbursement checks, had to be deposited with the bank group

	•	Investments were restricted to $1.5 million above permitted existing investments


	•	Required monthly compliance certificate of unaudited results, updates of audit progress and retention of a new external auditor within 30 days of closing

On November 24, 2003, our bank group agreed to extend the Corporate Facility through August 31, 2004. Availability under the Corporate Facility remains at $30 million. In addition, significant changes to the terms from the previous credit extension are as follows:


	•	Available borrowings are guaranteed by a pledge of the stock of all Material Domestic Subsidiaries, as defined

	•	Interest rate pricing and the unused facility fees remain as per the extension terms on November 24, 2003; however, a pricing grid following the delivery of the 2003 audited financial statements reverts to lower interest rates and unused facility fees

	•	Reduction in cash flow from operating activities as a result of any restatement of our Consolidated Financial Statements may not exceed $20.0 million in the re-audit period

	•	Cash in excess of $5.0 million, net of outstanding payroll and disbursement checks, must be deposited with the bank group

	•	Investments are restricted to $10.0 million above permitted existing investments

	•	Requires quarterly compliance certificate of unaudited results and monthly reporting on accounts receivable

	•	Requires supermajority approval (75%) for non-disclosed divestitures or asset sales exceeding $5.0 million

	•	Increased restriction placed on the sale of assets

	•	Required lender approval (51%) is necessary for the repurchase of shares of common stock or the retirement of options exercisable for shares of our common stock, other than the retirement of such options from our current or former employees; provided that the aggregate amount of all such retired options does not exceed $0.5 million.

At November 24, 2003, the balance outstanding under the Corporate Facility was $5.0 million. This amount was repaid in full on November 25, 2003, and the balance has remained zero through the current date.

We believe that we will be able to either renegotiate or replace the Corporate Facility prior to its expiration in August 2004 with terms that will be at least as favorable as the terms in the existing amended agreement. However, there can be no assurances that we will be able to renegotiate the terms of the Corporate Facility with the existing lenders or replace this Corporate Facility with new lenders on terms that are as favorable as the existing Corporate Facility. Although we believe that cash generated from operations under economic conditions similar to those currently existing will be sufficient to meet our liquidity requirements, failure to renegotiate the terms of the existing Credit Agreement or to replace the agreement on terms that are at least as favorable to us could have, in conjunction with other unknown events related to our liquidity or future business prospects, a material adverse effect on our ability to provide enough cash to fund our operations.

The lease agreement governing the $29.6 million of indebtedness related to our corporate headquarters, in St. Petersburg, Florida, also requires quarterly covenant compliance certificates, which the Company was not able to provide due to the unavailability of audited financial statements for the fiscal year ended March 31, 2003. We obtained waivers from the lease-financing bank group, pursuant to the terms of the lease agreement. The interest rate pricing of the lease increased as of September 25, 2003 to the highest level on the pricing grid contained in the lease agreement, plus 0.375%. Approximately $28,500 per month of the amount we pay is held in escrow, and will be returned to us to the extent this amount exceeds the actual interest that would have been incurred based upon the actual pricing levels that would have been calculated during the time period from September 25, 2003 until the end of the waiver period, with the provision that the covenant compliance

The financing requirements of our Japan operations have been funded with available credit under the Japan Agreement, which totaled 3.0 billion yen at March 31, 2003, or approximately $25.4 million based on March 31, 2003 currency exchange rates. The Japan Agreement provided for a revolving credit facility up to 1 billion yen and a term credit facility of up to 2 billion yen as of March 31, 2003. The termination date of the revolving credit facility, originally March 26, 2003, was extended to June 30, 2003. The term credit facility expires on March 31, 2005. An additional Japan credit facility provides up to 600 million yen, of which 250 million yen was outstanding at March 31, 2003, and expires in July 2004. The Company guarantees all outstanding balances under the various credit agreements entered into by its Japan Subsidiary (“Japan Credit Facilities”). At March 31, 2003, the balances outstanding under the Japan Credit Facilities were $3.2 million of short-term debt and $18.4 million of long-term debt. As of March 31, 2003, the balances outstanding related to other debt obligations in Japan were $3.1 million of short-term debt and $2.0 million of long-term debt. Throughout this document, available balances for the Japan Credit Facilities are reported as of the actual date stated in the text. Since our foreign subsidiaries fiscal year ends on December 31, the debt balances outstanding reflect actual amounts from their year end.

Catalina Marketing Japan K.K., the Japan coupon subsidiary of the Company, extended its revolving credit facility through November 24, 2003 and increased the available credit to 1.5 billion yen. The current Japan Agreement consists of a 1.5 billion yen ($13.7 million based on the currency exchange rates at November 24, 2003) revolver that was extended through August 31, 2004 and a 2.0 billion yen ($18.2 million based on the currency exchange rates at November 24, 2003) term loan that matures on March 31, 2005. This facility is guaranteed by the Company and certain of our domestic subsidiaries and, as a result of the extension, by a pledge of the assets of the Company and the same domestic subsidiaries, with the exception of the corporate headquarters building in St. Petersburg, Florida. In addition, interest rate pricing increased 75 basis points on the term loan and 125 basis points on the revolver, until such time the fiscal year 2003 audited financial statements are filed with the SEC. Subsequently, pricing on the term loan returns to the previous pricing while pricing on the revolver will be based on a grid that is 25 to 125 basis points above the original pricing.

The Company incurred financing fees of approximately $1.1 million for these credit line extensions and lease-financing waivers, which will be deferred and amortized over the terms of the extensions, as applicable.

Currently, our primary sources of liquidity are cash flows from operations and the Corporate Facility. Our primary liquidity requirements continue to be for working capital, capital expenditures in the ordinary course of business and the repayment of debt and lease obligations. Cash flows from operations in fiscal year 2003 and through the current date have been sufficient to meet our liquidity needs and, with the expectation that the Corporate Facility will be refinanced prior to its expiration in August 2004, the Company believes that cash flows generated from operations, along with existing credit facilities, will be sufficient to meet our projected cash requirements for at least the next twelve months.

We have no significant long-term debt other than the obligations under the agreement governing our headquarters facility and under our Japan Credit Facilities. Stockholders’ equity as of March 31, 2003 was $216.0 million. We will continue to invest in sales and marketing, our Catalina Marketing Network® and other support technology, and enhanced systems of reporting and controls.

We believe that existing cash and cash equivalents should be sufficient to meet operating requirements. We believe that our policy regarding the availability of sufficient amounts of cash gives us the opportunity to invest in our business as we believe is necessary for items such as research and development, creation and expansion of markets, investments, acquisitions, share repurchases, legal risks and challenges to our business model. Our existing cash and equivalents, combined with cash generated from operations, should be sufficient to fund our operating activities as well as other opportunities for the short-term and over our forecasted long-range plan of three years. If during that period or thereafter we are not successful in generating sufficient cash flows from operations, raising additional capital when required, or being able to borrow in sufficient amounts, our business could suffer.

During fiscal year 2003, we generated positive cash flow from operating activities of $118.5 million. The positive cash flow provided by operating activities, combined with the proceeds from the issuance of common and subsidiary stock and external borrowings were used to repurchase the Company’s common stock, make capital expenditures, fund the CHR tender offer, and make earnout payments on prior acquisitions. Overall, our cash balances decreased $11.9 million as a result of these net uses of cash.

For the year ended March 31, 2002, we generated positive cash flow from operating activities of $118.2 million. The positive cash flow provided by operating activities and proceeds from the issuance of common and subsidiary stock were used to repurchase the Company’s common stock, make capital expenditures, fund earnout payments, purchase minority shares of a subsidiary and make payments on our external borrowings. Overall, our cash increased $8.3 million as a result of these net sources of cash.

For the year ended March 31, 2001, we generated $91.2 million of positive cash flow from operating activities. The positive cash flow provided by operating activities combined with the proceeds from the issuance of common and subsidiary stock and external borrowings were used for acquisitions, earnout payments on prior acquisitions, to purchase minority shares of a subsidiary, make capital expenditures and repurchase the Company’s common stock. Overall, our cash decreased $8.1 million as a result of these net uses of cash.

On June 19, 2002, the Company commenced a tender offer to purchase certain eligible outstanding common stock of CHR, a majority-owned subsidiary, at a purchase price of $33.00 per share. Certain current and former employees and directors of CHR owned the outstanding minority shares. During the year ended March 31, 2003, the Company purchased 731,921 of the outstanding shares of CHR common stock for approximately $24.2 million. As of March 31, 2003, the Company held 5,771,921 of the total 5,954,047 outstanding shares, or 97%, of CHR common stock. The tender offer expired on October 16, 2002. The Company intends to purchase the remaining outstanding shares of common stock in fiscal year 2005. On March 31, 2003, there were outstanding options to acquire 178,753 shares of CHR common stock, owned by current and former employees of CHR.

On July 25, 2002, the Board of Directors authorized $85.7 million of funds to be available for the repurchase of the Company’s common stock adding to the $14.3 million previously authorized, for a total of $100 million of repurchase authorization. During the fiscal year ended March 31, 2003, the Company repurchased 3,132,100 shares of its common stock for a total of $72.0 million, $42.7 million of which was included under the $100 million authorization. During the fiscal year ended March 31, 2004, the Company repurchased 749,200 shares of its common stock for a total of $13.3 million. As of March 31, 2004, approximately $43.9 million remains available under the existing repurchase authorization.

We have contractual obligations associated with ongoing business and financing activities, which will result in cash payments in future periods. Some of these obligations, such as short-term borrowings and long-term debt and related interest payments, are reflected in the Consolidated Financial Statements. In addition, we have entered into long-term contracts to acquire goods or services in the future which are not currently reflected in the financial statements and will be reflected in future periods as the goods are received or services are rendered. A summary of contractual cash obligations and commitments at March 31, 2003 follows: (Dollars are in thousands)


(1)	Long-term debt includes the principal obligation of the variable interest entity and interest payments required to be paid determined by using rates in effect at March 31, 2003.

(2)	Estimated future cash flow requirements provided by our actuary.

Our short-term borrowings consist of amounts borrowed under our Corporate Facility and the Japan Credit Facility. As of November 25, 2003, the Corporate Facility was repaid, and no subsequent borrowings have been made through the current date.

Long-term debt consists of borrowings against the Japan Credit Facility and the obligation for the headquarters building. The Company has decided to sell or otherwise divest of Japan Billboard. The Company believes that this will not have a material effect on the Japan Credit Facility since we currently plan to continue coupon operations in Japan.

As of March 31, 2004, there was $35.9 million outstanding under the Japan Credit Facilities.

Our obligations for postretirement medical benefit costs will be paid from cash generated from operations.

Our Consolidated Balance Sheet includes the accounts of the variable interest entity which owns our headquarters building in St. Petersburg, Florida.

At the expiration of the initial lease term for our building, we have the option of extending the lease for as many as three, five-year renewal periods, or purchasing the building for approximately $30.5 million. In the event we elect to purchase the building, we may either arrange third-party financing for the purchase or, depending upon availability, utilize cash from operations, either entirely or in combination with long-term financing, to purchase the building. If we elect to neither extend the lease term nor purchase the building, the building will be sold, at which time we may negotiate a lease with the new owner. We believe that the option to renew the lease or purchase the building, either individually or in some combination thereof, or renegotiation of the lease in the event of a sale of the building, will allow us to satisfy our obligation for our headquarters building. See Note 9 to the Consolidated Financial Statements.

The Company’s primary capital expenditures are for store equipment and third-party store installation and upgrade costs, as well as data processing equipment for the Company’s central data processing facilities. Total store equipment and third-party store installation costs for the Catalina Marketing Network® range from $3,000 to $13,000 per store. Capital expenditures were $42.6 million for the year ended March 31, 2003, and $30.8 million for the year ended March 31, 2002. The pace of installations varies depending on the timing of contracts entered into with retailers and the scheduling of store installations by mutual agreement. We typically finance our capital expenditures for in-store equipment with cash generated from operations. Because in-store installations do not follow a pattern that necessarily coincides with our operating cash flows, we may finance our capital expenditures for this equipment with proceeds from our revolving credit facility.

Effective July 13, 1998, the Company acquired 100% of the outstanding common shares of DMS, formerly known as Market Logic, Inc., a full-service targeted marketing company, for $2.9 million in initial

cash consideration. Terms of the purchase agreement called for the Company to make a series of annual contingent purchase price payments, which totaled $29.2 million, and were based upon the future operating performance of DMS. The contingent purchase price payments were completed in the first quarter of fiscal year 2003. In February 2004, the Company made an additional payment of $0.9 million as an adjustment to the final contingent purchase price payments.

On October 10, 1996, the Company purchased 51% of PMKK, a Japanese media company. Terms of the purchase agreement provided a call option whereby the Company had the right, beginning in May 2002, to purchase the remaining 49% of PMKK, at a price calculated based upon an earnings multiple pursuant to the call formula, as defined in the purchase agreement. The terms of the purchase agreement also provided for a put option whereby the minority shareholders, effective May 2003, had the right to require the Company to purchase the remaining 49% of PMKK at a price calculated based upon an earnings multiple pursuant to the put formula as defined in the purchase agreement.

In May 2003, the Company, through one of its wholly-owned subsidiaries, exercised its call option provided in the PMKK purchase agreement to acquire the remaining 49% from the minority interest shareholders for $23.2 million in cash consideration based foreign exchange rates as the payment date.

In 1999, the Company, through one of its wholly-owned subsidiaries, executed a final deferred contingency earnout agreement with the previous minority partners of the Catalina Marketing Japan coupon business. The contingency stipulates a potential earn out payment based on a predetermined formula over the applicable four consecutive quarters of earnings between a time period ending between 2006 and 2007. The Company is not able to estimate the amount of this contingent payment which is based on future earnings; however, the ultimate amount of this payment, if any, could be material.

As previously discussed in Item 1 — “Significant Business Developments and Events Through March 31, 2004,” the Company announced its intent to divest DMS, CMRS and Japan Billboard in that they were deemed not to be strategically aligned with the Company’s current core competencies. As part of the divestiture process, and in preparation for the fiscal year 2004 financial statements, the Company has tested the goodwill related to these operations for possible impairment in accordance with SFAS No. 142. Preliminary estimates indicate that impairment charges related to these intangibles range between $75 million to $84 million in fiscal year 2004. This range includes the goodwill impairment for PMKK discussed in Note 10 of the Consolidated Financial Statements. See Note 4 to the Consolidated Financial Statements for a detailed presentation of goodwill as of fiscal year 2003. In addition, there could be additional impairment related to the long-lived assets related to these operations. Management has not completed its analysis of fiscal year 2004 impairment charges. The above projections are based on management’s judgments and estimates and final results reported on our fiscal year 2004 financial statements could differ significantly. A detailed discussion on management’s accounting policies for estimating impairment can be found in “Critical Accounting Estimates” below.

A sales and use tax audit for the period January 1, 1991 to June 30, 1993 was conducted by a state taxing authority resulting in an assessment of sales tax on the Company’s revenue generated from its electronic marketing delivery service conducted within that state. The Company subsequently appealed this assessment to the relevant state tax tribunal. The tax tribunal held that the electronic marketing delivery activities of the Company were taxable in their entirety. In March 2002, the state’s intermediate court of appeals affirmed the decision of the tax tribunal. The Company appealed the case to the state’s supreme court and, in May 2004, the state supreme court vacated the prior decision, remanded the case back to the tax tribunal and directed the tax tribunal to apply a different legal test. The Company does not yet know the final outcome of the case. If an adverse decision is reached in this case, the Company does not believe that the tax assessment will be material to the Company, however, the Company may become subject to similar proceedings in other jurisdictions and additional tax assessments resulting from those proceedings could be material to the Company.

The Company has identified certain financial areas that require estimates and judgments, such that, if these estimates and judgments were to change, results of operations could materially differ. Management makes these estimates and judgments in the normal course of business as required pursuant to U.S. GAAP. The impact and any associated risks related to these estimates on our results of operations are discussed throughout Management’s Discussion and Analysis and Results of Operations where such changes in estimates affected our reported financial results. A detailed discussion of the related accounting policies, and other significant accounting policies, can be found in Note 2 to the Consolidated Financial Statements.

Impairment Testing of Goodwill. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company is required to test goodwill for impairment at least annually. Changes in management’s judgments and estimates could significantly affect the Company’s analysis of the impairment of goodwill. To test goodwill for impairment, the Company is required to estimate the fair value of each of its reporting units. Since quoted market prices in an active market are not available for our reporting units, the Company uses other valuation techniques. The Company has developed a model to estimate the fair value of the reporting units, primarily incorporating a discounted cash flow valuation technique. This model incorporates the Company’s estimates of future cash flows, allocations of certain assets and cash flows among reporting units, future growth rates and management’s judgment regarding the applicable discount rates to use to discount those estimated cash flows. Changes to these judgments and estimates could result in a significantly different estimate of the fair value of the reporting units which could result in an impairment of goodwill.

Impairment Testing of Long-Lived Assets. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When testing for impairment, the Company is required to estimate the specific cash inflows and outflows expected to be generated from the long-lived asset during its remaining useful life. Changes to management’s judgments and estimates used in determining the timing of testing, the specific net cash flows related to the asset, the asset’s remaining useful life, or the projected amount of future net cash flows could materially affect the outcome of the impairment analysis. In addition, if the undiscounted cash flows are less than the asset’s net book value, then management must determine the fair market value of the asset. Generally, quoted market prices in active markets are not available for the Company’s significant long-lived assets. As such, management generally uses a discounted cash flow technique to determine the fair value. Management’s assumptions regarding the discount rate used to apply to the forecasted future net cash flows can also materially affect the outcome of the impairment analysis.

Deferred Tax Asset Valuation. The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and, if necessary, establish a valuation allowance based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax-planning strategies. If the Company is unable to generate sufficient future taxable income in certain tax jurisdictions, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we may be required to increase our valuation allowance against our deferred tax assets resulting in an increase in our effective tax rate and an adverse impact on operating results.

Income Tax Contingency. Despite our belief that our income tax return positions are consistent with applicable tax laws, we believe that certain positions are likely to be challenged by taxing authorities. Settlement of any challenge can result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. Significant judgment is required in evaluating our tax contingencies. Our contingencies are adjusted in light of changing facts and circumstances, such as the progress of our tax audits as well as evolving case law. Our income tax expense includes the impact of contingency provisions and changes to our contingencies that we consider appropriate, as well as related interest. Unfavorable settlement of any particular issue would require use of our cash. Favorable resolution would be recognized as a reduction

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). SFAS No. 143 requires recognition and measurement of a legal obligation associated with the retirement of long-lived assets. These legal obligations are to be recognized at their fair value at the time they are incurred. The cost of the obligation is required to be amortized over the life of the related equipment or fixture, and the liability is required to be accreted each year. SFAS No. 143 is effective for financial statements relating to fiscal years beginning after June 15, 2002. The Company adopted the new rules on asset retirement obligations on April 1, 2003. Application of the new rules is expected to result in an increase in net billboard assets of approximately $0.7 million, recognition of an asset retirement obligation liability of $2.0 million, and a one-time charge to net income for the cumulative effect of a change in accounting principle of $0.8 million, net of income taxes.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 generally requires that costs associated with an exit or disposal activity be recognized as liabilities when incurred, rather than the date of commitment to an exit plan, and it establishes that fair value is the standard for initial measurement of such liabilities. SFAS No. 146 applies to exit or disposal activities that are initiated after December 31, 2002. The Company had no exit or disposal activity for the fiscal year ended March 31, 2003, but will apply the provisions of this Statement to the divestiture of Japan Billboard, DMS and CMRS.

In November 2002, the FASB issued SFAS Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 addresses the accounting and disclosures to be made by a guarantor about obligations under certain guarantees that it has issued. It clarifies that a guarantor is required to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing those guarantees on a prospective basis for guarantees issued or modified after December 31, 2002. FIN 45 requires disclosure in all financial statement presentations issued after December 15, 2002. The Company has adopted FIN 45 and accordingly, has included its existing guarantees in Note 10 to the Consolidated Financial Statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS 148”). SFAS No. 148 amends SFAS No. 123, to provide three alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting.” SFAS No. 148 is effective for fiscal years ended after December 15, 2002, with certain disclosure requirements effective for interim periods beginning after December 15, 2002. Accordingly, the Company has disclosed the required provisions in its Notes to the Consolidated Financial Statements for the year ended March 31, 2003. The Company has elected to follow APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock options through March 31, 2003. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement in Note 2 to the Consolidated Financial Statements.

In January 2003, the FASB issued SFAS Interpretation No. 46 Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51 (“FIN 46”). FIN 46 requires the consolidation of certain variable interest entities in which the investing enterprise does not have the characteristics of a controlling financial interest or does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. For variable interest entities created before February 1, 2003, FIN 46 requires measurement of the assets and liabilities of the variable interest entity at

their carrying amounts. The provisions of FIN 46 regarding implementation date were revised by FIN 46 (revised) (“FIN 46R”). We do not expect the provisions of FIN 46R to have a material impact on our financial position or results of operations.

We have restated our Consolidated Financial Statements, to reflect the early adoption of FIN 46, effective as of fiscal year 2001, and have included the value of the building and related indebtedness in our Consolidated Financial Statements. Property and equipment and long-term debt increased by $30.5 million and $29.6 million, respectively. Minority interest has been increased by $0.9 million to reflect the ownership of the variable interest entity not held by the Company.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 established standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity in its balance sheet. It requires that companies classify a financial instrument that meets the criteria as a liability because that financial instrument embodies an obligation of the issuer. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and for existing financial instruments it is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of this Statement to have a material effect on its operating results, financial position or cash flows.

In December 2003, the FASB issued a revision to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This revision to SFAS No. 132 are intended to improve financial statement disclosures for defined benefit plans and was initiated in 2003 in response to concerns raised by investors and other users of financial statements about the needs for greater transparency of pension information. In particular, the standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant quantitative and qualitative information. The guidance is effective for fiscal years ended after December 15, 2003. See Note 16 to the Consolidated Financial Statements for information regarding the Company’s postretirement benefits obligations.

On January 12, 2004, the FASB issued FASB Staff Position No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” (“FSP 106-1”) in response to a new law regarding prescription drug benefits under Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Currently, SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” requires that changes in relevant law be considered in current measurement of postretirement benefit costs. However, certain accounting issues related to the federal subsidy remain unclear and significant uncertainties may exist that impair a plan sponsor’s ability to evaluate the direct effects of the new law and the effect on plan participants’ behavior and healthcare costs. Due to these uncertainties, FSP No. 106-1 provides plan sponsors with an opportunity to elect to defer recognizing the effects of the new law in accounting for its retiree health care benefit plans under FAS No. 106, and to provide related disclosures until authoritative guidance from the FASB on the accounting for the federal subsidy is issued and clarification of other uncertainties is resolved. The Company has elected to defer recognition while evaluating the new law and the pending issuance of authoritative guidance and their effect, if any, on its financial position, results of operations and financial statement disclosures. Therefore, any measure of the accumulated postretirement benefit obligation or the net periodic postretirement benefit cost does not reflect the effects of the new law. Pending authoritative guidance could require that the Company change previously reported information.

The FASB has recently indicated that it expects to issue a proposal to change the recognition and measurement principles for equity-based compensation granted to employees and board members. The proposed rules could be implemented as early as the end of the 2004 calendar year. Under the proposed rules, the Company would be required to recognize compensation expense related to stock options granted to employees and board members after December 15, 2004. The compensation expense would be calculated based on the number of options expected to vest and would be recognized over the stock options’ vesting period. If this proposal is passed, the Company would be required to recognize compensation expense related

The Company’s principal market risks are interest rates on various debt instruments and foreign exchange rates at the Company’s international subsidiaries.

The Company centrally manages its domestic debt considering investment opportunities and risks, tax consequences and overall financing strategies. This domestic debt consists of a line of credit with interest rates based on the Eurodollar Rate or the Federal Funds Rate. International debt relates to the Company’s Japan subsidiaries and is used to fund the purchases of coupon equipment and billboards and for day to day operations. Additionally, interest expense associated with the indebtedness for our corporate headquarters is based on fluctuating short-term interest rates. These rates are based on the LIBOR rate and can be adjusted based on short-term rates up to six months. A 100 basis point change in interest rates, based on the March 31, 2003 and 2002 debt, would not have had a material impact on our operations in fiscal years 2003 or 2002, respectively.

Operating markets outside of the United States expose the Company to movements in currency exchange rates, which can be volatile at times. The economic impact of currency exchange rate movements on the Company is complex because such changes are often linked to variances in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause the Company to change its financing and operating strategies.

Our revenues from foreign operations represented approximately 10.8% of the Company’s total revenues in fiscal year 2003, 10.3% in fiscal year 2002 and 13.6% in fiscal year 2001. The aggregate foreign exchange effects included in determining consolidated results of operations were approximately a $1.3 million gain in the Company’s consolidated net income in fiscal year 2003, a $0.4 million loss in fiscal year 2002 and a $0.6 million loss in fiscal year 2001. The Company has not utilized derivative financial instruments to reduce the effect of fluctuating foreign currencies. The Company estimates that, based upon the fiscal year end 2003 balance sheet and the fiscal year end 2002 balance sheet, a 10% change in foreign exchange rates would not have a material effect on operating profit in fiscal year 2003 or fiscal year 2002, respectively. The Company believes that this quantitative measure has inherent limitations because it does not take into account the impact of macroeconomic factors or changes in either results of operations or our financing and operating strategies.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders’ equity and comprehensive income and cash flows present fairly, in all material respects, the financial position of Catalina Marketing Corporation and its subsidiaries at March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2003 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 3, Restatement of Financial Statements, the Company has restated its financial statements as of March 31, 2002 and 2001 and for the years then ended, previously audited by other independent accountants who have ceased operations.

As described in Note 2, Summary of Significant Accounting Policies, effective April 1, 2001, the Company changed the manner in which it accounts for goodwill and other intangible assets upon the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets and effective April 1, 2000, the Company adopted Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities.

Description of the Business. Catalina Marketing Corporation, a Delaware corporation, and its Subsidiaries (the “Company”), provides behavior-based communications, developed and distributed for consumer packaged goods manufacturers, pharmaceutical manufacturers and marketers, and retailers. The Company’s primary business initially was developed to provide consumers with in-store coupons delivered based upon purchase behavior and distributed primarily in supermarkets. Today, the Company offers behavior-based, targeted-marketing services and programs globally. Employing proprietary technology developed for the Company’s in-store network, the Catalina Marketing Network®, the Company also offers online and at-home access to consumers. These marketing solutions, including discount coupons, loyalty marketing programs, attitudinal research programs, sampling, advertising, in-store instant-win games and other incentives, are delivered directly to shoppers by various means. By specifying how a particular consumer transaction will “trigger” a promotion to print, manufacturers and retailers can deliver customized incentives and messages to only the consumers they wish to reach. The Company tracks actual purchase behavior and uses Universal Product Code-based scanner technology to target consumers at checkout and via direct mail.

The Company is organized and managed by segments which include the following operations: Manufacturer Services, Retail Services, Direct Marketing Services (“DMS”), Catalina Health Resource (“CHR”), Catalina Marketing Research Solutions (“CMRS”), the international operations, which include both manufacturer and retail services similar to those services provided in the United States (“International”) and Japan Billboard, a billboard and outdoor media business operated in Japan (“Japan Billboard” or “PMKK”). The domestic operations of the Company include Manufacturer Services, Retail Services, DMS, CHR and CMRS. The international operations of the Company are organized and managed by country and include International and Japan Billboard.

Manufacturer Services serves the needs of domestic consumer product manufacturers, primarily within the consumer packaged goods industry. Using the Catalina Marketing Network®, this operating group specializes in behavior-based marketing communications that are delivered at the point-of-sale. The primary service line of the Catalina Marketing Network® is the in-store delivery of incentives at the checkout lane of a retailer, typically a supermarket. Catalina Marketing links its proprietary software, computers, central databases and thermal printers with a retailer’s point-of-sale controllers and scanners. The network prints customized promotions at the point-of-sale based on product Universal Product Codes or other scanned information. The printed promotions are handed to consumers by the cashier at the end of the shopping transaction.

CHR services allow pharmaceutical and consumer product manufacturers, as well as retail pharmacies, to provide consumers with condition-specific health information and direct-to-patient communications. CHR’s primary product offerings use an in-store, prescription-based targeting technology to provide targeted, direct-to-patient communications on behalf of the Company’s customers. These communication services include messages and educational information to healthcare patients at the pharmacy level throughout the Health Resource Network. The Health Resource Network is a proprietary software system with built-in targeted response capabilities. Communications are primarily delivered to patients based on prescription medications purchased which are identified by a National Drug Code symbol. Clients are able to use these communications to promote a wide variety of products such as over-the-counter medicines, prescription

medication and other healthcare remedies and merchandise. Communications provide clinically appropriate information while maintaining patient privacy.

International operations include in-store electronic targeted marketing services for consumers in the United Kingdom, France, Italy and Japan. The Catalina Marketing Network® operates internationally in a similar manner as the domestic business in offering a full range of targeted marketing solutions to many of the top 100 consumer packaged goods manufacturers and enjoys relationships with major supermarket retailers based on a syndicated platform. In fiscal year 2004, the Company continued to expand its behavior-based targeting capabilities in Europe by launching a pilot test in Germany.

PMKK is a wholly owned subsidiary of the Company that operates a billboard and outdoor media business in Japan. PMKK primarily owns and rents billboards which are displayed on rooftops or faces of buildings in locations suitable for advertising. Advertising is sold either directly to a broad range of leading clients across multiple industries or through advertising agencies. In general, billboards are designed by and produced under the supervision of PMKK. Upon completion and installation, the billboards are financed through third-party financing companies. PMKK is required to make rental payments to building owners for the space on the rooftops and faces of buildings where the billboards are installed. PMKK provides the maintenance for their billboards during the life of the contract which generally ranges from three to five years.

The Company’s other segments include Retail Services, which provides marketing solutions to retail chains nationwide and supports and maintains the Catalina Marketing Network® used by Manufacturer Services. It also includes CMRS, which provides a wide range of traditional marketing research services, including tracking studies and customer satisfaction surveys, as well as proprietary research products that take advantage of behavioral data gathered throughout the Catalina Marketing Network®.

Basis for Presentation. The Consolidated Financial Statements include the accounts of the Company and its wholly and majority owned subsidiaries. All intercompany transactions are eliminated in consolidation. The third-party owned portions of the Company’s majority owned subsidiaries are accounted for as minority interests in the Company’s Consolidated Financial Statements. The accounts of the wholly and majority owned foreign subsidiaries are included for the twelve months ended December 31, which is their fiscal year end, to facilitate the timing of the Company’s closing process.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Balance Sheets and accompanying notes. Actual results could differ from those estimates. Estimates and assumptions which, in the opinion of management, are significant to the underlying amounts included in the balance sheet and for which it would be reasonably possible that future events or information could change those estimates include impairment of long-lived assets and goodwill, the realization of deferred income tax assets and the resolution of tax and legal contingencies.

Revenue Recognition and Deferred Revenue. In December 1999, the Staff of the SEC issued Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements” (“SAB 101”). SAB 101 provides guidance to SEC registrants on the recognition, presentation and disclosure of revenues in the financial statements. In December 2003, the Staff of the SEC issued SAB No. 104 “Revenue Recognition” (“SAB 104”). SAB 104 revises or rescinds portions of the interpretative guidance included in SAB 101 in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. See additional discussion in Note 3.

In January 2003, the FASB’s Emerging Issues Task Force (“EITF”) issued EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF 00-21 provides guidance on when to account for multiple elements in an arrangement as separate units of accounting, and requires that revenue

arrangements with multiple deliverables be divided into separate units of accounting if the deliverables in the arrangement meet specific criteria. In addition, arrangement consideration must be allocated among the separate units of accounting based on their relative fair values, with certain limitations. In certain cases, the sale of retail in-store electronic marketing services was accompanied by the sale of loyalty cards, thus constituting a revenue arrangement with multiple deliverables. The Company has elected to apply EITF 00-21 for the fiscal year ended March 31, 2003. The application of the provisions of EITF 00-21 did not have a material impact on the Company’s results of operations, financial position or cash flows.

The Company delivers its targeted marketing services through various channels. The following revenue recognition policies are followed for the Company’s significant revenue-generating segments and transactions:

The Company’s Manufacturer Services and International segments generate revenue primarily by providing in-store, electronic marketing delivery services (“manufacturer incentives”) via the Catalina Marketing Network®. The amount of revenue recognized is based on the total incentives delivered multiplied by a per-print fee. Delivered incentives include targeted promotions, messages and sweepstakes. The Company generally bills customers a minimum category fee in advance of the actual delivery. Contracts for delivery include a minimum number of targeted incentives or messages for a specified category, or categories, within a four-week period referred to as a “cycle”. The delivery is based upon particular triggering transactions that are registered at the point-of-sale (i.e., the checkout counter of a retail store). The majority of Manufacturer Services contracts cover multiple cycles. The customer is given the exclusive right to have incentives delivered for a particular product category during the applicable cycle.

The Company has concluded that recognizing revenue as the incentives are delivered is a systematic and rational method that represents the pattern over which the revenue is earned and the Company’s obligations to customers are fulfilled. Furthermore, the Company believes that the exclusivity feature is not a separate deliverable apart from the delivery of the targeted incentive. Therefore, the Company recognizes in-store electronic marketing service revenue as the incentives are delivered, provided collection of the resulting receivable is reasonably assured. Amounts collected prior to delivery are reflected as deferred revenue and subsequently recognized when (1) the incentives are delivered or (2) in full in the eighteenth month after the end of the last cycle if the minimum number of incentives have not been delivered by the end of the last cycle. Occasionally, if the minimum number of program incentives is not delivered within the applicable cycles, the remaining allotment of incentives may be transferred to future cycles in order to permit the customer to reach the contracted minimums.

In certain fixed-fee program arrangements where a fixed number of targeted incentives are not required, revenue is deferred and recognized ratably over the particular cycle or cycles, regardless of the number of incentives delivered.

The Company’s Retail Services segment generates revenue by providing in-store, electronic marketing delivery services (“retail incentives”) via the Catalina Marketing Network®, as well as loyalty card production and data management.

Retail incentive revenue generally is recognized based on the total incentives delivered multiplied by a per-print fee, provided collection of the resulting receivable is reasonably assured. Amounts collected prior to delivery are reflected as deferred revenue and subsequently recognized when the incentives are delivered.

In certain fixed-fee program arrangements where a fixed number of targeted incentives are not required, revenue is deferred and recognized ratably over the contract period, regardless of the number of incentives delivered.

Revenues associated with the sale of loyalty cards are recognized when the cards are delivered to the client’s designated location. Data management revenue is recognized ratably as the services are provided.

During the fiscal years ended March 31, 2003, 2002 and 2001, the Company entered into certain barter transactions with some of its retail customers, exchanging primarily in-store, electronic marketing delivery services (“retail incentives”) and loyalty cards for access to the retail customer’s shoppers at the checkout. Access to the retail customer occurs when a manufacturer incentive is delivered. The barter transactions did not result in revenue recognition because the fair value of the consideration received and the value of the combined retail marketing services and loyalty cards delivered could not be determined within the criteria established under U.S. GAAP. The retailers can defer the delivery of the Company’s retail incentives and loyalty cards up to twelve months after the initial exchange of consumer access. However, the Company estimates and accrues the projected costs to be expended for the delivery of the retail incentives and loyalty cards when access to the retail shopper is provided.

Revenues generated by the sale of direct-mail products to consumers are recognized when mailed, provided collection of the resulting receivable is reasonably assured. Direct costs associated with these revenue-generating activities are recognized as incurred.

CHR generates revenues by providing targeted direct-to-patient communications in drug stores, referred to as the Health Resource® Newsletter, via the Health Resource Network. The Health Resource® Newsletter includes prescription information, therapeutically relevant editorial content and product information. The Company generally bills customers a minimum fee in advance of the delivery of a fixed number of customized Newsletters or “messages” within specified time periods, typically six to 15 months. The delivery is triggered by transactions that are registered at the point-of-sale. The customer is given the exclusive right to have their messages delivered based upon a particular product category trigger during the applicable time period.

The Company has concluded that recognizing revenue as the customized Newsletter is delivered is a systematic and rational method that represents the pattern over which the revenue is earned and its obligations to customers are fulfilled. Furthermore, the Company believes that the exclusivity feature is not a separate deliverable apart from the delivery of the customized newsletter. CHR recognizes revenue when the newsletter is delivered, provided collection of the resulting receivable is reasonably assured. Amounts collected prior to delivery are deferred and recognized as revenue (1) when delivery occurs or (2) in full in the twelfth month after the end of the original cycle. Occasionally, if the minimum number of customized newsletters is not printed, the remaining allotment of messages may be extended or transferred to other cycles in order to permit the customer to reach the contracted newsletter minimums.

In certain fixed-fee program arrangements where a fixed number of messages are not required, revenue is deferred and recognized ratably over the particular period of the related contract, regardless of the number of customized newsletters delivered.

In some cases, a guaranteed level of performance on a direct-to-patient communication program is required, such as a required minimum return on the customer’s investment. When such an uncertainty about the customer’s acceptance of program performance exists, revenue is not recognized until such time that the customer accepts the level of program performance.

Rental income from billboards leased to customers in Japan is recognized ratably over the contract period, provided collection of the resulting receivable is reasonably assured. Amounts collected prior to the contract period are deferred and recognized as revenues ratably over the life of the related contracts.

CMRS provides a wide range of traditional marketing research services, including tracking studies and customer satisfaction surveys, as well as proprietary research products that take advantage of the Company’s behavioral data gathered throughout the Catalina Marketing Network®. CMRS revenues are recognized when the research project is completed and a report is delivered to the client, provided collection of the resulting receivable is reasonably assured. Direct costs associated with these revenue-generating activities are recognized as incurred.

Shipping and Handling. In those instances in which the Company specifically charges customers for shipping and handling costs, such as postage, the Company includes such income received in revenues. Expenditures incurred for shipping and handling costs, primarily postage, are included in direct operating expenses.

Research and Development. The Company’s research and development efforts are generally for pilot-project execution to create, test and support new applications for the Catalina Marketing and Health Resource Networks, market research, software development, and system upgrades. For each of the fiscal years ended March 31, 2003, 2002 and 2001, expenditures for research and development, which are included in selling, general and administrative expenses, were $5.1 million, $4.5 million and $4.4 million, respectively. These expenditures include internal and external labor primarily for the development of the Company’s networks.

Advertising Costs. Advertising costs are expensed as incurred and amounted to $2.0 million, $0.8 million and $0.5 million in the years ended March 31, 2003, 2002 and 2001, respectively.

Foreign Currency Translation. Balance sheet accounts are translated at exchange rates in effect at the end of the subsidiaries’ year and income statement accounts are translated at average exchange rates for the year. Translation gains and losses are included as a separate component of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses on the translation of foreign currency transactions are included in Other income (expenses), net in the Company’s Consolidated Income Statements and were a $1.3 million gain, a $0.4 million loss and a $0.6 million loss for the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

Net Income Per Common Share. For purposes of calculating the basic and diluted earnings per share, no adjustments have been made to the reported amounts of net income. The following is a reconciliation of the denominator of basic and diluted earnings per share (“EPS”) computations shown on the face of the accompanying Consolidated Financial Statements (in thousands):

The following outstanding options were not included in the computation of diluted EPS because their effect would have been anti-dilutive (in thousands except per share data):

Subsequent to March 31, 2003, the Company repurchased 749,200 outstanding common shares of stock, which, if such purchase had been made prior to March 31, 2003, would have reduced the basic and diluted weighted average common shares outstanding at March 31, 2003.

A three-for-one stock split of the Company’s outstanding common stock, effected as a stock dividend and an increase in the authorized common shares, was approved by the Company’s Board of Directors, and the increase in the authorized common shares was approved by the Company’s stockholders at the annual meeting held on July 18, 2000. The stock dividend was paid August 17, 2000 to stockholders of record on July 26, 2000. Holders of common stock received two additional shares of common stock for each share held of record as of July 26, 2000. All applicable references to common stock shares, including the calculations of EPS, have been adjusted for all periods shown to reflect the stock split and the increase in authorized shares.

Cash and Cash Equivalents. Cash and cash equivalents consist of cash and short-term investments. The short-term investments can be immediately converted to cash and are recorded at fair value.

Accounts Receivable. Accounts receivable are recorded on a gross basis less the allowance for doubtful accounts. The Company estimates the allowance for doubtful accounts based on existing economic factors, known information about the financial condition of the customers and the amount and age of the accounts. The accounts are generally written off after all collection attempts have been exhausted. The Company records a provision for estimated doubtful accounts as part of direct operating expenses. The following is a detail of the activity in the Company’s allowance for doubtful accounts (in thousands):

Inventory. Inventory consists primarily of paper used for promotion printing and is located at customers’ locations, primarily in pharmacies, grocery stores and retailers’ warehouses. The Company estimates paper usage based on an average print length of the promotion at the time the promotion is delivered and uses the first-in, first-out method of costing. Inventory is stated at the lower of cost or market.

Property and Equipment. Property and equipment are stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets, as follows: building: thirty years, store equipment: three to five years; furniture and office equipment: three to 10 years; and billboards: eight years. Office equipment includes computer hardware and software bought and developed for internal use. Costs for software developed for internal use are capitalized in accordance with AICPA Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” and are amortized over five years. Third-party installation costs for store equipment, net of amounts reimbursed by the retailer, are capitalized and amortized using the straight-line method over the estimated useful lives of the related store equipment. Leasehold improvements are amortized using the straight-line

method over the shorter of the estimated useful lives of the assets or the remaining term of the related lease. Maintenance and repair costs are expensed as incurred.

Leases of space for billboards from building owners are made for terms of three to six years. At the end of such lease term, PMKK has the right to renew the lease for another term. PMKK adopts an estimated useful life of eight years for the depreciation of billboards. Accordingly, a portion of the initial acquisition costs of billboards may be left undepreciated if the lease contract is terminated at the end of the lease term without any renewal or extension. In such circumstances, the residual balance of the disposed billboard is expensed and the loss on disposal is recognized in the year of contract termination. Japan Billboard recognizes expenses associated with take-down costs only when incurred, based on termination of the lease agreement with building owners. See Note 6 for the actual loss recognized in fiscal year 2003 for contract termination and take-down costs.

The Company has retroactively applied the provisions of FASB Interpretation No. 46: Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51 (“FIN 46”) in accounting for its headquarters building in St. Petersburg, Florida, effective as of fiscal year 2001. The Company leases this facility through a variable interest entity that was created in fiscal year 2001 and is partially funded by a third-party financial institution. The variable interest entity’s sole function is the leasing of the building to the Company. The accompanying Consolidated Balance Sheets reflect the carrying amount of the consolidated assets of the variable interest entity that serve as collateral for the entity’s liabilities; land — $4.1 million, building — $22.3 million; and, included in leasehold improvements and furniture and office equipment — $1.5 million and $2.6 million, respectively. Minority interest has been increased by $0.9 million to reflect the ownership of the variable interest entity not held by the Company.

The lease for the Company’s headquarters was previously accounted for as an operating lease from its inception in fiscal year 2001. The lease should have been accounted for as a capital lease. Upon adoption of FIN 46, the Company has restated its previously issued financial statements. Had the Company not chosen early adoption, the restatement required would have converted the lease obligation from operating to capital.

The following pro forma balance sheet and income statement as of and for fiscal year 2003 reflect the effect of the application of FIN 46 to the Company (in thousands, except per share data):


(1)	The pro forma adjustments reflect the addition of the land, building and leasehold improvements, net of accumulated depreciation, for $26.9 million, the long-term debt related to the land, building and leasehold improvements of $29.6 million, deferred tax liability of $1.4 million, and accumulated expenses, net of taxes, of $2.2 million for years prior to fiscal year 2003.

(2)	The pro forma adjustments reflect increases in depreciation of $1.5 million, reduction of rent expense and a corresponding increase to interest expense of $0.7 million, and an income tax benefit of $0.6 million.

The magnitude and characterization of the adjustments made for fiscal year 2003 as shown in the table above to reflect the adoption of FIN 46 would be similar for fiscal year 2002. The pro forma adjustment for 2001 would reflect lower depreciation expense and interest due to the initiation of the lease agreement during the third quarter of fiscal year 2001.

Goodwill. Goodwill represents the excess of the purchase price paid over the fair value of the tangible and identifiable intangible assets, net of the fair value of liabilities assumed in a business combination. Pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 142, as of April 1, 2001, goodwill is no longer amortized but instead is subject to impairment tests to be performed at least annually, and more frequently if events and circumstances indicate that impairment is likely. The effects of this change in accounting principle are shown pro forma on the accompanying Consolidated Income Statements. Impairment is indicated when the fair market value is less than the carrying value of the reporting unit. Asset values determined to be impaired are expensed in the period when impairment is determined. To determine fair market value, the Company uses a discounted cash flow approach, using the same assumptions as those used to develop the Company’s three-year, long-range plan, updated as necessary based on the Company’s internally-generated monthly forecasts. The Company incorporates a terminal value cash flow based upon an estimated future growth rate. During the fiscal years ended March 31, 2003 and March 31, 2002, the Company performed the required impairment testing. No impairment charges for goodwill were necessary during those years.

Prior to the adoption of SFAS No. 142, the Company amortized goodwill over useful lives ranging from 20 to 40 years using the straight-line method and analyzed goodwill for impairment pursuant to the requirements of APB Opinion No. 17, “Intangible Assets,” and SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” As a result, the Company recognized an impairment charge in fiscal year 2001 of $2.7 million, which is included in Impairment Charges

on the accompanying Consolidated Income Statements, for the write-down of goodwill associated with the previous acquisition of stock in CompuScan Marketing, Inc. See further discussion in Note 5.

Patents, Net. The amount capitalized to patents includes only those patents acquired from others, primarily arising from the Company’s acquisitions of businesses. Patents are amortized over their estimated useful lives which range from 5 to 20 years, using the straight-line method.

Impairment Testing of Long-Lived Assets. The Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the carrying value of the long-lived assets will not be recoverable, as determined based on the expected undiscounted future cash flows of the long-lived assets, the Company’s carrying value of the long-lived assets is reduced by the amount by which the carrying value exceeds fair value. For most instances, the Company uses a discounted cash flow approach to determine fair value. Cash flows utilized in these analyses include the same assumptions as those used in the Company’s three-year, long-range plan, updated as necessary based on the Company’s internally-generated monthly forecasts.

Stock Based Compensation. The Company accounts for option, stock grant and stock purchase plans under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” under which approximately $417,000, $436,000, and $375,000 in compensation expense has been recognized for fiscal years 2003, 2002 and 2001, respectively. The Company follows SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” for disclosure purposes only. Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:

The per share weighted average fair values of options granted in fiscal years 2003, 2002 and 2001 are $11.63, $20.14 and $19.85, respectively.

Had compensation expense for these plans been recognized in accordance with SFAS No. 123, the Company’s net income and earnings per share would have been reduced to the following pro forma amounts (in thousands, except per share data):

Pro forma amounts include approximately $755,000, $671,000 and $525,000 related to the purchase discount offered under the Purchase Plan for fiscal years 2003, 2002 and 2001, respectively, (see Note 11).

Note that, subsequent to March 31, 2003, several of the Company’s executives left the Company prior to exercising their options and, as a result, any unexercised options have been forfeited. As such, the Company expects a significant portion of the total stock-based employee compensation expense shown pro forma for fiscal years 2003, 2002 and 2001 in the disclosure table above to be reversed and shown pro forma as income in the disclosure for fiscal year 2004.

Fair Value of Financial Instruments. At March 31, 2003 and 2002, the carrying value of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short-term nature of these financial instruments. The carrying value of the Company’s short-term borrowings and long-term debt approximate fair value based on variable interest rates.

Concentration of Risk. Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of trade accounts receivable. The Company’s revenue and related trade receivables are derived primarily from the sale of in-store electronic marketing, direct mail, direct-to-patient communication and attitudinal research services. Accounts receivable are due primarily from companies located throughout the United States, Europe and Japan. Credit is extended based on an evaluation of the customer’s financial condition and generally collateral is not required. At March 31, 2003, approximately 16.7% of Accounts receivable, net related to three customers. The Company’s three largest customers accounted for approximately 21.9% of consolidated revenue for fiscal year 2003.

The Company relies on retail stores and pharmacies to provide access to their premises and consumers for the Catalina Marketing Network® and Health Resource Network to be successful. The Company believes the impact to the networks with respect to a loss of a single retail chain or pharmacy chain is limited due to the diversity of participation. However, approximately 55% of the delivered in-store promotional incentives provided for the Company’s consumer product goods customers during the fiscal year ended March 31, 2003, were generated from within the stores belonging to five retail chains. Also, over 91.5% of the delivered

promotional materials the Company provided for pharmaceutical customers during the fiscal year ended March 31, 2003, were generated from within the pharmacies belonging to five pharmacy chains. If any of these five retail chains or pharmacy chains were to decide not to renew their contract with the Company to provide point-of-sale services, or if they reduce the number of point-of-sale locations, a material reduction in revenues could result if these point-of-sale locations are not replaced.

The Company maintains its cash with financial institutions. The balances, at times, may exceed federally insured limits. At March 31, 2003, the Company exceeded the federally insured limit by approximately $0.9 million.

Supplemental Cash Flow Information. Significant non-cash transactions in 2001 include the effect of retroactive restatement of the consolidation of the Company’s headquarters building in accordance with the early adoption of FIN 46.

Reclassifications. Certain reclassifications have been made to prior years financial statements to conform to the current year’s presentation.

In June 2003, the Company announced its intent to delay the filing of its Annual Report on Form 10-K for the year ended March 31, 2003, as a result of certain issues identified by management related to the timing of revenue recognition at CHR. At that time, management continued its evaluation of financial data of CHR relating to fiscal year 2003, while the Company’s Audit Committee engaged Ernst & Young LLP (“E&Y”), which replaced Arthur Andersen LLP as the Company’s independent certified public accountants in May 2002, to assist in the review and evaluation of the results. Also in June 2003, the Company initiated discussions with the Staff of the SEC to advise them of these matters and has continued discussions with the Staff of the SEC throughout this process.

In July 2003, E&Y expressed concerns over additional areas of accounting and on August 26, 2003, the Company filed a report on Form 8-K with the SEC which reported E&Y’s resignation and other matters. Subsequent to the resignation of E&Y, the Company engaged PricewaterhouseCoopers LLP (“PwC”), as its new independent certified public accountants, to audit fiscal years 2003, 2002 and 2001.

As a result of the audit of fiscal year 2003 and the re-audits of fiscal years 2002 and 2001 performed by PwC and the Company’s own investigation into its accounting practices and policies, the Company has restated its financial statements for the fiscal years ended March 31, 2002 and 2001, and the Company’s unaudited selected quarterly information for each of the four quarters of fiscal year 2002 and 2003.

The following table presents the impact of the restatement adjustments on consolidated net income for the fiscal years ended March 31, 2002 and 2001:


	•	Revenue. The Company identified numerous instances where the timing or amount of revenue was not recognized in accordance with U.S. GAAP. SAB 104 expresses the SEC Staff’s views regarding the application of U.S. GAAP to revenue recorded in financial statements. A summary of the nature of the adjustments to revenue that were recorded to the Company’s Consolidated Financial Statements is set forth below:


	Persuasive evidence of arrangements. Situations were identified where the customer arrangements were not available, were not documented or were amended by separate written or verbal agreements. The existence of these separate amended agreements and arrangements indicated that the original agreement was not binding and, therefore, the recognition of certain revenue was recorded prematurely at that time and has been deferred until the period when persuasive evidence of the arrangement exists.

	Delivery had not occurred or services had not been rendered. Instances were identified in which revenue was recognized prior to the completion of the earnings process.

	The seller’s price to the buyer was not fixed or determinable. There were several instances of separate written or verbal agreements that amended the original contract. In these cases, the price for services was not fixed or determinable and, as a result, the Company has deferred recognition of revenue until the period when the purchase price was fixed and determinable.

	Collectibility is reasonably assured. The Company did not identify any material issues related to collectibility from its clients.


	•	Direct cost adjustments. Principally attributable to fees paid to retailers, classification for incentive rebates, postage charges and adjustments to inventory.


	•	Accruals and prepayments. These entries adjust certain accruals and prepaid expenses, to more properly estimate liabilities when they are incurred and amortize prepaid expenses as they are utilized. The adjustments are primarily for compensation, taxes, legal, consulting, allowance for doubtful accounts, and other selling, general and administrative expenses.

	•	Previously capitalized bonus compensation. This restatement increases compensation expense for contingent purchase price payments previously accounted for as goodwill, made in conjuction with two acquisitions in which a portion of the contingent purchase price payments were paid to employees by the sellers of the acquired companies.

	•	Postretirement healthcare obligation. Reflects reduction of prior service amortization cost

	•	Asset impairment and related change in amortization. Primarily relates to the impairment, determined in accordance with SFAS No. 121, of patents and goodwill acquired from CompuScan Marketing, Inc., and the resulting revision to future patent amortization expense.

	•	Depreciation and amortization. The Company restated fiscal year 2000 for the impairment of property and equipment, intangible assets and goodwill related to the acquisition of Catalina Marketing U.K., Inc. in 1996. The restatement adjustments for fiscal years 2002 and 2001 include the change to depreciation and amortization subsequent to this impairment. The restatement adjustment for fiscal year 2002 also includes a gain on the sale of assets that have now been restated as impaired in an earlier period.

During the Company’s re-examination of the lease transaction governing its corporate headquarters, it determined that the lease should have been accounted for as a capital lease rather than as an operating lease. The Company has retroactively applied FIN 46, effective as of fiscal year 2001, to account for the consolidation of the variable interest entity from which it leases its corporate headquarters. Had the Company not chosen early adoption, the restatement would have converted the lease obligation from operating to capital. Accordingly, depreciation expense has been restated to reflect the adoption of FIN 46 and the land, building and related debt and minority interest liability have been included on the Consolidated Balance Sheets.


	•	Capitalized software costs. The Company is restating previously capitalized costs for consulting services and internal development of software, net of the change in depreciation, in accordance with SOP 98-1.

	•	Income tax impact of adjustments. Deferred income tax expense is restated for fiscal years 2002 and 2001 for the net effect of the restatement adjustments.

In addition to the change in net income, the retained earnings balance decreased at March 31, 2000 by $18.2 million, which includes a tax benefit of $7.1 million. This adjustment to retained earnings was primarily related to an impairment charge recorded in fiscal year 2000, net of the related change in amortization, resulting from a re-examination of the SFAS No. 121 impairment analysis that had been performed in prior fiscal years for property and equipment, identifiable intangible assets and goodwill purchased in conjunction with the acquisition of the remaining 46% minority interest of Catalina Marketing U.K., Inc. in 1996.

In previous filings, the Company disclosed its conclusion that it had considered SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and had concluded that the Company operated in one reportable segment, targeted marketing services. During its investigation, the Company reconsidered SFAS No. 131, and the Company has now concluded that its business is managed by operating segment, which do not meet all of the aggregation criteria pursuant to SFAS No. 131. As such, segment information has been provided in this Annual Report on Form 10-K for fiscal year 2003 pursuant to the requirements of SFAS No. 131 and Regulation S-K. Fiscal years 2002 and 2001 have been restated to provide business segment information on a basis comparable to the fiscal year 2003 reportable segment structure.

The following table presents the impact of the restatement adjustments on the Consolidated Income Statements for the fiscal year ended (in thousands, except per share data):

The following table presents the impact of the restatement adjustments on the Consolidated Balance Sheets (in thousands):

In addition to the restatement adjustments affecting the income statement, the Company also made certain restatement adjustments that only resulted in changes to the balance sheet, including (1) the reclassification of cash overdrafts to a current liability, (2) adjustments to the Company’s accounting for certain minority interests in consolidated affiliates, with an offsetting effect to paid-in capital and (3) corrections to the tax effects of certain stock transactions, with an offsetting effect to paid-in capital.

The following table presents the impact of the restatement adjustments on the Consolidated Statements of Cash Flows (in thousands):

The Company has historically made acquisitions based on various factors including customer relationships, service offerings, competitive position, reputation, experience, and specialized know-how. The Company’s acquisition strategy was to build upon the core capabilities of its various strategic business platforms through the expansion of service capabilities. In executing the acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand the Company’s existing client relationships. Due to the nature of the Company’s business, the companies it acquired frequently had minimal tangible net assets or identifiable intangible assets. The acquisition price was frequently determined by the future projected revenue and cash flow of the entity being acquired. Accordingly, a substantial portion of the purchase price was allocated to goodwill. The Company performs an annual impairment test in order to assess that the fair value of acquisitions exceeds their carrying value, inclusive of goodwill.

As of March 31, 2002, the Company owned 87.1% of the outstanding common stock of CHR. In June 2002, the Company commenced a tender offer to purchase the outstanding minority interest common stock of CHR, at a purchase price of $33.00 per share. Certain current and former employees and directors of CHR owned the outstanding shares that were purchased in the tender offer. During the fiscal year ended March 31, 2003, the Company purchased 731,921 of the outstanding shares of CHR common stock for approximately $24.2 million. As of March 31, 2003, the Company held 5,771,921 of the total 5,954,047 outstanding shares, or 97%, of CHR common stock. The tender offer expired on October 16, 2002. Since October 2002, no further repurchases of CHR’s common stock have been made pursuant to this tender offer. The Company has the right to offer to purchase the remaining outstanding shares of CHR common stock in the future at a price determined by a third party valuation. The acquisition of the CHR common stock was accounted for using the purchase method of accounting. Total goodwill recorded in conjunction with the acquisition of CHR, including the goodwill resulting from the tender offer, was $36.1 million as of March 31, 2003.

On January 4, 2001, the Company agreed to purchase the remaining outstanding minority interest common stock of Supermarkets Online Holdings, Inc. (“SMO Holdings”), the parent company of the Company’s majority owned Internet-based marketing and advertising subsidiary, Supermarkets Online, Inc. (“SMO”). As part of this agreement, the Company also repaid a subordinated convertible note and terminated a marketing agreement between the minority shareholder and SMO for total consideration of $10.5 million. The acquisition of the common stock was accounted for using the purchase method of accounting. The subordinated convertible note repayment and the marketing services agreement termination

were accounted for as a reduction of long-term debt and deferred revenue, respectively. The additional goodwill recorded as a result of this transaction was $8.0 million. In addition to this transaction, the Company acquired the minority interest in SMO that was not held by SMO Holdings, but was held by employees, in a series of purchases during fiscal years 2002 and 2001. These purchases of minority shares resulted in an additional $3.0 million of goodwill during these two years. As of March 31, 2003 and 2002, the Company owned 100% of SMO. SMO is included within the corporate group for segment reporting.

Effective September 1, 2000, the Company, through one of its wholly owned subsidiaries, acquired 100% of the outstanding common shares of Market Intelligence, Inc., an attitudinal research company, for approximately $1.0 million in initial cash consideration. The terms of the acquisition provided for additional contingent purchase price payments of up to $1.0 million, based upon the business unit’s performance. Final contingent purchase price payments made in conjunction with this acquisition were $0.2 million. As of March 31, 2003, goodwill associated with this acquisition was $1.4 million. This acquisition combined with the Alliance Research business comprises the CMRS business segment. The Company acquired these businesses in order to supplement its internal growth plans and strategies. The results of operations of Market Intelligence, Inc. are included in the accompanying Consolidated Income Statements effective September 1, 2000.

Effective June 1, 2000, the Company, through one of its wholly-owned subsidiaries, acquired 100% of the outstanding common shares of HealthCare Data Corporation (“HDC”), a company that provided strategic targeted marketing solutions for health-related and pharmaceutical manufacturers and retailers, for $14.4 million in cash. As of March 31, 2003, goodwill associated with this acquisition was $12.6 million. The Company acquired HDC in order to leverage the capabilities of the Health Resource Network. This acquisition is part of the CHR business segment.

Effective July 1, 1999, the Company acquired certain assets and assumed certain liabilities of Alliance Research, an attitudinal research company, for $7.7 million in initial cash consideration. Terms of the purchase agreement called for the Company to make a series of contingent purchase price payments based upon specified growth. Under the provisions of the contract, the contingent purchase price payments, totaling $16.5 million, were accelerated and finalized in the third quarter of fiscal year 2002. As of March 31, 2003, goodwill associated with this acquisition was $22.4 million.

Effective April 21, 1999, the Company, through one of its wholly-owned subsidiaries, acquired the technology of its Checkout Prizes application by means of a merger transaction between the Company and CompuScan Marketing, Inc. Initial cash consideration was $9.0 million of which $3.0 million was allocated to goodwill. Terms of the merger agreement called for the Company to make a series of additional contingent purchase price payments, totaling $1.0 million, which concluded in the fourth quarter of fiscal year 2002. These payments were based upon specified growth and have been accounted for as additional goodwill. A large portion of the initial acquisition price was allocated to patents. As of March 31, 2003, goodwill associated with this acquisition was $1.0 million. This acquisition is part of the Manufacturer Services business segment.

Effective January 4, 1999, the Company acquired 100% of the outstanding common stock of Dynamic Controls, Inc., which offered card-based, loyalty marketing programs for retailers, for $6.3 million in initial cash payment. Terms of the purchase agreement called for the Company to make a series of contingent purchase price payments, based upon specified revenue growth, which were concluded in the fourth quarter of fiscal year 2001 and totaled $4.5 million. These payments have been accounted for as additional goodwill. As of March 31, 2003, goodwill associated with this acquisition was $8.4 million. The goodwill associated with this acquisition is part of the Manufacturer Services business segment. On March 31, 2004, the Company sold the loyalty card and data-entry services business.

Effective December 30, 1998, the Company purchased the remaining minority interest of the parent company of Catalina Marketing de France, S.A., the Company’s French operating unit. Terms of the purchase

agreement called for the Company to make an initial down payment and a series of annual contingent purchase price payments. The contingent purchase price payments totaling $23.4 million, were completed in the first quarter of fiscal year 2003, and were based upon the operating performance of Catalina Marketing de France. These payments have been accounted for as additional goodwill. As of March 31, 2003, goodwill associated with this acquisition was $24.2 million. This acquisition is part of the International business segment.

Effective July 13, 1998, the Company acquired 100% of the outstanding common shares of Market Logic, Inc., a full-service targeted marketing company that specialized in the development and fulfillment of highly sophisticated, personalized, direct marketing programs for retailers, for $2.9 million in initial cash consideration. Terms of the purchase agreement called for the Company to make a series of annual contingent purchase price payments, which totaled $29.2 million through March 31, 2003, and were based upon the future operating performance of Market Logic, Inc. The contingent purchase price payments were completed during fiscal year 2004 and have been accounted for as additional goodwill. As of March 31, 2003, goodwill associated with this acquisition was $30.5 million. This acquisition comprises the DMS business segment.

See Note 10 for a discussion of the purchase of the remaining minority interest of the Company’s Japanese operations subsequent to March 31, 2003.

In November 2003, the Company announced its intent to divest of DMS, CMRS and Japan Billboard which were deemed not to be strategically aligned with the Company’s current core competencies. As of March 31, 2003, goodwill related to these businesses was $30.5 million, $23.8 million and $7.6 million, respectively. The Company is currently evaluating options with respect to the sale or other methods of divestiture of these businesses. The Company has performed the required impairment testing in accordance with SFAS No. 142 based on this fiscal year 2004 triggering event for these entities and expects to recognize goodwill impairment charges for each of them.

CHR goodwill increased $24.2 million due to the June 2002 tender offer. DMS goodwill increased $0.7 million due to contingent purchase price payments made during the year. The other segment increased $0.2 million due to a Market Intelligence contingent purchase price payment made September 30, 2002.

CHR goodwill decreased $1.3 million due to an escrow refund received within one year from the initial purchase of HDC. DMS goodwill increased $0.7 million due to contingent purchase price payments made during the year. International goodwill increased $2.3 million due to contingent purchase price payments made for France. The other segment increased $16.5 million due to contingent purchase price payments made related to the Alliance acquisition. Manufacturer Services goodwill increased $2.0 million related to the purchase of the minority interest related to SMO.

The gross and accumulated amortization balances relating to patents were as follows (in thousands):

Estimated future amortization of patents is as follows as of March 31, 2003 (in thousands):

In October 2000, as part of the settlement of litigation in regard to certain intellectual property rights with various parties, the Company entered into an agreement whereby the Company acquired the rights to 16 U.S. patents and 12 pending U.S. patent applications together with all foreign rights related to the inventions encompassed by the original patents and patent applications. The Company paid $17.0 million for the patents and patent applications and accounted for them as capitalized patent acquisition costs, except for $2.7 million of such costs which were expensed as settlement of litigation in fiscal 2000. The capitalized amounts are being amortized over the remaining useful lives of the patents. As of March 31, 2003, the net book value of these intangibles is $11.4 million. This asset is included in the Corporate group.

In April 1999, the Company, through one of its wholly owned subsidiaries, acquired one of its vendors, CompuScan Marketing, Inc., including the technology for the Checkout Prizes application, by means of a merger transaction. Certain triggering events in fiscal year 2001, specifically lower than expected cash-generation as compared with the original cash flow forecast, indicated the need to assess for impairment in accordance with SFAS No. 121. As a result, the Company has recognized an impairment charge on these patents of $3.1 million, included in Impairment charges on the accompany Consolidated Income Statement for fiscal year 2001. The fair value used as a basis for this impairment charge was determined using a discounted cash flow model. Subsequent amortization has also been revised to reflect the lower net book value. As of March 31, 2003, the net book value of these intangibles after this adjustment is $3.1 million. This asset is included in the Manufacturer Services segment.

During fiscal year 2003, the Company recorded an impairment charge of $1.0 million to write off an investment, accounted for using the cost method, due to an other-than-temporary decline in the carrying value. Factors leading to the impairment included the investment’s history of negative cash flows from operations, lack of earnings performance longer than originally anticipated and the current business prospects of the investee. Management’s rationale for asserting that the impairment was other-than-temporary include the speculative nature of the start-up investment, the requests for additional financing sooner than expected, the rate at which the investee was using cash, and the lack of any foreseeable viable market for the product being developed by this investee. This charge is included as a component of Other income (expense), net on the accompanying Consolidated Income Statements for fiscal year 2003. This investment was included in the corporate group and had not been allocated to any operating segment.

During fiscal year 2002, Japan Billboard received a notice from one of its customers indicating that the customer planned to terminate certain advertising schedules at 38 locations under contract with Japan Billboard. This termination notification was the result of certain voluntary changes in the international tobacco industry advertising standards. Under the master service agreement, the customer was required to make payments on these locations until December 31, 2002, and Japan Billboard was required, on a best efforts basis, to remarket these sites to new customers. Subsequent to this notice, Japan Billboard has acquired new customers for some of these sites and elected to terminate the remaining sites during fiscal year 2003 and early fiscal year 2004. During fiscal year 2003, the Company recorded disposal costs for certain billboards that were taken down during fiscal year 2003 and recorded an impairment charge for certain billboards that have been designated for disposal in fiscal year 2004. These charges amounted to approximately $1.7 million in fiscal year 2003.

In January 2004, Japan’s Ministry of Health announced its intention to sign and ratify its involvement in the World Health Organization’s recently adopted international Framework Convention on Tobacco Control (“FCTC”) that will come into effect when 40 countries have signed. The adoption of FCTC will limit the ability of tobacco companies to advertise tobacco products on billboards in Japan. As a result of this information, the Company has performed impairment testing pursuant to SFAS No. 142 and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Additionally, the Company has calculated the effect of the retirement obligation pursuant to SFAS No. 143, “Accounting for Asset Retirement Obligations.” As a result, in fiscal year 2004, the Company expects to recognize a charge related to the above.

In fiscal year 2001, the Company recorded accelerated depreciation and amortization expense in the amount of $1.7 million, related to certain long-lived assets, including property and equipment, a customer relationship intangible and goodwill, held in the International segment; specifically in the Company’s operations in the United Kingdom (“UK”). During fiscal year 2000, the UK received a contract termination notice from its largest retail customer due to the acquisition of that retail chain by another retailer. As a result, the Company performed an impairment analysis of the related store equipment, customer relationship intangible and goodwill associated with that retail customer. A portion of those assets were impaired in fiscal year 2000. Associated depreciation and amortization was accelerated in fiscal year 2001 to write off the remaining balance of these assets over the remaining, shortened useful life.

The components of income (loss) before income taxes and the provision for income taxes consisted of the following (in thousands):

The reconciliation of the provision for income taxes based on the U.S. federal statutory income tax rate to the Company’s provision for income taxes is as follows (in thousands):

Deferred income tax assets or liabilities are computed based on the temporary differences between the financial statement and income tax basis of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the deferred income tax assets or liabilities from period to period.

Temporary differences for financial statement and income tax purposes result primarily from charges to operations for financial statement reporting purposes which are not currently tax deductible and from revenues deferred for financial statement reporting purposes which are currently taxable. The components of the deferred tax asset and liability were as follows (in thousands):

The Company periodically reviews the need for a valuation allowance against deferred tax assets and recognizes these deferred tax assets to the extent that realization is more likely than not. Based upon a review of earnings history and trends, forecasted earnings and the relevant expiration of carryforwards, the Company believes that the valuation allowances provided are appropriate. The valuation allowance increased by $0.7 million during fiscal year 2003 and $0.9 million during fiscal year 2002, as management believes it is more likely than not that deferred tax assets generated by certain foreign subsidiaries and losses of investments in unconsolidated equity securities will not be realized. The valuation allowance for fiscal year 2001 was $2.2 million and decreased by $0.7 million, primarily due to the utilization of foreign net operating loss carryforwards.

As of March 31, 2003, the Company had cumulative U.S. federal taxable net operating loss (“NOL”) carryforwards of $1.5 million, which expire between 2011 and 2015. These NOLs were acquired through various Company acquisitions and are limited by Internal Revenue Code Section 382 to an annual deduction of $0.5 million. In addition, various foreign subsidiaries of the Company had aggregate foreign taxable NOL carryforwards of $21.2 million. Approximately $4.4 million of the foreign NOLs can be carried forward indefinitely, while the remaining $16.8 million expire between 2004 and 2007. Foreign pre-tax losses represented by NOLs of approximately $16.8 million have already been deducted in the consolidated U.S. Corporation income tax return.

The Company does not provide for deferred taxes on certain unremitted foreign earnings. Management has decided that earnings of foreign subsidiaries have been and will be indefinitely reinvested in foreign operations and; therefore, the recording of deferred tax liabilities for unremitted foreign earnings is not required. As of March 31, 2003, the cumulative unremitted foreign earnings of the Company’s foreign subsidiaries are $5.9 million. It is impracticable to determine the amount of unrecognized deferred taxes with respect to these earnings; however, a foreign tax credit may be available to partially reduce U.S. income taxes in the event of a distribution.

The Company’s short-term borrowings and long-term debt consisted of the following (in thousands):

Maturities of long-term debt are as follows as of March 31, 2003 (in thousands):


(1)	This amount includes term-loan borrowings outstanding under the Amended Japan Facility, which expires on March 31, 2005. Due to the consolidation of the Company’s foreign subsidiaries on a three-month lag, this amount is reflected as due and payable for the Company during the fiscal year ending March 31, 2006.

On September 25, 2000, the Company entered into a credit agreement (the “Corporate Facility”) with a syndicate of commercial banks including Bank One, NA as the Administrative Agent (“Bank One”), and Wachovia Bank, NA as the Syndication Agent and Documentation Agent.

The Corporate Facility provided for a revolving loan credit facility of up to $150 million. The scheduled termination date of the revolving loan credit facility was September 25, 2003. As of March 31, 2003, $12.0 million was outstanding under the Corporate Facility.

Borrowings under the Corporate Facility accrued interest at rates based upon either (i) the British Bankers’ Association Interest Settlement Rate plus an applicable margin ranging from 50 to 87.5 basis points (Eurodollar Rate), or (ii) the higher of 50 basis points over the Federal Funds Rate or Bank One’s prime rate of interest, as defined in the agreement. The interest rate on outstanding loans as of March 31, 2003 and March 31, 2002 was 1.84% and 2.42%, respectively. In addition, the Corporate Facility provided for unused facility fees to accrue at a range of 15 to 22.5 basis points per annum multiplied by the unused portion of the revolving credit facility. The Corporate Facility was guaranteed by several of the Company’s subsidiaries and contained certain financial covenants, including maintenance of an interest coverage and maximum leverage ratios, and other terms and conditions, including a subjective acceleration clause which could require

immediate repayment in the event of Default, as defined in the Corporate Facility. As of March 31, 2003, the Company was in compliance with all such financial covenants.

As a result of the delay in completing audited financial statements for fiscal year 2003, the Company was unable to complete its covenant compliance certificates as required per the terms of the Corporate Facility for the periods ended March 31, 2003 and June 30, 2003. Waivers were obtained from the bank group on June 30, 2003 and September 3, 2003, respectively, to waive the Unmatured Default and the Default, as such terms are defined in the Corporate Facility, created by such non-compliance. In conjunction with the September 3, 2003 waiver, available borrowings were reduced from $150 million to $60 million. On September 25, 2003, the expiration date of the Corporate Facility, the Company entered into an agreement with its bank group to extend the Corporate Facility for 60 days through November 24, 2003.

Significant changes to the Corporate Facility resulting from this extension included a reduction in availability from $60 million to $30 million, an increase in interest rate pricing, an increase in the unused facility fee, and restrictions on cash and investments.

At the expiration of the extension on November 24, 2003, the Company reached an agreement with its bank group to extend the Corporate Facility through August 31, 2004. Availability under the Corporate Facility remains at $30 million. Significant changes to the terms from the previous credit extension include a restriction on the change in the allowable restatement of cash flow from operations, a covenant that does not allow the payment of cash dividends to the Company’s stockholders, increased restrictions on stock repurchase transactions and certain restrictions on the sale of assets and the divestitures of businesses. The Corporate Facility is now guaranteed by the Company and certain of its domestic subsidiaries and substantially all of the assets of the Company and certain of its domestic subsidiaries, except for the corporate headquarters building in St. Petersburg, Florida, are pledged as collateral.

The Company incurred financing fees of approximately $1.0 million for these credit line extensions, which will be deferred and amortized over the terms of the extensions, as applicable. At November 24, 2003, the balance outstanding under the Corporate Facility was $5.0 million. This amount was repaid in full on November 25, 2003, and the balance has remained zero through the current date.

The Company has retroactively applied the provisions of FIN 46, effective as of fiscal year 2001, and included in our Consolidated Balance Sheets the value of the building and indebtedness related to our headquarters facility, which is leased from a variable interest entity. As a result of the retroactive application, long-term debt increased by $29.6 million.

The obligation related to the building matures in October 2005. The building is pledged as collateral on the related indebtedness and is evidenced by a mortgage payable to a bank.

At the expiration of the Company’s initial lease term with the variable interest entity, the Company has the option of extending the lease for as many as three five-year renewal periods, or it can purchase the building for approximately $30.5 million. If the Company elects to neither extend the lease term nor purchase the building, the building will be sold, at which time the Company may negotiate a lease with the new owner. The Company has agreed to guarantee any difference between the proceeds of the sale of the building and the remaining debt obligations of the variable interest entity up to approximately $25.6 million. In addition, the lease agreement includes the same covenants and restrictions as those included in the Corporate Facility.

On March 26, 2002, Catalina Marketing Japan, KK, a Japan corporation and majority owned subsidiary of Catalina Marketing Corporation, (the “Japan Subsidiary”) entered into a credit agreement (the “Agreement”) with Bank One, NA.

The Agreement originally provided for a revolving credit facility of up to 500 million yen ($4.2 million based on foreign currency exchange rates at the end of fiscal year 2003) and was increased to 1.0 billion yen ($8.3 million) as of March 31, 2003. The Agreement also provided for a term credit facility of up to 2.0 billion

yen ($16.7 million) for long-term funding of the Japan Subsidiary. As of March 31, 2003, 320 million yen ($2.7 million) was outstanding under the Japan Subsidiary revolving credit facility. The termination date of the revolving credit facility was extended through November 24, 2003, and included an increase in the revolver of up to 1.5 billion yen. The term credit facility expires on March 31, 2005. An additional Japan credit facility provides up to 600 million yen, of which 250 million yen ($2.1 million) was outstanding at March 31, 2003 and expires in July 2004.

Borrowings under the Agreement accrued interest at rates based upon either (i) the yen TIBOR rate plus a margin of 75 basis points per annum for the revolving credit facility or (ii) the three year JPY/JPY Interest Rate Swap market rate against LIBOR plus a margin of 125 basis points per annum for the term credit facility. In addition, the Agreement provided for unused facilities fees. The Agreement was guaranteed by the Company, and contained certain financial covenants and other terms and conditions. As of March 31, 2003, the Japan Subsidiary was in compliance with all such financial covenants.

At the expiration of the Japan revolving credit facility extension on November 24, 2003, and in conjunction with the extension of the Corporate Facility, the Japan Subsidiary’s credit facility with Bank One, NA was renegotiated (the “Amended Japan Facility”). The Amended Japan Facility consists of a 1.5 billion yen revolving commitment extended through August 31, 2004 and a term loan commitment of 2.0 billion yen that matures March 31, 2005. The facility is guaranteed by the Company and certain of its domestic subsidiaries, and as a result of the November 24, 2003 extension, substantially all of the assets of the Company and certain of its domestic subsidiaries, except for the corporate headquarters building in St. Petersburg, Florida, are pledged as collateral.

Borrowings under the Amended Japan Facility accrue interest at rates based upon either (i) the three-year JPY/ JPY Interest Rate Swap market rate against LIBOR plus 2.0% for the term loan or (ii) the Yen TIBOR rate plus 2.0% for the revolving commitment, until such time that the Company’s audited financial statements for fiscal year 2003 are filed with the SEC. Subsequent to that date, pricing on the term loan returns to the three-year JPY/ JPY Interest Rate Swap market rate against LIBOR plus 1.25% per annum. Pricing on the revolver will be determined based on a grid that ranges from TIBOR plus 1.0% to TIBOR plus 2.0% per annum, dependent upon certain of the Company’s financial covenants.

Consolidated interest expense was $2.2 million, $3.4 million and $3.4 million in fiscal years 2003, 2002 and 2001, respectively.

Lease Commitments. The Company leases certain office space, equipment and billboards under non-cancellable operating leases that expire at various dates through 2010. Rental expense under operating leases was $5.1 million, $4.2 million and $4.7 million, in fiscal years 2003, 2002 and 2001, respectively. Future minimum operating lease commitments as of March 31, 2003, are as follows (in thousands):

As of October 21, 1999, the Company entered into a lease financing agreement with a variable interest entity for the corporate headquarters facility in St. Petersburg, Florida. The Company employs this

arrangement because it provides a cost-efficient form of financing, including certain tax benefits, as well as an added level of diversification of funding sources. The Company has retroactively applied the provisions of FIN 46, effective as of fiscal year 2001, and, as discussed in Note 9, has this debt included in its Consolidated Balance Sheets.

At its inception, the variable interest entity was partially funded by an equity investment equal to 3% of total capitalization from a third party financial institution. The remaining funding for the variable interest entity was provided by third party commercial banks in the form of long-term debt and is secured by the facility and partially guaranteed by the Company. The Company’s agreement with the variable interest entity provides the Company with a purchase option that approximates the original cost of the $30.5 million facility. In the event that the lease is not extended or the purchase option is not elected, the facility may be sold by the entity. The proceeds from such a sale are to be applied to the remaining debt obligations of the variable interest entity. The Company has agreed to guarantee any difference between the proceeds of the sale and the remaining debt obligations of the variable interest entity up to approximately $25.6 million.

Rental Income Under Operating Leases. The Company leases billboards to customers in Japan under long-term leases. The lease arrangements have initial lease terms of three to six years. Minimum future rental income on noncancelable leases as of March 31, 2003, are as follows (in thousands):

Minority Interest Buy-out. On October 10, 1996, the Company purchased 51% of PMKK. Terms of the purchase agreement provided for a call option whereby the Company had the right beginning in May 2002 to purchase the remaining 49% of PMKK at a price calculated based upon an earnings multiple pursuant to the call formula as defined in the purchase agreement. The terms of the purchase agreement also provided for a put option whereby the minority shareholders, effective May 2003, have the right to require the Company to purchase the remaining 49% of PMKK at a price calculated based upon an earnings multiple pursuant to the put formula as defined in the purchase agreement.

In May 2003, the Company, through one of its wholly-owned subsidiaries, exercised the call option (the “Option”) provided in the PMKK purchase agreement to acquire the remaining 49% from the minority interest shareholders for $23.2 million in cash based on foreign exchange rates at the payment date. Using the purchase method of accounting, this transaction will create additional goodwill of $22.7 million. The Company exercised the call option to reduce the adverse financial impact that would have resulted from the exercise of a put option available to the minority shareholders. Under the guidelines of SFAS No. 142, goodwill must be tested at least annually and whenever events or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Accordingly, the Company has updated its annual impairment test and expects to record an impairment charge of approximately $20.8 million during fiscal year 2004. Both the impact of the Option and the resulting impairment charge will be recorded in the Company’s consolidated financial statements as of June 30, 2003.

Contingent Earn Out Payment. As part of the Restructuring and Amendment Agreement executed in 1999 between the Company and the joint venture partners in the Company’s Japanese operations, the Company is obligated to pay these joint venture partners a final deferred earn out payment based on the future operating results of the Catalina Marketing Japan coupon business. The contingency stipulates a potential earn out payment based on a predetermined formula measuring earnings during four consecutive quarters within the years 2006 and 2007. The Company is not able to estimate the amount of this contingent payment which is based on future earnings; however, the ultimate amount of this payment, if any, could be material.

Guarantees. The Company guarantees all outstanding balances under the various credit agreements entered into by its Japan Subsidiary (“Japan Credit Facilities”) to finance capital expenditures and fund the current operating requirements of the Japan Subsidiary. Available credit under the Japan Credit Facilities totaled 3.6 billion yen at March 31, 2003, which translates to approximately $30.5 million based on March 31, 2003 currency exchange rates. Available credit under the Japan Credit Facilities totaled 4.1 billion yen at March 31, 2004, which translates to approximately $39.3 million based on March 31, 2004 currency exchange rates. Expiration dates for the Japan Credit Facilities range from August 31, 2004 to March 31, 2005. At March 31, 2003, the balance under the Japan Credit Facilities was approximately $3.2 million of short-term debt and $18.4 million of long-term debt. The balance outstanding related to other debt obligations in Japan at March 31, 2003, was $3.1 million of short-term debt and $2.0 million of long-term debt. These amounts are included in the Consolidated Balance Sheets.

Purchase Commitments. The Company has a purchase commitment to a vendor for the purchase of certain customized store equipment, which are used in the normal course of business, pursuant to a contract which extends through November 2007. The outstanding balance under this purchase commitment as of March 31, 2003 was $18.3 million. The Company also has a commitment to purchase the safety stock of paper supplies stored at the supplier’s warehouse on the Company’s behalf. As of March 31, 2003, there was approximately $1.3 million of paper stock for which the Company was committed to purchase in the event the supplier’s services were terminated by the Company.

The Company’s annual obligation for purchases of the customized store equipment is as follows (dollars in thousands):

Sales Tax Assessment. A sales and use tax audit for the period January 1, 1991 to June 30, 1993 was conducted by a state taxing authority resulting in an assessment of sales tax on the Company’s revenue generated from its electronic marketing delivery service conducted within that state. The Company timely appealed this assessment to the relevant tax tribunal. The tax tribunal held that the electronic marketing delivery activities of the Company were taxable in their entirety. On March 5, 2002, the state’s intermediate court of appeals affirmed the decision of the tax tribunal. At the time of the decision, the Company’s management concluded that it was probable that a liability had been incurred at the date of the financial statements and that the amount of loss could be reasonably estimated. As a result, the Company accrued a contingency of $3.0 million for the estimated assessment. As of March 31, 2003, the Company increased its contingency to $3.5 million. The Company appealed the case to the state’s supreme court. On May 5, 2004, the state supreme court vacated the prior decision, remanded the case back to the tax tribunal and directed the tax tribunal to apply a different legal test. The Company does not yet know the final outcome of the case. The estimated contingency is tied to the final court decision as well as the Company’s revenue generating activities within the state and, it is reasonably possible that the estimated loss contingency will change in the near term. In the opinion of management, the ultimate outcome of this litigation will not have a material adverse effect on the Company’s financial statements. The Company believes that its tax return positions are consistent with applicable tax laws, however, these positions are subject to review and may be challenged by taxing authorities.

Income Tax Contingency. Despite the Company’s belief that its income tax return positions are consistent with applicable tax laws, the Company believes that certain positions are likely to be challenged by taxing authorities. The Company is party to various claims and matters of litigation and tax assessments incidental to the normal course of its business. The Company records contingencies for these potential losses once they are deemed probable and estimable. Management believes that the final resolution of these tax matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

NYSE Listing Requirements. Ongoing review of its public filings by the SEC may require the Company to further amend or restate its periodic reports. Additionally, the Company is not currently in compliance with the listing requirements of the NYSE. As a result, the NYSE may delist the Company’s common stock or take other adverse action if the Company is unable to return to compliance with NYSE listing requirements. These requirements include the obligation to file its periodic reports on a timely basis and hold an annual meeting of stockholders during each fiscal year. The Company will not be able to hold its annual meeting of stockholders until after its Annual Report on Form 10-K for the fiscal year ended March 31, 2004 has been filed. As of the date of the filing of this Annual Report on Form 10-K the NYSE has not taken any delisting or other action against the Company.

Government Investigations. On March 4, 2004, the SEC issued a formal order of private investigation that made formal an informal investigation previously initiated by the SEC. The informal investigation was initiated by the SEC after representatives of the Company contacted the SEC on June 30, 2003 to inform the Staff of certain revenue recognition timing issues that management of the Company identified at CHR. The Company believes that the SEC’s inquiry is focused primarily on the revenue recognition timing issues at CHR during fiscal years 2001, 2002 and 2003, which fiscal years are the subject of the various adjustments and restatements described in Note 3. Since the initiation of the informal investigation and through the date of the filing of this Annual Report on Form 10-K, the Company has been cooperating with the SEC in connection with its investigation, including through in-person meetings between Company representatives and the SEC Staff, and the provision to the SEC of information and numerous documents. In addition, the Company has made available as witnesses those individuals under its control in response to the SEC’s inquiries and requests. Other than the SEC investigation, as of the date hereof, the Company is not aware of any additional inquiry or investigation having been commenced against the Company related to these matters, but it cannot predict whether or not any such regulatory inquiry or investigation will be commenced or, if it is, the outcome of any such inquiry or investigation. If the investigation was to result in a regulatory proceeding or action against the Company, the Company’s business and financial condition could be harmed.

Other Legal Matters. In addition, the Company is involved in claims and litigation arising out of the Company’s business, including claims and litigation brought against the Company, and litigation initiated by the Company to protect its intellectual property. The Company records accruals for losses arising from these claims and litigation once they are deemed probable and estimable. In May 2002 the Company was sued by Expanse Networks, Inc. (“Expanse”) for patent infringement in the United States District Court for the Eastern District of Pennsylvania. The case is currently scheduled for trial in July, 2004. Expanse alleges that the Company infringes two Expanse patents directed to certain specific computer implemented methods for mathematically processing consumer purchase history data to generate and then use a consumer profile. Expanse seeks damages and injunctive relief in the case. The Company has denied Expanse’s claims based on, among other defenses, its assertion that the Company is not infringing the Expanse patents at issue in this action. In addition, the Company believes that, in the event that the Court determines that any of the Company’s various business activities are covered by the Expanse patents, the Expanse patents are invalid for various reasons, including that they are subject to prior use and activities that render the patents invalid. Management is unable to determine what potential losses the Company may incur if this lawsuit were to have an unfavorable outcome. The Company intends to continue to vigorously defend itself in connection with this matter.

Subsequent to March 31, 2003, the Company, and certain present and former officers and directors of the Company and CHR, were named as defendants in numerous complaints purporting to be class actions which were filed in the United States District Court for the Middle District of Florida, Tampa Division, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The actions are brought on behalf of those who purchased the Company’s common stock between January 17, 2002 and August 25, 2003 inclusive. The complaints contain varying allegations, including that, during the alleged class period, the defendants issued false and misleading statements concerning the Company’s business and operations with the result of artificially inflating the Company’s share price and maintained inadequate internal controls. The complaints seek unspecified compensatory damages and other relief. In October 2003, the complaints were consolidated in the United States District Court for the Middle District of Florida and given the caption In re Catalina Marketing Corporation Securities Litigation, Case No. 8:03-CV-1582-T-27TBM. In December 2003, Virginia P. Anderson and the Alaska Electric Pension Fund were named as co-lead plaintiffs (the “Lead Plaintiffs”). In January 2004, the Court ordered that Lead Plaintiffs file their Consolidated Amended Class Action Complaint thirty days after the filing of the Company’s revised financial statements. The Company intends to vigorously defend against these lawsuits. Management of the Company cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material, and the resolution of these lawsuits may harm the Company’s business and have a material adverse impact on the Company’s financial condition.

Certain present and former officers and directors of the Company and CHR, and Catalina Marketing Corporation, as a nominal defendant, have been named in two shareholder derivative actions entitled The Booth Family Trust v. Frank H. Barker, et al., Case No. 20510-NC, commenced in the Court of Chancery for the State of Delaware in and for New Castle County, and Craig Deeds v. Frank H. Barker, et al., Case No. 04-000862 commenced in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida. These shareholder derivative lawsuits allege that the defendants breached various fiduciary duties based upon the same general set of alleged facts and circumstances as the federal shareholder suits. The plaintiffs seek unspecified compensatory damages, restitution of improper salaries, insider trading profits and payments from the Company, and disgorgement under the Sarbanes-Oxley Act of 2002. In December 2003, these actions were stayed pending a ruling by the district court on the anticipated motion to dismiss the Consolidated Amended Class Action Complaint in the federal securities action. Management of the Company cannot currently predict the impact or resolution of this litigation or reasonably estimate a range of possible loss, which could be material, and the resolution of these lawsuits may harm the Company’s business and have a material adverse impact on the Company’s financial condition.

The Company administers the following plans which were approved by the Company’s Board of Directors and Stockholders: The 1989 Stock Option Plan (the “1989 Plan”), which expired on April 26, 1999 and was replaced with the 1999 Stock Option Plan (the “1999 Plan”); a stock grant plan, the Catalina Marketing Corporation 1992 Director Stock Grant Plan (the “1992 Grant Plan”), which expired on October 27, 2002 and was replaced with the Catalina Marketing Corporation 2002 Director Stock Grant Plan (the “2002 Grant Plan”); and an employee stock purchase plan, the Catalina Marketing Corporation Employee Payroll Deduction Stock Purchase Plan (the “Purchase Plan”).

1989 Stock Option Plan. Pursuant to the 1989 Plan, 17,250,000 shares of the Company’s common stock were reserved for issuance upon the exercise of options granted under the 1989 Plan. Through March 31, 2003, options to purchase an aggregate of 15,005,945 shares were granted, net of cancellations, of which options to purchase 2,900,308 shares were outstanding as of March 31, 2003.

The 1989 Plan provided for grants of Incentive Stock Options (“ISOs”) to employees (including employee directors). Options granted under the 1989 Plan generally became exercisable at a rate of 25% per

year (20% per year for initial grants to new employees), commencing one year after the date of grant and generally had granted options to up to ten years. Certain options under the 1989 Plan, which were granted to certain executives of the Company, vest after eight years and have an accelerated vesting schedule based upon the Company reaching specified earnings per share targets. The exercise price of all ISOs granted under the 1989 Plan was required to be at least equal to the fair market value of the shares on the date of grant.

1999 Stock Option Plan. Pursuant to the 1999 Plan, 9,900,000 shares of the Company’s common stock are reserved for issuance upon the exercise of options granted under the 1999 Plan. Through March 31, 2003, options to purchase an aggregate of 5,839,808 shares have been granted, net of cancellations, under the 1999 Plan, of which options to purchase 5,583,678 shares were outstanding as of March 31, 2003.

The 1999 Plan provides for grants of ISOs to employees (including employee directors). For non-sales employees, options granted under the 1999 Plan generally become exercisable at a rate of 25% per year (20% per year for initial grants to new employees), commencing one year after the date of grant. For sales employees, initial grants to new employees vest at 20% in years 2 and 3, and 30% in years 4 and 5. Annual grants vest at 15% in years 1 and 2, 20% in year 3 and 25% in years 4 and 5. Generally, options have terms of up to ten years. Certain options under the 1999 Plan vest after eight years and provide for accelerated vesting based upon reaching specified earnings per share targets. The exercise price of all ISOs granted under the 1999 Plan must be at least equal to the fair market value of the shares on the date of grant.

Aggregate Stock Option Activity. As of March 31, 2003, options to purchase an aggregate of 12,421,767 shares had been exercised, including options to purchase 60,000 shares granted outside of any plan; options to purchase an aggregate of 8,483,986 shares were outstanding; and 4,060,192 shares remained available for future grants under the 1999 Plan. Of the options outstanding as of fiscal years 2003, 2002 and 2001, options to purchase 2,372,198, 2,057,231 and 2,492,908 shares respectively, were immediately exercisable, with weighted average exercise prices of $27.10, $23.22 and $19.01, respectively.

Stock option activity for fiscal years 2003, 2002 and 2001 for the 1989 and 1999 Stock Option Plans is as follows:

1992 Director Stock Grant Plan. The 1992 Grant Plan provided for grants of common stock to non-employee members of the Board of Directors. A total of 300,000 shares of the Company’s common stock were authorized for issuance under the 1992 Grant Plan. As of March 31, 2003, 141,930 shares had been granted, net of cancellations. The 1992 Grant Plan expired on October 27, 2002; therefore, no shares are available for future grants under the 1992 Grant Plan. Stock granted under the 1992 Grant Plan vests ratably in annual installments over each director’s remaining term. In fiscal years 2003, 2002 and 2001, the Company granted common stock pursuant to this plan in the amounts of 16,500 shares at a weighted average grant-date fair value of $24.56 per share; 12,000 shares at a weighted average grant-date fair value of $33.46 per share and 10,834 shares at a weighted average grant-date fair value of $33.90 per share, respectively.

2002 Director Stock Grant Plan. The 2002 Grant Plan provides for grants of common stock to non-employee members of the Board of Directors and is intended to replace the 1992 Grant Plan. A total of 250,000 shares of the Company’s common stock were authorized for issuance under the 2002 Grant Plan. As of March 31, 2003, no shares had been granted from the 2002 Grant Plan leaving 250,000 shares available for future grants under the 2002 Grant Plan. Stock granted under the 2002 Grant Plan vests ratably in annual installments over each director’s remaining term.

Employee Stock Purchase Plan. Pursuant to the Purchase Plan, 900,000 shares of the Company’s common stock were reserved for issuance. For fiscal years 2003, 2002 and 2001, 92,679, 71,246, and 59,102 shares at a weighted average fair value of $22.55, $29.96, and $34.09 respectively, were issued to employees. Total shares available for future grant totaled 275,351 as of March 31, 2003.

Under the Purchase Plan, employees may purchase Company common stock at 85% of the market price on the first or last day of an offering period. The maximum each employee may purchase in an offering period shall not exceed $12,500 in market value of the Company’s common stock. The Company will typically have two six-month offering periods each year. The Purchase Plan qualifies under Section 423 of the Internal Revenue Code of 1986.

The Company has adopted a Stockholder Protection Plan (the “Protection Plan”). To implement this Protection Plan, the Company declared a dividend of one Preferred Share Purchase Right on each outstanding share of the Company’s common stock. The dividend distribution was payable to stockholders of record on May 12, 1997. The rights will be exercisable for fractions of a share of the Company’s Series X Junior Participating Preferred Stock only if a person or group acquires 15% or more of the Company’s common stock or announces or commences a tender offer for 15% or more of the common stock, except for certain instances defined in the Protection Plan.

The Company maintains a 401(k) Savings Plan, which provides benefits for substantially all employees of the Company who meet minimum age and length-of-service requirements. Amounts charged to expense for this plan totaled $1.2 million, $1.0 million and $1.0 million in fiscal years 2003, 2002 and 2001, respectively.

The Company maintains a non-qualified deferred compensation plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is designed to permit certain employees and directors of the Company to defer a portion of their compensation. The Deferred Compensation Plan allows participants to elect deferral of certain types of compensation, including directors fees, stock grants under the 1992 and 2002 Grant Plans and shares issuable upon the exercise of stock options, into stock units in the Deferred Compensation Plan, each of which represents a share of the Company’s common stock, and creates the Catalina Marketing Corporation Deferred Compensation Trust (the “Trust”). Amounts deposited in stock unit accounts are distributed in the form of shares of the Company’s common stock upon a payment event. Through the Trust, investment options such as mutual funds and money market funds are available to participants.

The Company follows the accounting guidance in EITF Issue No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested.” As such, the accounts of the rabbi trust have been included in the Consolidated Financial Statements of the Company. The investment in assets other than stock units of the Company and the related liability in the Deferred Compensation Plan are included in Investments held in trust and Accrued expenses in the Company’s Consolidated Balance Sheets, respectively. The Company determined that all of its Deferred Compensation Plan investments currently held in mutual funds and money market funds are trading securities and as such are reported at fair value. Realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, recognized in net income during fiscal years 2003, 2002 and 2001 were a $1.2 million decrease to compensation expense, a $0.3 million increase to compensation expense, and a $1.3 million decrease to compensation expense, respectively. Participants’ elections to invest in Company stock units are irrevocable. These stock units are initially recorded at fair value in the Statement of Stockholders’ Equity and are not subsequently marked to market.

CHR administers the Health Resource Publishing Company 1995 Stock Option Plan (the “1995 Plan”), which was approved by the Board of Directors and stockholders of CHR.

Pursuant to the 1995 Plan, 1,250,000 shares of CHR’s common stock are reserved for issuance upon the exercise of options granted under the 1995 Plan. As of March 31, 2003, options to purchase an aggregate of 1,135,375 shares have been granted, net of cancellations; options to purchase an aggregate of 956,622 shares had been exercised; options to purchase an aggregate of 178,753 shares were outstanding; and 114,625 shares remained available for future grants under the 1995 Plan. Of the options outstanding as of fiscal years 2003, 2002 and 2001, options to purchase 104,158, 143,608 and 153,028 shares, respectively, were immediately exercisable, with weighted average exercise prices of $6.41, $4.86 and $2.26, respectively.

The 1995 Plan provides for grants of ISOs to employees (including employee directors) and non-qualified options to non-employee directors. Options granted under the 1995 Plan generally become exercisable at a rate of 25% per year or 20% per year for initial grants to new employees, commencing one year after the date of grant. Generally, options have terms of up to six years. Certain options under the 1995 Plan vest at a rate of 33% per year for the first two years and then vest 33% after six months, commencing one year after the date of grant. The exercise price of all ISOs granted under the 1995 Plan must be at least equal to the fair market value of the shares on the date of grant.

The Company accounts for gains and losses on the issuances of its subsidiaries’ stock as changes to paid-in capital. The Company’s subsidiary, CHR, has issued stock to employees and non-employee directors during the fiscal years ended March 31, 2003, 2002 and 2001. Information on CHR stock issuances and the resulting change in the Company’s ownership of this subsidiary is included in the following table. Discussion of the

Company’s purchase of CHR shares in fiscal year 2003 is included in Note 4. (Amounts in thousands, except per share and percentage data.)

The Company’s subsidiary, Supermarkets Online, Inc., (“SMO”) which is included within the Manufacturer Services segment, had issued stock to employees and non-employee directors during the fiscal years ended March 31, 2002 and 2001. Information on SMO stock issuances and the resulting change in the Company’s ownership of this subsidiary is as follows (amounts in thousands, except per share and percentage data):

In addition to the purchase of shares of SMO, in fiscal year 2001, the Company purchased the outstanding minority interest in SMO Holdings, the parent company of SMO, for $10.5 million. See additional discussion in Note 4.

In fiscal year 2002, the Company implemented a plan to provide healthcare benefits to certain eligible retirees and active employees and their eligible dependents. Benefits are funded from the Company’s assets on a current basis. Plan benefits are subject to co-payments, deductibles and other limits as defined. The Company’s funding of the cost of healthcare benefits is at the discretion of management. A detail of the net periodic expense is as follows (in thousands):

The amortization of unrecognized prior service costs of $0.7 million recognized in 2003 and 2002 represents the effect of the plan implementation in 2002 and the related benefits attributed to the participants’ service provided in prior years, which are amortized straight-line over the average remaining years of service to full eligibility for benefits of the active plan participants, of 2.7 years.

The following table represents the Company’s accumulated postretirement benefit obligation and funded status for the fiscal years ended March 31, 2003 and 2002 (in thousands):

For measurement purposes, a weighted average discount rate of 6.5% and annual rate of increase in the per capita cost of healthcare benefits of 14% was assumed for the fiscal year ended March 31, 2003. The per capita cost of healthcare benefits rate was assumed to decrease gradually to 5.5% for the fiscal year ending March 31, 2011 and remain at that level thereafter. For the fiscal year ended March 31, 2002, a weighted average discount rate of 7% and an annual rate of increase in the per capita cost of healthcare benefits of 15% was assumed, and the per capita cost of healthcare benefits rate was assumed to decrease gradually to 5.5% for the fiscal year ending March 31, 2008 and remain at that level thereafter.

Assumed healthcare cost trend rates may have a significant effect on the amounts reported for healthcare plans. A one-percentage-point change in the assumed healthcare cost trend rate would have the following effects (in thousands):

Description of Segments. See a description of the Company’s segments in Note 1. Summarized information related to the reportable segments for Catalina Marketing Corporation is shown below. These segments are reported in a manner consistent with the way management evaluates the businesses.

Basis for Presentation. In general, results of the operating segments are reported based on U.S. GAAP and the accounting policies are consistent with those described in Note 2. However, certain costs generated by the corporate group are allocated to the operating segments as discussed below. Furthermore, all of the significant domestic property and equipment is recorded by corporate, but the associated depreciation and amortization is allocated to the domestic operating segments.

Allocation of Corporate Group Operating Expenses. The Company’s corporate group operating expenses include costs for procurement, retail store support, retail fees, information technology, corporate accounting, client services, analytical services, marketing, human resources, and executive management, and are included in direct operating expenses, selling, general and administrative costs and depreciation and amortization expense in the accompanying Consolidated Income Statements for the years ended March 31, 2003, 2002 and 2001. For purposes of segment reporting, these corporate costs are allocated to the Manufacturer Services, Retail Services, DMS, CHR, and CMRS business segments using methods considered reasonable by management and which provide management with a realistic measure of utilization of corporate services by the respective business segments. Of the total corporate group operating expenses, 77.6%, 75.9% and 68.7% were allocated to operating segments during the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

Segment Financial Data. A disaggregation of Catalina’s consolidated data for each of the three most recent years is presented in the tables which follow. All amounts for fiscal years 2002 and 2001 are as restated (in thousands).

Revenues from a single customer represented approximately 10.3%, 8.7% and 7.9% of consolidated revenues of the Company for fiscal years 2003, 2002 and 2001, respectively. Revenues from this customer are included in Manufacturer Services, International and DMS.


(1)	Interest income is not significant at any of the Company’s reportable segments.

No single country outside of the United States comprised 10% or more of the Company’s revenues from external customers.

The following table presents certain unaudited quarterly results for the last eight quarters. As discussed in Note 3, the unaudited quarterly information for each of the four quarters of the fiscal years ended March 31,

2003 and 2002 has been restated. A comparison of previously reported and restated unaudited quarterly financial information is presented within the tables below:


(1)	Unaudited results for the three months ended March 31, 2003 were previously reported on Current Report on Form 8-K on May 8, 2003.

During the fourth quarter of fiscal year 2003, the Company conducted an impairment assessment under SFAS No. 144 of certain intangible assets and property and equipment related to our operations in the UK, and recorded an impairment charge of $11.1 million during that period. Subsequent to the fourth quarter of fiscal year 2003, as part of its investigation (as described in Note 3), the Company determined that the impairment for these assets should have been recorded in fiscal years 2001 and 2000. Accordingly, the impairment for these assets was recorded as a restatement for those earlier years, and a corresponding adjustment was made to correct the fourth quarter of fiscal year 2003. See also Note 6.

In fiscal year 2003, the Company made donations totaling $0.4 million to the Catalina Marketing Charitable Foundation (“the Foundation”), a not-for-profit charitable organization. The board of directors of the Foundation is comprised of certain executives of the Company, including the chief financial officer and a group president. No amounts were paid to the Foundation during fiscal years 2002 and 2001.

During each of the years ended March 31, 2003, 2002 and 2001, the Company made lease payments of $0.4 million to a lessor for the use of an office building. The lessor is an affiliate of the president of CMRS, who resigned from the Company during 2003.

In fiscal year 2001, the Company loaned $0.1 million to an executive officer of the company to provide certain benefits. The loan was repaid in full in fiscal year 2003.

In fiscal year 2000, the Company loaned an executive officer $0.1 million to provide certain benefits. This loan was paid in full in fiscal year 2003.

In June 2002, the Company made a tender offer for all of the eligible outstanding stock of its subsidiary CHR that was not owned by the Company. Pursuant to the tender offer, a Director sold 20,625 shares of CHR to the Company at a price equal to $33.00 per share.

In February 2003, the Company paid an executive officer $0.1 million in exchange for the cancellation of options to purchase 104,603 shares of common stock held by an executive officer.

In addition, from time to time, from April 2001 through March 2002, the Company loaned an executive officer an aggregate amount of approximately $0.1 million. The Company made advances under these loans to this executive on a bi-weekly basis. The aggregate amount was repaid in fiscal year 2003.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 generally requires that costs associated with an exit or disposal activity be recognized as liabilities when incurred, rather than the date of commitment to an exit plan, and it establishes that fair value is the standard for initial measurement of such liabilities. SFAS No. 146 applies to exit or disposal activities that are initiated after December 31, 2002. The Company had no exit or disposal activity for the year ended December 31, 2003, but will apply the provisions of this Statement to the divestiture of Japan Billboard, DMS and CMRS.

inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing those guarantees on a prospective basis for guarantees issued or modified after December 31, 2002. FIN 45 requires disclosure in all financial statement presentations issued after December 15, 2002. The Company has adopted FIN 45 and accordingly, has included its existing guarantees in Note 10.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS No. 148”). SFAS No. 148 amends SFAS No. 123, to provide three alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting.” SFAS No. 148 is effective for fiscal years ended after December 15, 2002, with certain disclosure requirements effective for interim periods beginning after December 15, 2002. Accordingly, the Company has disclosed the required provisions in its Notes to the Consolidated Financial Statements for the year ended March 31, 2003. The Company has elected to follow APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock options through March 31, 2003. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement in Note 2.

In January 2003, the FASB issued FIN 46 which requires the consolidation of certain variable interest entities in which the investing enterprise does not have the characteristics of a controlling financial interest or does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. For variable interest entities created before February 1, 2003, FIN 46 requires measurement of the assets and liabilities of the variable interest entity at their carrying amounts. The provisions of FIN 46 regarding implementation date were revised by FIN 46 (revised) (“FIN 46R”). The provisions of FIN 46R should not have a material impact on the Company’s financial position or results of operations.

The Company has restated its Consolidated Financial Statements to reflect early adoption of FIN 46 effective as of fiscal year 2001 and has included the value of the building and related indebtedness in our Consolidated Financial Statements. Property and equipment and long-term debt increased by $30.5 million and $29.6 million, respectively. Minority interest has been increased by $0.9 million to reflect the 100% ownership interest held by the equity holders of the variable interest entity.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instrumental with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 established standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity in its balance sheet. It requires that companies classify a financial instrument that meets the criteria as a liability because that financial instrument embodies an obligation of the issuer. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and for existing financial instruments it is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of this Statement to have a material effect on its operating results, financial position or cash flows.

In December 2003, the FASB issued a revision to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This revision to SFAS No. 132 are intended to improve financial statement disclosures for defined benefit plans and was initiated in 2003 in response to concerns raised by investors and other users of financials statements about the needs for greater transparency of pension information. In particular, the standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant quantitative and qualitative information. The guidance is effective for fiscal years ended after December 15, 2003. See Note 16 to the Consolidated Financial Statements for information regarding the Company’s postretirement benefits obligations.

On January 12, 2004, the FASB issued FASB Staff Position No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” (“FSP 106-1”) in response to a new law regarding prescription drug benefits under Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Currently, SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” requires that changes in relevant law be considered in current measurement of postretirement benefit costs. However, certain accounting issues related to the federal subsidy remain unclear and significant uncertainties may exist that impair a plan sponsor’s ability to evaluate the direct effects of the new law and the effect on plan participants’ behavior and healthcare costs. Due to these uncertainties, FSP No. 106-1 provides plan sponsors with an opportunity to elect to defer recognizing the effects of the new law in accounting for its retiree health care benefit plans under SFAS No. 106, and to provide related disclosures until authoritative guidance from the FASB on the accounting for the federal subsidy is issued and clarification of other uncertainties is resolved. The Company has elected to defer recognition while evaluating the new law and the pending issuance of authoritative guidance and their effect, if any, on its financial position, results of operations and financial statement disclosures. Therefore, any measure of the accumulated postretirement benefit obligation or the net periodic postretirement benefit cost does not reflect the effects of the new law. Pending authoritative guidance could require that the Company change previously reported information.

The FASB has recently indicated that it expects to issue a proposal to change the recognition and measurement principles for equity-based compensation granted to employees and board members. The proposed rules could be implemented as early as the end of the 2004 calendar year. Under the proposed rules, the Company would be required to recognize compensation expense related to stock options granted to employees and board members after December 15, 2004. The compensation expense would be calculated based on the expected number of options expected to vest and would be recognized over the stock options’ vesting period. If this proposal is passed, the Company would be required to recognize compensation expense related to stock options granted to its employees or board members, which could have a material effect on its consolidated financial condition and results of operations.

The Audit Committee of the Company’s Board of Directors annually considers and recommends to the Board of Directors the selection of the Company’s independent auditor. As recommended by the Company’s Audit Committee, the Company’s Board of Directors determined that it would no longer engage Arthur Andersen LLP (“Andersen”), effective May 23, 2002, as its independent auditor. At that time, our Board of Directors also agreed with the Audit Committee’s recommendation to engage Ernst & Young LLP (“E&Y”) to serve as the Company’s independent certified public accountants for the fiscal year ended March 31, 2003. The appointment of E&Y was ratified by the Company’s stockholders at the 2002 annual meeting held on July 25, 2002. E&Y resigned as the Company’s independent certified public accountants on August 20, 2003. Based on the recommendation of the Audit Committee of our Board of Directors, on October 2, 2003, our Board of Directors engaged PricewaterhouseCoopers, LLP (“PwC”) to serve as the Company’s independent certified public accountants.

The report of Andersen on the Company’s Consolidated Financial Statements for the fiscal year ended March 31, 2002 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, and there was no disagreement with Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to Andersen’s satisfaction, would have caused them to make reference thereto in their report on the financial statements, and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

On August 26, 2003, the Company filed a report on Form 8-K disclosing, among other things, (i) that E&Y had resigned as the Company’s independent certified public accountants (ii) five matters with respect to which E&Y had questioned the Company’s accounting treatment, (iii) that E&Y had informed the Company that, as a result of these matters, E&Y was unwilling to be associated with any of the Company’s financial statements until these matters were resolved to their satisfaction and would need to expand significantly the scope of its audit, and (iv) that E&Y had informed the Company’s management, its Audit Committee and its Board of Directors that certain matters had come to E&Y’s attention that, if investigated further, may materially impact the fairness and reliability of previously issued financial statements and the report thereon of the Company’s predecessor independent certified public accountants, the previously filed unaudited interim financial statements and the reports thereon, and financial statements to be issued covering subsequent periods.

For a discussion of the five matters identified by E&Y, see Item 1 — “Recent Developments — Restatement of Financial Information for Fiscal Years 2002, 2001, 2000 and 1999” in Item 1 — “Business” and “Delay in Filing Our Financial Statements for the Fiscal Year Ended March 31, 2003, and Restatements of Our Financial Statements for the Fiscal Years Ended March 31, 2002 and March 31, 2003” and Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Specifically, in connection with its audit of the Company’s consolidated financial statements for the fiscal year ended March 31, 2003, which E&Y commenced but did not complete prior to its resignation and prior to the satisfactory resolution of these matters, E&Y questioned whether the Company’s accounting treatment of its customer arrangements in Manufacturer Services and CHR with respect to certain exclusivity rights granted to customers for the contractual periods of such arrangements was in accordance with U.S. GAAP.

In addition, the Company indicated in its report on Form 8-K filed on August 26, 2003, that the Company interpreted the five exceptions contained in that report on Form 8-K to mean that E&Y had identified five “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K) and that no “disagreements” (as described in Item 304(a)(1)(iv) of Regulation S-K) existed between the Company and E&Y. On or about September 2, 2003, the Company received a letter from E&Y stating, among other things, that E&Y believed that there existed a disagreement between the Company and E&Y over the Company’s accounting treatment of customer contracts containing exclusivity provisions and requesting clarification of the Company’s intent related to this matter. On September 16, 2003, the Company amended its report on Form 8-K filed on August 26, 2003 to state that the Company believed that no such disagreement existed between E&Y and the Company. The Company’s belief was based, in part, on the timing of E&Y’s

resignation. Company was still in the process of evaluating this issue and had not formed an opinion which could be the basis of a disagreement with E&Y under Item 304(a)(1)(iv) of Regulation S-K. In addition, in July 2003, as part of the Company’s continuing discussions with the Staff of the SEC, the Company advised the SEC of this and other related matters. In February 2004, the Company received a response from the Staff of the Office of the Chief Accountant of the SEC stating that it does not object to the Company’s revenue recognition methodology for certain Manufacturer Services customer contracts containing exclusivity provisions. Based, in part, on these discussions and the response received from the SEC Staff, the Company has determined, with the agreement of its current independent certified public accountants, PwC, not to change its accounting treatment of customer contracts containing exclusivity provisions. E&Y resigned prior to stating its recommendation as to the method that the Company should follow to account for these customer arrangements.

The Company authorized E&Y to respond fully to any inquiries of the successor accountants concerning these matters. During the Company’s two most recent fiscal years through May 23, 2002, the Company did not consult with E&Y with respect to the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or any other matters or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.

During the Company’s two most recent fiscal years and prior to October 2, 2003, the Company did not consult with PwC with respect to the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or any other matters or reportable events listed in Item 304(a)(2)(i) and (ii) of Regulation S-K.

An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-14(c) under the Exchange Act), as of March 31, 2003, was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of March 31, 2003 were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. These conclusions are as of March 31, 2003 and are subject to our subsequent evaluation, actions and conclusions discussed below. In addition, we note that there were no significant changes in our “internal control over financial reporting” (as defined in rule 13a-15(f) under the Exchange Act) that occurred during our fiscal year 2003 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Since March 31, 2003, we have continued to evaluate the effectiveness and design of our disclosure controls and procedures in light of subsequent developments with respect to our financial reporting as further discussed below and the matters described in Item 9 — “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure”. As part of our ongoing evaluation, in June 2003, our accounting and finance personnel began an extensive effort to analyze our financial information and related accounting records for the fiscal years ended March 31, 2003, 2002 and 2001. These continuing efforts, along with efforts undertaken to position our Chief Executive Officer and our Chief Financial Officer to satisfy their certification requirements under the Sarbanes-Oxley Act of 2002 and related rules, identified a number of the items for review, as described below. In addition, PwC, in connection with its audit and review of the Company’s internal controls, has communicated to our Audit Committee and senior management its findings with respect to internal control over financial reporting issues, including certain “material weaknesses” and “significant deficiencies,” as defined under standards established by the American Institute of Certified Public Account-

ants. Management, in performing its evaluation, also considered PwC’s findings. This evaluation allowed us and our Chief Executive Officer and our Chief Financial Officer to make conclusions, as of May 2004, regarding the state of our disclosure controls and procedures. The evaluation is ongoing and, accordingly, the Company and our certifying officers may make additional conclusions and take additional actions, from time to time, as we may deem necessary or desirable.

As a result of the recent audit procedures and our continuing efforts to evaluate the effectiveness of the design and operation of our disclosure controls and procedures and our internal controls over financial reporting, PwC has advised us, and we have concluded, that the following internal control deficiencies constituted material weaknesses or significant deficiencies, during the fiscal years ended and as of March 31, 2003, 2002 and 2001. In addition, we have identified opportunities to correct these weaknesses and deficiencies. While a number of these weaknesses and deficiencies were found to exist in CHR, however, certain of the accounting principles addressed in our recent audit activities and other efforts apply to other segments of the Company’s business. We outline these below.


	•	Deficiencies related to the structure and design of certain financial information reporting processes. We identified deficiencies in our accounting processes for the timing of recognition of revenue in CHR. Specifically, we discovered that in certain instances (i) we recognized revenue for services in periods prior to the periods in which such services were performed and (ii) we did not account for certain oral and written modifications to written agreements in determining the proper recognition of revenues under such agreements, which resulted in revenues being recognized during incorrect periods.

	•	Deficiencies related to inadequate or ineffective policies for documenting transactions. We identified deficiencies in documenting and accounting for transactions and in connection with our related policies and practices. Specifically, we identified various transactions in which we applied policies or procedures in a manner that resulted in us prematurely recognizing revenue. We discovered instances where some of our employees failed to follow policies, processes and procedures that were in place for transactions involving the execution of written agreements. In addition, we discovered practices of our employees with respect to which we had not adopted adequate procedures.

	•	Deficiencies related to design of policies and execution of processes related to accounting for transactions. We identified deficiencies in accounting for certain aspects of our operations. We discovered deficiencies in our policies and processes for supporting our accounting practices relating to transfer pricing and fair value calculations, verifying account balances and foreign currency translation adjustments; accounting for property and equipment, goodwill, patents, capitalization of software development costs, accruals and minority interests; and determining and disclosing the fair value of stock-based compensation.

	•	Deficiencies related to the internal control environment. As a result of the deficiencies described above, we concluded that there were deficiencies in the internal control environment (relating to accounting, financial reporting and internal controls) during the fiscal years ended March 31, 2003, 2002 and 2001 which constituted, at times, a material weakness and, at other times, a significant deficiency. Under the supervision of the Audit Committee, we have taken steps to address these material weaknesses and significant deficiencies as described below. We continue to emphasize the importance of establishing the appropriate environment in relation to accounting, financial reporting and internal control over financial reporting and being vigilant to identify areas of improvement and to create and implement new policies and procedures where material weaknesses or significant deficiencies exist.

Since May 2003, we have taken a number of steps that we believe will impact the effectiveness of our internal control over financial reporting including the following:


	•	In May 2003, we assigned one of our senior executives to assume principal oversight responsibility for CHR and its operations, specifically in connection with developing and implementing appropriate disclosure controls and procedures and internal controls over financial reporting.

	•	In September 2003, we appointed a new corporate controller of CHR.


	•	In November 2003, we adopted the Catalina Health Resource Selling Policies and Procedures. These policies and procedures, as well as other policies adopted by the Company, provide the following:


	•	Require all participants in CHR programs to execute written contracts, including amendments to existing contracts, in each case, in form and substance approved by the Company’s Executive Counsel for Legal Affairs or authorized CHR officers.

	•	Restrict CHR employees from commencing or changing a program prior to the Company receiving a signed contract or amendment to an existing contract.

	•	Limit the duration of programs and printing amounts to limits set forth in signed contracts or amendments to existing contracts.

	•	Limit deviations from CHR standard contract clauses without prior approval by CHR authorized officers.


	•	In November 2003, we established compliance training programs for the Company’s employees related to the policies described above and contained in the Catalina Health Resource Selling Policies and Procedures.

	•	In February 2004, we appointed a new president of CHR.

	•	In March 2004, we completed the relocation of our CHR operations related to finance, database operations, contract administration, procurement and human resources from our offices located in St. Louis, Missouri, to our headquarters in St. Petersburg, Florida, in order to monitor these operations more closely.

	•	We have engaged outside resources to supplement our finance and accounting departments to support the preparation of financial statements and reports that are to be filed with the SEC.

	•	We are re-evaluating prior policies and procedures and have established new policies and procedures for transactions, account reconciliation procedures and contract management procedures.

We believe that the steps taken to date have addressed the material weaknesses and significant deficiencies that affected our disclosure controls and procedures in fiscal years 2003, 2002 and 2001. We will continue with our ongoing evaluation and will improve our disclosure controls and procedures as necessary to assure their effectiveness.

The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will prevent all errors or ensure that all material information will be made known to appropriate management in a timely fashion. In addition, our ability to report our financial condition could be adversely affected if we are unsuccessful in our efforts to permanently and effectively remedy weaknesses or deficiencies in our internal control over financial reporting.

The statements contained in paragraph 4(a) of Exhibit 31.1 and Exhibit 31.2 should be considered in light of, and read together with, the information set forth in this Item 9A of this Annual Report on Form 10-K.

The following tables set forth the names, ages, positions and offices held by the directors of the Company and executive officers and other significant employees of the Company as of March 31, 2004 and as of March 31, 2003, respectively.


(1)	Resignation effective as of April 22, 2003.

(2)	Resignation effective as of November 3, 2003.

(3)	Resignation effective as of September 11, 2003.

(4)	Resignation effective as of April 11, 2003.

(5)	Resignation effective as of November 30, 2003.

The Board of Directors is divided into three classes, with each class holding office for staggered three-year terms. The terms of Class I Directors Frank H. Barker and Peter T. Tattle expire in 2004 and the terms of Class II Directors Frederick W. Beinecke, L. Dick Buell and Evelyn V. Follit expire in 2005. The stated terms of Class III Directors Anne MacDonald and Michael B. Wilson expired in 2003. These Class III Directors

will continue to serve as directors until such time as such director resigns or such director’s successor is elected. All executive officers of the Company are chosen by the Board of Directors and serve at the Board of Director’s discretion. No family relationships exist between any of the officers or directors of the Company.

Below you can find biographical information about the current members of our Board of Directors and our current executive officers.

Frederick W. Beinecke was elected as a director of the Company in January 1993, and as Chairman of the Board of Directors in November 2003, and also served as a director of the Company from 1985 until January 1990. He has been the President of Antaeus Enterprises, Inc., a venture capital and marketable securities investment company since 1982. Mr. Beinecke is also a director of several private companies.

L. Dick Buell has served as Chief Executive Officer and director of the Company since March 2004. Prior to joining the Company, Mr. Buell served as Chairman of the Board and Chief Executive Officer of WS Brands, a holding company within Willis Stein & Partners, a private equity investment partnership, with authority over the acquisition of businesses within the consumer packaged goods industry from January 2002 to January 2004. From February 2000 to December 2001, Mr. Buell was the President and Chief Operating Officer of Foodbrands America, Inc., a unit of Tyson Foods. Mr. Buell was employed by Griffith Laboratories, Inc., from June 1989 to December 1999, and served as Chief Executive Officer from 1992 to 1999. From 1983 to 1989, Mr. Buell served as Vice President — Marketing, Grocery Products, for Kraft Foods, Inc. From 1978 to 1983, Mr. Buell was employed by McKinsey & Company. Mr. Buell is a Director and Chairman of the Audit Committee for Roundy’s, Inc.

Frank H. Barker, who was elected as a director of the Company in January 1996, served as President and Chief Executive Officer of U.S. Dermatologics, Inc., a topical therapeutic skin care company, from October 1997 until February 1999. He is currently the Chairman of U.S. Dermatologics, Inc. Until his retirement in January 1996, Mr. Barker served as Corporate Vice President responsible for public relations and government affairs and Company Group Chairman responsible for the ophthalmic business and the health promotion/disease prevention business of Johnson & Johnson. Mr. Barker had been employed by Johnson & Johnson for more than thirty years. Mr. Barker is also a director of Aradigm Corporation, a corporation engaged in the development of pulmonary drug delivery systems, and the Jenex Corporation, a Canadian OTC medical device company.

Evelyn V. Follit was elected as a director of the Company in February 2000. From October 1997 to present, Ms. Follit has been employed by the RadioShack Corporation as the Senior Vice President and Chief Information Officer and has served as Chief Organizational Enabling Services Officer since March 2003. From October 1996 to March 1997, Ms. Follit was the Vice President of Operations/ Engineering for ACNielsen, and from October 1984 to September 1996, she held various positions at Dun and Bradstreet.

Anne MacDonald was elected as a director of the Company in February 2001. Since October 1997, Ms. McDonald has been employed by Citibank, a division of Citigroup Inc., as the Managing Director of Global Marketing. From 1993 to 1997, Ms. MacDonald was the Vice President, Brand Marketing for the Pizza Hut division of PepsiCo. From 1983 to 1993, she was employed in various senior management capacities by NW Ayer, a privately held advertising agency.

Peter T. Tattle was elected as a director of the Company in January 2003. Mr. Tattle was employed by Johnson & Johnson for 36 years, from 1965 to 2001. Mr. Tattle served as a Group Company Chairman of Johnson & Johnson from October 1991 until his retirement in 2001, responsible for the pharmaceutical businesses in the Americas, Canada, Mexico, and Latin America for much of that time. Mr. Tattle also served as a member of Johnson & Johnson’s Pharmaceuticals Group Operating Committee. Mr. Tattle joined Johnson & Johnson in 1965 as a sales representative for the company’s affiliate, Ortho Pharmaceuticals Canada and held various senior positions in sales, marketing and product management throughout his career. Mr. Tattle is on the board of Xanthus Life Sciences, Incorporated, a privately held biotech firm, and serves as a non-voting member of the Advisory Board of DFB Pharmaceuticals. Mr. Tattle is also a director of Genta, Inc., a biopharmaceutical company. Mr. Tattle also has served on the Board for the Cancer Institute of New Jersey.

Michael B. Wilson was elected as a director of the Company in January 1993, and has performed consulting work for the Company since 1998. He was Vice President, Sales and Marketing, Consumer and Commercial Paper Products, for Georgia-Pacific Corporation until his retirement in September 1992.

Michael R. O’Brien served as Interim Chief Executive Officer of the Company from November 2003 to March 2004. Mr. O’Brien was one of the founders of the Company and previously served as Chairman and Chief Executive Officer of the Company until 1993.

Susan M. Klug has served as Group President since April 2003. Ms. Klug has also served as President, Catalina Marketing Services — Retailer and Direct Mail, an operating unit of the company, from January 2002 to April 2003. Prior to her appointment as President, Catalina Marketing Services — Retailer and Direct Mail, she served as Chief Marketing Officer and President, Catalina Marketing Solutions from April 2000 until January 2002. Prior to joining the Company, Ms. Klug served as Senior Vice President, Sales and Marketing for Albertsons/ Lucky Stores from February 1998 to February 2000, and as Senior Vice President, Sales and Marketing for The Vons Company from October 1994 to October 1997. Ms. Klug worked for the Company in various roles in sales and marketing from May 1989 to October 1994.

Christopher W. Wolf has served as Chief Financial Officer since June 2002 and as Executive Vice President since April 2003. He also served as Senior Vice President from June 2002 until April 2003. Prior to that, he served as Vice President of Finance from April 2000 to June 2002 and as Treasurer from July 1998 to June 2002. Mr. Wolf joined the Company in 1996 and has served in a variety of management positions for the Company. Prior to joining the Company, Mr. Wolf was employed by Arthur Andersen LLP for ten years.

The Audit Committee of our Board of Directors presently consists of the following members of the Company’s Board of Directors: Evelyn V. Follit, as co-chairperson, Frank H. Barker, as co-chairperson, and Anne MacDonald. Each of the members of the Audit Committee is “independent” as defined under the listing standards of the NYSE.

Section 16(a) of the Exchange Act requires the Company’s executive officers, directors and 10% stockholders to file reports regarding initial ownership and changes in ownership with the SEC and the NYSE in respect of their holdings of common stock of the Company. Executive officers, directors and 10% stockholders are required by the SEC regulations to furnish the Company with copies of all Section 16(a) forms they file in respect of their holdings of common stock of the Company. The Company’s information regarding compliance with Section 16(a) of the Exchange Act is based solely on a review of the copies of such reports furnished to the Company by the Company’s executive officers, directors and 10% stockholders. The Company is not aware of any noncompliance with the requirements of Section 16(a) of the Exchange Act to file reports during the Company’s fiscal years ended March 31, 2003 or March 31, 2004.

The Company has adopted a Code of Business Conduct and Ethics applicable to all employees, officers and directors of the Company. The Company will provide to any person without charge, upon request, a copy of the Company’s Code of Business Conduct and Ethics. Requests should be made in writing and sent to Catalina Marketing Corporation, 200 Carillon Parkway, St. Petersburg, Florida 33716.

The following table sets forth the compensation earned during the fiscal years indicated for services in all capacities by the individuals named therein, each of whom was an executive officer of the Company as of March 31, 2003.


		purchase 104,603 shares of common stock held by Mr. Granger. The payment represented the difference between the closing price of the common stock on the day the options were cancelled and the exercise price of Mr. Granger’s options.
(e)		Mr. Bechtol participated in specific performance based incentive plans in addition to the annual management incentive plan. The bonus paid with respect to fiscal year ended March 31, 2003 was based on achievement of goals as president of Catalina Marketing International. Mr. Bechtol is no longer employed by the Company but performs consulting services for the Company. In fiscal year 2004, we paid Mr. Bechtol $117,000 in connection with these services.
(f)		Mr. Diamond participated in specific performance based incentive plans in addition to the annual management incentive plan. Mr. Diamond is no longer employed by the Company but performs consulting services for the Company. In fiscal year 2004, we paid Mr. Diamond $161,000 in connection with these services.
(g)		The $225,000 in bonuses paid to Ms. Melanson in respect of fiscal year ended March 31, 2002 represents commissions earned in fiscal year 2002.

As of March 31, 2003, the Compensation Committee of our Board of Directors consisted of Frederick W. Beinecke as chairman, Patrick Collins, Michael B. Wilson and Anne MacDonald. Currently, the Compensation Committee consists of Frederick W. Beinecke as chairman, Peter T. Tattle, Michael B. Wilson and Anne MacDonald. No member of the Compensation Committee of our Board of Directors has been an officer or employee of the Company or any of its subsidiaries at any time. No executive officer of the Company serves as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our Board of Directors or the Compensation Committee of our Board of Directors.

The following graph compares the Company’s cumulative total return to stockholders from March 31, 1998 through March 31, 2003 with that of the New York Stock Exchange Index and a peer group consisting of: Acxiom Corporation, Advo, Inc., Alliance Data Systems Corporation, Harte Hanks, Inc., Information Resources, Inc., Interpublic Group of Companies, Inc., Quick Response Services, Inc., Spar Group, Inc., Valassis Communications, Inc., and WPP Group PLC (“New Peer Group Index”). The New Peer Group Index has been modified from the peer index included in the Company’s Proxy Statement dated June 21, 2002 (the “Old Peer Group Index”) as certain of the companies previously included were not engaged in a business similar to that of the Company as of March 31, 2003. The following graph also compares the Company’s cumulative total return to stockholders from March 31, 1998 through March 31, 2003 with that of the Old Peer Group Index. The Old Peer Group Index consisted of: Acxiom Corporation, Advo, Inc., Cendant Corporation, Concord EFS, Inc., Dun & Bradstreet Corporation, Grey Advertising, Inc., Information Resources, Inc., Quick Response Services, Inc., Spar Group, Inc. and Valassis Communications, Inc.


(1)	Assumes $100 invested on March 31, 1998, in the Company at a closing price of $17.54 on such date, the NYSE market index and the peer group as defined. Historical results are not necessarily indicative of future performance.

The Company is party to Change of Control Severance Agreements (“Severance Agreements”) with certain of its executive officers (the “Executives”). Each of the Severance Agreements terminates on April 6, 2006. The Severance Agreements provide that if an Executive’s employment is terminated by the Company or if an Executive resigns for “good reason” (which includes, among other things, a reduction in base salary or a reduction in the Executive’s title, position or responsibility) within two years after a change in control, such Executive will receive severance benefits. The Executives will also be entitled to severance benefits if after a “potential change in control” (which includes, among other things, the Company entering into an agreement that results in a change of control) but before a change of control actually occurs, an Executive’s employment is terminated by the Company or an Executive resigns for good reason. The severance benefit includes a cash lump-sum payment equal to a multiple (the “Severance Multiple”) of the Executive’s annual compensation then in effect. In addition, the Executive will receive a cash lump-sum payment equal to the sum of any

unpaid incentive compensation that has been allocated or awarded under any bonus or compensation plan. The Executive will also be entitled to life, disability, accident and health insurance benefits provided to the Executive and Executive’s spouse and dependents for a specified number of years (“Benefit Years”) from the date that Executive is entitled to receive severance benefits. If any of the Executive’s severance benefits are parachute payments as defined under the Internal Revenue Code, the Company has agreed to make additional payments to such Executive to compensate such Executive for his or her additional tax obligations.

The Company is party to Severance Agreements with L. Dick Buell, Christopher W. Wolf, and Susan M. Klug. The Severance Multiple and Benefit Years is 2.5 for Messrs. Buell and Wolf and Ms. Klug.

Each non-employee director receives an annual retainer of $25,000. Also, non-employee directors receive $1,500 per day for each one day meeting of our Board of Directors or a committee meeting of our Board of Directors attended in person. The Chairman of each committee receives $3,000 annually. Also, non-employee directors receive a fee of $750 for each telephonic Board or committee meeting in which they participate. All expenses in connection with attendance at such meetings are paid by the Company. Upon each election or re-election of a non-employee director, such director receives an aggregate of 6,000 restricted shares of common stock pursuant to the Company’s 2002 Director Stock Grant Plan, which grant vests ratably over the course of such director’s three-year term. The Company has agreed to pay Mr. Beinecke a fee of $50,000 in connection with his activities as the Chairman of the Company from November 2003 to March 2004. Employee directors receive no compensation for serving as members of our Board of Directors.

The following table sets forth as of March 31, 2004 or such other date as indicated in the table, certain information regarding the ownership of common stock of each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of the Company’s common stock, each of the Company’s directors, its chief executive officer and its four most highly compensated executive officers, and all directors and executive officers of the Company as a group.


(1)	The number of shares beneficially owned is determined in accordance with rules of the SEC, and includes generally voting power or investment power with respect to shares. Shares of common stock subject to options currently exercisable or exercisable within 60 days are deemed outstanding for computing the percentage ownership of the person holding the options but are not deemed outstanding for computing the percentage ownership of any other person. Such shares are included for Mr. Wolf (91,297), Ms. Klug (18,750) and all directors and executive officers as a group (110,047), all of which options are exercisable within 60 days of March 31, 2004. The number of shares beneficially owned does not include phantom stock units owned by certain officers and directors of the Company under the Catalina Marketing Corporation Deferred Compensation Plan. Information with respect to beneficial owners of more than 5% of the outstanding shares of the Company’s common stock is provided based on Schedules 13G or 13D filed by such persons or more recent information provided by such persons to the Company.

(2)	Phantom stock units are issued pursuant to the Catalina Marketing Corporation Deferred Compensation Plan. Each phantom stock unit is the non-voting economic equivalent of one share of common stock. Phantom stock units are issued to participants in the Deferred Compensation Plan based on the election of such individuals to defer compensation, bonus, fees and other amounts to which they are entitled from the Company. Phantom stock units are not transferable, and upon the holder of such units ceasing to be employed by the Company or to serve on our Board of Directors, the units are exchanged for shares of common stock pursuant to the Catalina Marketing Corporation Deferred Compensation Plan in accordance with the election of each individual participant in such plan.

(3)	These shares are owned by various individual and institutional investors, including the T. Rowe Price Mid-Cap Growth Fund, (which owns 3,250,000 shares, representing 6.2% of the shares outstanding), for which T. Rowe Price Associates, Inc. (“Price Associates”) serves as investment advisor with power to direct investments and/or power to vote the shares. For purposes of the reporting requirements of the Exchange Act , Price Associates is deemed to be a beneficial owner of such shares; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such shares.

(4)	Information is based on a report on Schedule 13D filed jointly by ValueAct Capital Partners, L.P. (“ValueAct Partners”), ValueAct Capital Partners II, L.P. (“ValueAct Partners II”), ValueAct Capital International, Ltd. (“ValueAct International”), VA Partners, L.L.C (“VA Partners”), Jeffrey W. Ubben, George F. Hamel, Jr., and Peter H. Kamin (collectively, the “Reporting Persons”) on March 5, 2004, which purported to reflect shares held as of March 4, 2004. Messrs. Ubben, Hamel, and Kamin are each managing members, principal owners and controlling persons of VA Partners and directors and principal executive officers of ValueAct International (collectively, the “Managing Members”). Shares reported as beneficially owned by each of ValueAct Partners, ValueAct Partners II and ValueAct


	International, are also reported as beneficially owned by VA Partners, as investment manager or general partner of each of such investment partnerships, and by the Managing Members as controlling persons of the general partner. VA Partners and the Managing Members also, directly or indirectly, may own interests in one or both of such partnerships from time to time. By reason of such relationships each of the partnerships is reported as having shared power to vote or to direct the vote, and shared power to dispose or direct the disposition of, such shares with VA Partners and the Managing Members. ValueAct Partners is the beneficial owner of 2,829,250 shares. ValueAct Partners II is the beneficial owner of 535,250 shares. ValueAct International is the beneficial owner of 1,207,100 shares. VA Partners and each of the Managing Members may be deemed the beneficial owner of an aggregate of 4,571,600 shares.

(5)	These shares are owned by several accounts managed, with discretion to purchase or sell securities, by Kayne Anderson Rudnick Investment Management, LLC, a registered investment advisor. Kayne Anderson Rudnick Investment Management, LLC disclaims beneficial ownership of all listed shares.

(6)	Mr. Beinecke, a director of the Company, is the President and a director of Antaeus Enterprises, Inc. (“Antaeus”). Mr. Beinecke is also a beneficiary of a trust that is one of four trusts, each of which owns 25% of Antaeus, resulting in the attribution of beneficial ownership to Mr. Beinecke of the shares held by Antaeus. The shares listed for Mr. Beinecke include 75,437 shares owned directly by him, 2,968,887 shares held by Antaeus and 160,500 shares held by a trust for Mr. Beinecke’s benefit. Antaeus, Mr. Beinecke and the trust of which Mr. Beinecke is a beneficiary may be deemed to be part of a group, which group would beneficially own 3,204,824 shares constituting approximately 6.15% of the outstanding shares. Except for the shares owned directly by each of them, Antaeus and Mr. Beinecke disclaim beneficial ownership of all shares.

(7)	In addition to the shares listed, Mr. Barker beneficially owns 3,375 shares of common stock of Catalina Health Resource, Inc., a subsidiary of the Company, which were received by Mr. Barker in his capacity as a director of Catalina Health Resource, Inc.

On October 13, 2000, the Company loaned $75,000 to Mr. Bechtol to provide certain benefits. This loan was satisfied in full by Mr. Bechtol on January 21, 2003.

On June 11, 1999, the Company loaned Mr. Granger $60,000 to provide certain benefits. This loan was satisfied in full by Mr. Granger on March 21, 2003.

In June 2002, the Company made a tender offer for all of the eligible outstanding stock of its subsidiary CHR (formerly known as Health Resource Publishing Company) that was not owned by the Company. Pursuant to the tender offer, Mr. Barker sold 20,625 shares of CHR to the Company at a price equal to $33.00 per share.

In February 2003, the Company paid Mr. Granger $99,457 in exchange for the cancellation of options to purchase 104,603 shares of common stock held by Mr. Granger.

In addition, from time to time, from April 2001 through March 2002, the Company loaned Mr. Diamond an aggregate amount of approximately $123,550. The Company made advances under these loans to Mr. Diamond on a bi-weekly basis. Mr. Diamond repaid the aggregate amount of all such loans on May 15, 2002.

Audit Fees. The aggregate fees for professional services rendered by PwC for the audit of the Company’s financial statements for fiscal year 2003, which includes fees related to the restatement of the fiscal years ended March 31, 2002 and 2001, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2003 were approximately $3.2 million. The aggregate fees billed for professional services rendered by PwC for the audit of one of the Company’s subsidiary’s financial statements for fiscal year

Audit-Related Fees. Audit-related fees are for assurance and related services including, among others, consultation concerning financial accounting and reporting standards. There were no aggregate fees billed for audit-related services rendered by PwC.

Tax Fees. The aggregate fees billed for tax compliance, tax planning and tax advice rendered by PwC for the fiscal year ended March 31, 2003, were $23,264. The aggregate fees billed for tax compliance, tax planning, and tax advice rendered by PwC for the year ended March 31, 2002, were $16,376.

All Other Fees. Fees to PwC for services other than audit services, audit-related services, tax compliance, tax planning, and tax advice rendered by PwC for the fiscal year ended March 31, 2003 were $1,400.

The Audit Committee is responsible for appointing, setting compensation, and overseeing the work of the independent auditor. The Audit Committee has established a policy regarding pre-approval of all audit and permissible non-audit services provided by the independent auditor. A centralized service request function is used to provide an initial assessment of requests for services by the independent auditor. The request must be specific as to the particular services to be provided. Requests approved during the initial assessment are aggregated and submitted to the Audit committee for final approval. The independent auditor may not perform services, whether associated with audit or non-audit functions, unless the services have been approved prior to their performance by the Company’s Audit Committee. Each fiscal year, the Audit Committee negotiates and pre-approves the fee for the annual audit of the Company’s Consolidated Financial Statements. Each fiscal year, the Audit Committee may also specifically pre-approve certain audit services, audit-related services, tax services and other services. At the present time, the Audit Committee has not delegated any authority for approval of any services. All audit and permissible non-audit services provided by the independent auditor have been approved by the Audit Committee.

(a)1. Financial Statements. The following is a list of the Consolidated Financial Statements included in Item 8 of Part II

(a)2. Financial Statement Schedules (EDGAR only). All other schedules are omitted because they are not applicable or not required, or because required information is included in the Consolidated Financial Statements or notes thereto.


	*	Incorporated by reference to the Company’s Registration Statement on Form S-1 Registration No. 33-45732, originally filed with the Securities and Exchange Commission on February 14, 1992, and declared effective (as amended) on March 26, 1992.

On March 7, 2003, the Company filed with the SEC a Current Report on Form 8-K. In that Form 8-K under Item 9 “Regulation of Fair Disclosure,” the Company announced the preview of fiscal year 2004 revenue and earnings per share estimates during the Company’s annual investor conference.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Petersburg, State of Florida, on May 17, 2004.


	By:	/s/ CHRISTOPHER W. WOLF



	Christopher W. Wolf
	Executive Vice President and
	Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

112 EX-3.2 2 g89108exv3w2.txt EX-3.2 AMENDED & RESTATED BYLAWS EXHIBIT 3.2 CERTIFICATION REGARDING AMENDMENT TO RESTATED BYLAWS OF CATALINA MARKETING CORPORATION The undersigned hereby certifies that the Restated Bylaws of Catalina Marketing Corporation (the "Corporation") were amended by action of the Board of Directors of the Corporation at a meeting duly called and held on November 18, 2003, as follows: The first sentence of Section 8.03 of the Bylaws of the Corporation was amended to read in its entirety as follows: Except as otherwise prohibited by law, the Corporation may lend money to, or guarantee any obligation of, and otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer who is a director, whenever, in the judgment of the Board, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. Executed by the Secretary of the Corporation as of November 21, 2003. /s/ Barry A. Brooks - ------------------------------- Barry A. Brooks, Secretary CERTIFICATION REGARDING AMENDMENT TO RESTATED BYLAWS OF CATALINA MARKETING CORPORATION The undersigned hereby certifies that the Restated Bylaws of Catalina Marketing Corporation (the "Corporation") were amended by action of the Board of Directors of the Corporation at a meeting duly called and held on November 1, 2003, as follows: The second sentence of Section 3.02 of the Restated Bylaws was amended to read in its entirety as follows: "Until changed by an amendment to this Section 3.02, the authorized number of directors of the Corporation shall be seven (7)." Executed by the Secretary of the Corporation as of November 3, 2003. /s/ Barry A. Brooks - ------------------------------- Barry A. Brooks, Secretary CERTIFICATION REGARDING AMENDMENT TO RESTATED BYLAWS OF CATALINA MARKETING CORPORATION The undersigned hereby certifies that the Restated Bylaws of Catalina Marketing Corporation (the "Corporation") were amended by action of the Board of Directors of the Corporation at a meeting duly called and held on October 24, 2002, as follows: The second sentence of Section 3.02 of the Restated Bylaws was amended to read in its entirety as follows: "Until changed by an amendment to this Section 3.02, the authorized number of directors of the Corporation shall be eight (8)." Executed by the Secretary of the Corporation as of October 25, 2002. /s/ Barry A. Brooks - ------------------------------- Barry A. Brooks, Secretary RESTATED BYLAWS of CATALINA MARKETING CORPORATION TABLE OF CONTENTS

-i-

-ii-

-iii- RESTATED BYLAWS OF CATALINA MARKETING CORPORATION A DELAWARE CORPORATION ARTICLE I OFFICES Section 1.01 REGISTERED OFFICE. The registered office of Catalina Marketing Incorporated (hereinafter referred to as the "Corporation") shall be at such place in the State of Delaware as shall be designated by the Board of Directors (hereinafter referred to as the "Board"). Section 1.02 PRINCIPAL OFFICE. The principal office for the transaction of the business of the Corporation shall be at such location, within or without the State of Delaware, as shall be designated by the Board. Section 1.03 OTHER OFFICES. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. Section 2.02 SPECIAL MEETINGS. Except as otherwise required by law and subject to any provision fixed by, or pursuant to, the Certificate of Incorporation of the Corporation, special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors, or by the Chairman of the Board of Directors or the President of the Corporation or by a committee of the Board of Directors (duly authorized and empowered by the Board of Directors to call such meetings), but such special meetings shall not be called by any other person or persons. Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meetings and specified in the respective notices or waivers of notice thereof. Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to such stockholder personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to such stockholder at the address furnished by such stockholder to the Secretary of the Corporation for such purpose or, if such stockholder shall not have furnished to the Secretary such stockholder's address for such purpose, then at such stockholder's address last known to the Secretary, or by transmitting a notice thereof to such stockholder at such address by telegraph, cable or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting shall also state the purpose or purposes for which the meeting is called. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. Whenever notice is required to be given to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve month period, have been mailed addressed to such person at such person's address as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any -2- action or meeting which shall have been taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the Corporation a written notice setting forth such person's then current address, the requirement that notice be given to such person shall be reinstated. No notice need be given to any person with whom communication is unlawful, nor shall there be any duty to apply to any governmental authority or agency for any permit or license to give notice to any such person. Section 2.05 QUORUM. Except as provided by law or by the Certificate of Incorporation, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at or to act as secretary of such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. Section 2.06 VOTING. (a) At each meeting of the stockholders, each stockholder shall be entitled to vote in person or by proxy each share or fractional share of the stock of the Corporation which has voting rights on the matter in question and which shall have been held by such stockholder and registered in such stockholder name on the books of the Corporation: (i) on the date fixed pursuant to Section 2.10 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or -3- (ii) if no such record date shall have been so fixed, then (A) at the close of business on the day next preceding the day on which notice of the meeting shall be given or (B) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation such stockholder shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware (the "GCL"). (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by such stockholder's proxy appointed by an instrument in writing, subscribed by such stockholder or by such stockholder's attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless such stockholder shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders, all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding -4- the withdrawal of enough stockholders to leave less than a quorum. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by such stockholder's proxy if there be such proxy, and it shall state the number of shares voted. Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the entire duration thereof, and may be inspected by any stockholder who is present. Section 2.08 INSPECTOR OF ELECTION. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint an inspector or inspectors of election to act with respect to such vote. Each inspector so appointed shall first subscribe an oath faithfully to execute the duties of an inspector at such meeting with strict impartiality and according to the best of his ability. Such inspectors shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of the inspectors shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. Inspectors need not be stockholders of the Corporation, and any officer of the Corporation may be an inspector on any question other than a vote for or against a proposal in which such stockholder shall have a material interest. -5- Section 2.09 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS BEFORE ANY MEETING OF STOCKHOLDERS. To be properly brought before any meeting of stockholders, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the meeting by a stockholder. In addition, for business to be properly brought before any meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event less than sixty (60) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice or the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting: (i) a brief description of the business desired to be brought and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and by any other stockholders known by such stockholder to be supporting such proposal, and (iv) any material or financial interest of the stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 2.09. The Chairman of the Board of Directors or other presiding officer shall, it the facts warrant, determine and declare at any meeting of the stockholders that business was not properly brought before the meeting in accordance with the provisions of this Section 2.09, and if the Chairman should so determine, shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. -6- Section 2.10 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose or any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution related thereto. ARTICLE III BOARD OF DIRECTORS Section 3.01 GENERAL POWERS. The property, business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all of the powers of the Corporation, except such as are by the Certificate of Incorporation, by these Bylaws or by law conferred upon or reserved to the stockholders. -7- Section 3.02 NUMBER AND TERM. The authorized number of directors of the Corporation shall be established from time to time by the Board. Until changed by an amendment to this Section 3.02, the authorized number of directors of the Corporation shall be seven (7). Directors need not be stockholders of the Corporation. Each director shall hold office until a successor is elected and qualified or until the director resigns or is removed. Section 3.03 ELECTION OF DIRECTORS. (a) The directors shall be elected by the stockholders of the Corporation, and at each election the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provision for a classified Board of Directors. Each stockholder shall be permitted to vote one vote per share for each director to be elected, however, Shareholders shall not be entitled to cumulate their votes toward the election of any director. (b) Nomination of persons for election to the Board of Directors, other than those made by or at the direction of the Board of Directors or by any nominating committee or person appointed by the Board of Directors, shall be made by a stockholder only if timely written notice of such nomination or nominations has been given to the Secretary of the Corporation. To be timely, such notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than fifty (50) days nor more than seventy-five (75) days prior to the annual meeting; provided, however, that in the event that less than sixty (60) days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. Each such notice to the Secretary shall set forth: (i) the name and address of record of the stockholder who intends to make the nomination or nominations; (ii) the class and number of shares of capital stock of the Corporation that are beneficially owned by the stockholder and a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; -8- (iii) the name, age, business address and residence address, and principal occupation or employment of each nominee; (iv) the class and number of shares of capital stock of the Corporation that are beneficially owned by each nominee; (v) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons pursuant to which the nomination or nominations are to be made by the stockholder; (vi) such other information regarding each nominee as would be required to be disclosed and included in a proxy statement pursuant to the proxy rules then in effect promulgated by the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as amended; and (vii) the consent of each nominee to serve as a director of the Corporation if so elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. The Board of Directors may reject any nomination by a stockholder not timely made or otherwise not in accordance with the terms of paragraph (b) of this Section 3.03. If the Board of Directors reasonably determines that the information provided in the stockholder's notice does not satisfy the informational requirements of this paragraph (b) in any material respect, the Secretary of the Corporation shall promptly notify such stockholder of the deficiency in writing. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed ten (10) days from the date such deficiency notice is given to the stockholder, as the Board of Directors shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors reasonably determines that the additional information provided by the stockholder, together with the information previously provided, does not satisfy the requirements of this paragraph (b) in any material respect, then the Board of Directors may reject such stockholder's nomination. The Secretary of the Corporation shall notify a stockholder in writing whether such stockholder's nomination has been made in accordance with the requirements of this paragraph (b). Section 3.04 RESIGNATION AND REMOVAL. Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the -9- time specified therein, or, if the time is not specified, it shall take effect immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Except as and to the extent provided in the Corporation's Certificate of Incorporation or any resolution or resolutions of the Board incorporated into one or more certificates of designation in accordance with the CCL, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of eighty percent (80%) of the outstanding voting stock of the Corporation, voting as a single class. Section 3.05 VACANCIES. Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum, or by a sole remaining director. Each director so chosen to fill a vacancy shall hold office until such director's successor shall have been elected and shall qualify or until he shall resign or shall have been removed. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Upon the resignation of one or more directors from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided hereinabove in the filling of other vacancies. Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The Board may hold any of its meetings at such place or places within or without the State of Delaware as the Board may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board or any meeting of a committee thereof by means of conference telephone or similar communications equipment pursuant to which all -10- persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. Section 3.07 FIRST MEETING. The Board shall meet as soon as practicable after each annual election of directors and notice of such first meeting shall not be required. Section 3.08 REGULAR MEETINGS. Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine. If any day fixed for a meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day which is not a legal holiday. Except as provided by law, notice of regular meetings need not be given. Section 3.09 SPECIAL MEETINGS. Special meetings of the Board may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President, or by any two (2) directors, to be held at the principal office of the Corporation, or at such other place or places, within or without the State of Delaware, as the person or persons calling the meeting may designate. Notice of the time and place of special meetings shall be given to each director either (i) by mailing or otherwise sending to him a written notice of such meeting, charges prepaid, addressed to him at his address as it is shown upon the records of the Corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held, at least seventy-two (72) hours prior to the time of the holding of such meeting; or (ii) by orally communicating the time and place of the special meeting to him at least twenty-four (24) hours prior to the time of the holding of such meeting. Either of the notices as above provided shall be due, legal and personal notice to such director. Section 3.10 QUORUM AND ACTION. Except as otherwise provided in these Bylaws or by law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors -11- present. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such. Section 3.11 ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or such committee. Such action by written consent shall have the same force and effect as the unanimous vote of such directors. Section 3.12 COMPENSATION. No stated salary need be paid to directors, as such, for their services but, as fixed from time to time by resolution of the Board, the directors may receive directors' fees, compensation and reimbursement for expenses for attendance at directors' meetings, for serving on committees and for discharging their duties; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.13 COMMITTEES. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and provided in the resolution of the Board establishing such committees, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in -12- reference to amending the Certificate of Incorporation (except as provided by law), adopting agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders the dissolution of the Corporation or revocation of a dissolution, or amending these Bylaws; and unless the resolution of the Board expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to these Bylaws. Any such committee shall keep written minutes of its meetings and report the same to the Board when required. Section 3.14 OFFICERS OF THE BOARD. The Board shall have a Chairman of the Board and may, at the discretion of the Board, have a Vice Chairman. The Chairman of the Board or the Vice Chairman shall be appointed from time to time by the Board and shall have such powers and duties as shall be designated by the Board or as prescribed in these Bylaws. The Chairman of the Board shall preside at the meetings of the Board and of the stockholders, provided that, at the Chairman's option, the Chairman may delegate these duties, or either of them, to the Chief Executive Officer. ARTICLE IV OFFICERS Section 4.01 OFFICERS. The officers of the Corporation shall be a Chairman of the Board, a President, a Secretary and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board, a Chief Executive Officer, one or more Vice Presidents (including Senior, Executive and Assistant Vice Presidents), one or more Assistant Secretaries, and such other officers as may be appointed in accordance with the provisions of Section 4.03 of these Bylaws. One person may hold two or more offices, except that the Secretary may not also hold the office of President or Chief Executive Officer. The salaries of all -13- officers of the Corporation shall be fixed from time to time by the Board. Section 4.02 ELECTION AND TERM. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 4.03 or Section 4.05 of these Bylaws, shall be chosen annually by the Board, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or until his successor shall be elected and qualified. Section 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may authorize the Chief Executive Officer to appoint, any officers at the level of Vice President and less senior, and such other officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board or the Chief Executive Officer from time to time may specify, and shall hold office until he shall resign or shall be removed or otherwise disqualified to serve. Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed, with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Board, the Chairman of the Board, the President or the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4.05 VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for the regular appointments to such office. Section 4.06 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation, if any, shall, subject to the control of the Board, have general supervision, direction and control of the business and affairs of the Corporation. The Chief Executive Officer shall have the general powers and duties of management usually vested in -14- the chief executive officer of a corporation, and shall have such other powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to such officer by the Board or as prescribed by these Bylaws. In the absence or disability of the President, the Chief Executive Officer, in addition to such officer's assigned duties and powers, shall perform all the duties of the President and when so acting shall have all the powers and be subject to all the restrictions upon the President. Section 4.07 PRESIDENT. The President shall exercise and perform such powers and duties with respect to the administration of the business and the affairs of the Corporation as may from time to time be assigned to the President by the Chief Executive Officer (unless the President is also the Chief Executive Officer) or by the Board or as is prescribed in these Bylaws. In the absence or disability of the Chief Executive Officer, the President shall perform all of the duties of the Chief Executive Officer and when so acting shall have all the powers and be subject to all of the restrictions upon the Chief Executive Officer. Section 4.08 VICE PRESIDENT. The Vice President(s), if any, shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as from time to time may be assigned to each of them by the President, the Chief Executive Officer, the Board or as is prescribed by these Bylaws. In the absence or disability of both the Chief Executive Officer and the President or as may be directed by the Board from time to time, the Vice Presidents, in order of their rank as fixed by the Board, or if not ranked, the Vice President designated by the Board, shall perform all of the duties of the President and when so acting shall have all of the powers of and be subject to all the restrictions upon the President. Section 4.09 SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office for the transaction of the business of the Corporation, or such other place as the Board may order, of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at directors' meetings, the number of -15- shares present or represented at stockholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office for the transaction of the business of the Corporation or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws. If for any reason the Secretary shall fail to give notice of any special meeting of the Board called by one or more of the persons identified in Section 3.09 of these Bylaws, or if the Secretary shall fail to give notice of any special meeting of the stockholders called by one or more of the persons identified in Section 2.02 of these Bylaws, then any such person or persons may give notice of any such special meeting. Section 4.10 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid in surplus and surplus arising from a reduction of capital, shall be classified according to source and shown in a separate account. The books of account at all reasonable times shall be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board. The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President, to the Chief Executive Officer and to the directors, whenever they request it, an account of all of such officer's transactions as Chief -16- Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board or these Bylaws. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such person shall give such bond, if any, as the Board may require. Section 5.03 DEPOSIT. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, attorney or attorneys, of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the President, the Chief Executive Officer, any Vice President or the Chief Financial Officer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall be determined by the Board from time to time) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. -17- Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board from time to time may authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by an officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VI SHARES AND THEIR TRANSFER Section 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary or by the Chief Financial Officer. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall thereafter have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so -18- cancelled, except in cases provided for in Section 6.04 of these Bylaws. Section 6.02 TRANSFER OF STOCK. Transfer of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.03 of these Bylaws, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be stated expressly in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. Section 6.03 REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. The Board may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sums as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper to do so. Section 6.05 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or any Vice President and the Secretary or any Assistant Secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to all shares of any other corporation or corporations standing in the name of this -19- Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any person authorized so to do by proxy or power of attorney duly executed by said officers. ARTICLE VII INDEMNIFICATION Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that such person's conduct was unlawful. Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, -20- officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a member of any committee or similar body, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any indemnification under Section 7.01 or 7.02 of these Bylaws (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 7.01 and 7.02 of these Bylaws. Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article VII, to the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 7.01 or 7.02 of these Bylaws, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of -21- authorization in the specific case under Section 7.03 of these Bylaws. Section 7.05 ADVANCE OF EXPENSES. Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VII. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. Section 7.06 OTHER RIGHTS AND REMEDIES. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Sections of this Article VII shall not be deemed exclusive and are declared expressly to be nonexclusive of any other rights to which those seeking indemnification or advancements of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 7.07 INSURANCE. Upon resolution passed by the Board, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partner-ship, joint venture, trust or other enterprise or as a member of any committee or similar body against any liabi-lity asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VII. Section 7.08 CONSTITUENT CORPORATIONS. For the purposes of this Article VII, references to "the Corp-oration" include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and -22- employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 7.09 EMPLOYEE BENEFIT PLANS. For the purposes of this Article VII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VII. Section 7.10 BROADEST LAWFUL INDEMNIFICATION. In addition to the foregoing, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same exists from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of indemnification than is permitted to the Corporation prior to such amendment or change), indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving a the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in -23- connection with such action, suit or proceeding. In addition, the Corporation shall, to the broadest and maximum extent permitted by Delaware law, as the same may exist from time to time (but, in case of any amendment to or change in Delaware law, only to the extent that such amendment or change permits the Corporation to provide broader rights of payment of expenses incurred in advance of the final disposition of an action, suit or proceeding than is permitted to the Corporation prior to such amendment or change), pay to such person any and all expenses (including attorneys' fees) incurred in defending or settling any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer, to repay such amount if it shall ultimately be determined by a final judgment or other final adjudication that such person is not entitled to be indemnified by the Corporation as authorized in this Section 7.10. The first sentence of this Section 7.10 to the contrary notwithstanding, the Corporation shall not indemnify any such person with respect to any of the following matters: (i) remuneration paid to such person if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; or (ii) any accounting of profits made from the purchase or sale by such person of the Corporation's securities within the meaning of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or (iii) actions brought about or contributed to by the dishonesty of such person, if a final judgment or other final adjudication adverse to such person establishes that acts of active and deliberate dishonesty were committed or attempted by such person with actual dishonest purpose and intent and were material to the adjudication; or (iv) actions based on or attributable to such person having gained any personal profit or advantage to which such person was not entitled, in the event that a final judgment or other final adjudication adverse to such person establishes that such person in fact gained such personal profit or other advantage to which such person was not entitled; or (v) any matter in respect of which a final decision by a court with competent jurisdiction shall determine that indemnification is unlawful; provided, however, that the Corporation shall perform its obligations under the second sentence of this Section 7.10 on behalf of such person until such time as it shall be ultimately determined by a final judgment or other final adjudication that such person is not entitled to be indemnified by the -24- Corporation as authorized by the first sentence of this Section 7.10 by virtue of any of the preceding clauses (i), (ii), (iii), (iv) or (v). Section 7.11 TERM. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7.12 SEVERABILITY. If any part of this Article VII shall be found, in any action, suit or proceeding or appeal therefrom or in any other circumstances or as to any particular officer, director, employee or agent to be unenforceable, ineffective or invalid for any reason, the enforceability, effect and validity of the remaining parts or of such parts in other circumstances shall not be affected, except as otherwise required by applicable law. Section 7.13 AMENDMENTS. The foregoing provisions of this Article VII shall be deemed to constitute an agreement between the Corporation and each of the persons entitled to indemnification hereunder, for as long as such provisions remain in effect. Any amendment to the foregoing provisions of this Article VII which limits or otherwise adversely affects the scope of indemnification or rights of any such persons hereunder shall, as to such persons, apply only to claims arising, or causes of action based on actions or events occurring, after such amendment and delivery of notice of such amendment is given to the person or persons so affected. Until notice of such amendment is given to the person or persons whose rights hereunder are adversely affected, such amendment shall have no effect on such rights of such persons hereunder. Any person entitled to indemnification under the foregoing provisions of this Article VII shall, as to any act or omission occurring prior to the date of receipt of such notice, be entitled to indemnification to the same extent as had such provisions continued as Bylaws of the Corporation without such amendment. -25- ARTICLE VIII MISCELLANEOUS Section 8.01 SEAL. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and showing the year of incorporation. Section 8.02 WAIVER OF NOTICES. Whenever notice is required to be given under any provision of these Bylaws, the Certificate of Incorporation or by law, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless required by the Certificate of Incorporation. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 8.03 LOANS AND GUARANTIES. The Corporation may lend money to, or guarantee any obligation of, and otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer who is a director, whenever, in the judgment of the Board, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty, or other assistance may be with or without interest, and may be unsecured or secured in such manner as the Board shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Section 8.04 GENDER. All personal pronouns used in these Bylaws shall include the other genders, whether used in the masculine, feminine or neuter gender, and the singular shall include the plural, and vice versa, whenever and as often as may be appropriate. -26- Section 8.05 AMENDMENTS. These Bylaws, or any of them, may be rescinded, altered, amended or repealed, and new Bylaws may be made (i) by the Board of Directors, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board of Directors, or (ii) by the stockholders, by the vote of the holders of eighty (80%) percent of the outstanding voting stock of the Corporation, at any annual or special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of the annual or special meeting; provided, however, that these Bylaws can only be amended if such amendment would not conflict with the Certificate of Incorporation. Any Bylaw made or altered by the requisite number of stockholders may be altered or repealed by the Board of Directors or may be altered or repealed by the requisite number of stockholder. -27- WRITTEN CONSENT OF INCORPORATOR OF CATALINA MARKETING (DELAWARE) CORPORATION a Delaware corporation The undersigned, being the sole Incorporator of Catalina Marketing (Delaware) Corporation, a Delaware corporation, takes the following action by written consent in accordance with Section 108(c) of the Delaware General Corporation Law. RESOLVED, that Michael R. O'Brien be, and he hereby is, elected initial director of this corporation. RESOLVED FURTHER, that the Incorporator of this corporation shall have no further rights, duties or obligations in connection with this corporation. DATED: January 27, 1992. /s/Mary P. Gray ------------------------------------- Mary P. Gray, Incorporator WRITTEN CONSENT OF THE SOLE DIRECTOR OF CATALINA MARKETING (DELAWARE) CORPORATION a Delaware corporation The undersigned, being the sole director of this corporation, duly elected by the Incorporator in accordance with Section 108 (c) of the Delaware General Corporation Law, takes the following action by his Written Consent: BYLAWS WHEREAS, a form of Bylaws has been presented to the sole director for approval. RESOLVED, that the Bylaws be, and they hereby are, adopted as the Bylaws of this corporation; RESOLVED FURTHER, that the Bylaws be authenticated as such by a Certificate of the Secretary of this corporation and inserted as so certified in the corporate minute book, and that a copy of said Bylaws similarly certified be kept at the principal office for the transaction of business of this corporation. ELECTION OF DIRECTORS WHEREAS, according to the Bylaws of the corporation, the Board of Directors consists of seven (7) directors; WHEREAS, six vacancies exist on the Board of Directors; and WHEREAS, pursuant to Section 223 of the General Corporation Law of the State of Delaware, the sole director can elect additional directors in order to fill the vacancies. RESOLVED, that the individuals listed below be, and each of them hereby is, elected to fill the vacancies on the Board of Directors: Tommy D. Greer Stephen J. Clearman Stephen I. D'Agostino Thomas Mendell Michael C. Scroggie Dianne C. Walker IN WITNESS WHEREOF, the undersigned has executed this Written Consent dated as of the 28 day of January, 1992. /s/Michael O'Brien ---------------------------------- Michael O'Brien, Sole Director -2- EX-10.13 3 g89108exv10w13.txt EX- 10.13 FORM OF CHANGE OF CONTROL/SEVERENCE AGMT Exhibit 10.13 CHANGE OF CONTROL SEVERANCE AGREEMENT CHANGE OF CONTROL SEVERANCE AGREEMENT This Agreement between [NAME] ("you") and Catalina Marketing Corporation (the "Company") has been entered into as of [DATE]. This Agreement promises you severance benefits if, following a Change in Control, you are terminated without Cause or resign for Good Reason as set forth in this Agreement. Capitalized terms are defined in the last section of this Agreement. 1. PURPOSE The Company considers a sound and vital management team to be essential. Management personnel who become concerned about the possibility that the Company may undergo a Change in Control may terminate employment or become distracted. Accordingly, the Board has determined that appropriate steps should be taken to minimize the distraction executives may suffer from the possibility of a Change in Control. One step is to enter into this Agreement with you. 2. YOUR AGREEMENT If one or more Potential Changes in Control occur during the Term of this Agreement, you agree not to resign for at least six full calendar months after a Potential Change in Control occurs, except as follows: (a) you may resign if you are given Good Reason to do so; and (b) you may terminate employment on account of retirement on or after achieving age 65 or because you become unable to work due to serious illness or injury. This Agreement is not an employment agreement and does not affect the right of the Company to terminate you for any reason or no reason, with or without cause, and does not affect the right of the Company to change the conditions of your employment or your title, authority or responsibilities. 3. EVENTS THAT TRIGGER SEVERANCE BENEFITS (a) Termination After a Change in Control You will receive Severance Benefits under this Agreement if, within two years after a Change in Control has occurred (so long as such Change in Control occurs during the Term of this Agreement), your employment is terminated by the Company without Cause or you resign for Good Reason. (b) Termination After a Potential Change in Control You also will receive Severance Benefits under this Agreement if, during the Term of this Agreement and after a Potential Change in Control has occurred but before a Change in Control actually occurs, your employment is terminated by the Company without Cause or you resign for Good Reason. (c) Successor Fails to Assume This Agreement You also will receive Severance Benefits under this Agreement if, during the Term of this Agreement, a successor to the Company fails to assume this Agreement, as provided in Section 12(a). 4. EVENTS THAT DO NOT TRIGGER SEVERANCE BENEFITS You will not be entitled to Severance Benefits if your employment ends because you are terminated for Cause or on account of Disability or because you resign without Good Reason, retire or die. Except as provided in Section 3(c), you will not be entitled to Severance Benefits while you remain protected by this Agreement and remain employed by the Company, its affiliates or their successors. 5. TERMINATION PROCEDURES If you are terminated by the Company within two years after a Change in Control occurring during the Term of this Agreement, the Company shall provide you with 30 days' advance written notice of your termination. Advance notice will not be required if you are being terminated for Cause. In any case, the notice will indicate why you are being terminated and will set forth in reasonable detail the facts and circumstances claimed to provide a basis for your termination. If you are being terminated for Cause, your notice of termination will include a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (at a meeting of the Board called and held for the purpose of considering your termination (after reasonable notice to you and an opportunity for you and your counsel to be heard before the Board)) finding that, in the good faith opinion of the Board, Cause for your termination exists and specifying the basis for that opinion in detail. If you are purportedly terminated without the notice required by this Section, your termination shall not be effective. 6. SEVERANCE BENEFITS (a) In General If you become entitled to Severance Benefits under this Agreement, you will receive all of the Severance Benefits described in this Section. (b) Lump-Sum Payment in Lieu of Future Compensation In lieu of any further cash compensation for periods after your employment ends and in lieu of any other severance or other similar compensation to which you might be entitled under the Company's policies, or otherwise, you will be paid a cash lump sum equal to [AMOUNT] times your Annual Compensation in effect when your employment ends or, if higher, the highest Annual Compensation in effect immediately before the Change in Control, Potential Change in Control, or Good Reason event for which you terminate employment. -2- (c) Incentive Compensation The Company will pay you a cash lump sum equal to the sum of any unpaid incentive compensation (that is not otherwise paid to you) that you have been allocated or awarded under any bonus or commission plan for measuring periods completed before you became entitled to Severance Benefits under this Agreement. (d) Deferred Compensation; Stock Benefits The Severance Benefits and other terms set forth on this Agreement will not affect your rights under any deferred compensation, savings, retirement, "401(k)," stock purchase, stock option or other employee benefit or compensation plan, all of which will be governed by the terms thereof. You are reminded that the Company's stock option plans contain provisions which are effective in connection with a Change in Control. (e) Group Insurance Benefit Continuation During the period that begins when you become entitled to Severance Benefits under this Agreement and ends on the last day of the 30th calendar month beginning thereafter, the Company shall provide the life, disability, accident and health insurance benefits (or substantially similar benefits) it was providing to you and your spouse and dependents immediately before you became entitled to Severance Benefits under this Agreement (or immediately before a benefit reduction that constitutes Good Reason, if you terminate employment for that Good Reason). These benefits shall be treated as satisfying the Company's COBRA obligations. After benefit continuation under this subsection ends, you and your spouse and dependents will be entitled to any remaining COBRA rights. (f) Withholdings The Company will be entitled to withhold from your Severance Payments an amount or amounts it is required to withhold under applicable law. 7. TIME FOR PAYMENT You will be paid your cash Severance Benefits within five days after you become entitled to Severance Benefits under this Agreement (e.g., within five days following your termination of employment). If the amount you are due cannot be finally determined within that period, you will receive the minimum amount to which you are clearly entitled, as estimated in good faith by the Company. The Company will pay the balance you are due (together with interest at the rate provided in Code Section 1274(b)(2)(B)) as soon as the amount can be determined, but in no event later than 30 days after you terminate employment. If your estimated payment exceeds the amount you are due, the excess will be a loan to you, which you must repay to the Company within five business days after demand by the Company (together with interest at the rate provided in Code Section 1274(b)(2)(B)). -3- 8. PAYMENT EXPLANATION When payments are made to you, the Company will provide you with a written statement explaining how your payments were calculated and the basis for the calculations. This statement will include any opinions or other advice the Company has received from auditors or consultants as to the calculation of your benefits. 9. RELATION TO OTHER SEVERANCE PROGRAMS Your Severance Benefits under this Agreement are in lieu of any severance or similar benefits that may be payable to you under any other employment agreement or other arrangement, or in accordance with the Company's published or unpublished policies; to the extent any such benefits are paid to you, they shall be applied to reduce the amount due under this Agreement. This Agreement constitutes the entire agreement between you and the Company and its affiliates with respect to such benefits. 10. POTENTIAL LIMITATIONS (a) Golden Parachute Your aggregate payments and benefits under this Agreement may exceed the relevant limitations under the "golden parachute" provisions of Code Section 280G. However, nothing in this Agreement shall cause the Company to be required to pay to you any amount in excess of the Severance Benefits provided for herein. (b) Pooling of Interests Transaction If the Company enters into a business combination transaction that is intended to qualify for "pooling of interests" accounting treatment and the transaction would qualify for such treatment but for one or more provisions of this or any other agreement you have with the Company, then such agreement, to the extent practicable, shall be interpreted so as to permit such accounting treatment. All determinations under this Section shall be made by the accounting firm whose pooling of interests accounting opinion is required as a condition of the consummation of the business combination transaction in question. 11. EFFECT OF REEMPLOYMENT Your Severance Benefits will not be reduced by any other compensation you earn or could have earned from another source. 12. SUCCESSORS (a) Assumption Required -4- In addition to obligations imposed by law on a successor to the Company, during the Term of this Agreement the Company will require any successor to all or substantially all of the business or assets of the Company, including in connection with any Change in Control transaction (whether by sale of assets or securities, or merger transaction, or otherwise) expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company was required to perform. If the Company fails to obtain such an assumption and agreement before the effective date of a succession, you will be entitled to Severance Benefits as if you were terminated by the Company without Cause on the effective date of that succession. (b) Heirs and Assigns This Agreement will inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you die while any amount is still payable to you under this Agreement, that amount will be paid to the executor, personal representative or administrator of your estate. 13. AMENDMENTS This Agreement may be modified only by a written agreement executed by you and an authorized officer of the Company. 14. GOVERNING LAW This Agreement creates a "top hat" employee benefit plan subject to the Employee Retirement Income Security Act of 1974, and it shall be interpreted, administered, and enforced in accordance with that law; the Company is the "plan administrator." To the extent that state law is applicable, the statutes and common law of the State of Florida (excluding its choice of laws statutes or common law) shall apply. 15. CLAIMS (a) When Required; Attorneys' Fees You do not need to present a formal claim to receive benefits payable under this Agreement. However, if you believe that your rights under this Agreement are being violated, you must file a formal claim with the Company in accordance with the procedures set forth in this Section. If the claim cannot be resolved under these administrative procedures, the Company will pay your reasonable attorneys' fees and related costs in enforcing your rights under this Agreement if you ultimately prevail. (b) Initial Claim Your claim must be presented to the Company in writing. Within 90 days after receiving the claim, a claims official appointed by the Company will consider your claim and issue his or her determination thereon in writing. The claims official may extend the determination period for up to an additional 90 days by giving you written notice. With your consent, the initial claim determination period can be extended further. If you can -5- establish that the claims official failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official. (c) Claim Decision If your claim is granted, the benefits or relief you are seeking will be provided. If your claim is wholly or partially denied, the claims official shall, within 90 days (or a longer period, as described above), provide you with written notice of the denial, setting forth, in a manner calculated to be understood by you: (i) the specific reason or reasons for the denial; (ii) specific references to the provisions on which the denial is based; (iii) a description of any additional material or information necessary for you to perfect your claim, together with an explanation of why the material or information is necessary; and (iv) an explanation of the procedures for appealing denied claims. If you establish that the claims official has failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official. (d) Appeal of Denied Claims You may appeal the claims official's denial of your claim in writing to an appeals official designated by the Company (which may be a person, committee, or other entity) for a full and fair appeal. You must appeal a denied claim within 60 days after your receipt of written notice denying your claim, or within 60 days after such written notice was due, if the written notice was not sent. In connection with the appeals proceeding, you (or your duly authorized representative) may review pertinent documents and may submit issues and comments in writing. You may only present evidence and theories during the appeal that you presented during the initial claims stage, except for information the claims official requested you to provide to perfect the claim. You will irrevocably waive any theories you do not in good faith pursue through the appeal stage, such as by failing to file a timely appeal request. (e) Appeal Decision The decision by the appeals official will be made within 60 days after your appeal request, unless special circumstances require an extension of time, in which case the decision will be rendered as soon as possible, but not later than 120 days after your appeal request, unless you agree to a greater extension of that deadline. The appeal decision will be in writing, set forth in a manner calculated to be understood by you; it will include specific reasons for the decision, as well as specific references to the pertinent provisions of this Agreement on which the decision is based. If you do not receive the appeal decision by the date it is due, you may deem your appeal to have been denied. (f) Procedures The Company will adopt procedures by which initial claims and appeals will be considered and resolved; different procedures may be established for different claims. All procedures will be designed to afford you full and fair consideration of your claim. -6- 16. VALIDITY The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 17. COUNTERPARTS This Agreement may be executed in several counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. 18. GIVING NOTICE (a) To the Company All communications from you to the Company relating to this Agreement must be sent to the Company to its principal business office in St. Petersburg, Florida, in writing, by registered or certified mail, or delivered personally, or as the Company may otherwise notify you in writing. (b) To You All communications from the Company to you relating to this Agreement must be sent to you in writing, by registered or certified mail, or delivered personally, addressed as indicated at the end of this Agreement, or as you may otherwise notify the Company in writing. 19. DEFINITIONS (a) Agreement "Agreement" means this contract, as amended. (b) Annual Compensation "Annual Compensation" means your base salary in effect plus the greater of (i) the average bonus and commissions paid to you in respect of the three fiscal years preceding the year in which the Change in Control took place (or in respect of such lesser number of years during which you were employed by the Company prior to the fiscal year during which the Change in Control took place) or (ii) the bonus and commissions paid to you in respect of the fiscal year during which the Change in Control took place or, if greater, any subsequent fiscal year. (c) Beneficial Owner "Beneficial Owner" has the meaning set forth in Rule 13d-3 under the Exchange Act. (d) Board "Board" means the Board of Directors of the Company. -7- (e) Cause "Cause" means the dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, conviction or confession of a crime punishable by law (except misdemeanor violations), or engaging in practices contrary to stock "insider trading" policies of the Company, by you in each case as determined by the Board, with such determination to be conclusive and binding on persons. (f) Change in Control "Change in Control" means the occurrence of any of the following: (i) the acquisition, directly or indirectly, by any individual or entity or group (as such term is used in Section 13(d)(3) of the Exchange Act) of Beneficial Ownership (except that such individual or entity shall be deemed to be the Beneficial Owner of all shares that any such individual or entity has the right to acquire without the happening or failure to happen of a material condition or contingency, other than the passage of time) of more than 50% of the aggregate outstanding voting power of capital stock of the Company in respect of the general power to elect directors; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (together with individuals elected to the Board with the approval of at least 66 2/3% of the directors of the Company then still in office who were either directors at the beginning of such period, or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office; and (iii) (A) the Company consolidates with or merges into another entity or sells all or substantially all of its assets to any individual or entity, or (B) any corporation consolidates with or merges into the Company, which in either event (A) or (B) is pursuant to a transaction in which the holders of the Company's voting capital stock in respect of the general power to elect directors immediately prior to such transaction do not own, immediately following such transaction, at least a majority of the voting capital stock in respect of the general power to elect directors of the surviving corporation or the person or entity which owns the assets so sold. (g) Code "Code" means the Internal Revenue Code of 1986, as amended. (h) Company "Company" means Catalina Marketing Corporation and any successor to its business or assets that (by operation of law, or otherwise) assumes and agrees to perform this Agreement. However, for purposes of determining whether a Change in Control has occurred in connection with such a succession, the successor shall not be considered to be the Company. (i) Disability "Disability" means that, due to physical or mental illness: (i) you have been absent from the full-time performance of your duties with the Company for substantially all of a period of six consecutive months; (ii) the Company has notified you that it intends to -8- terminate you on account of Disability; and (iii) you do not resume the full-time performance of your duties within 30 days after receiving notice of your intended termination on account of Disability. (j) Exchange Act "Exchange Act" means the Securities Exchange Act of 1934, as amended. (k) Good Reason "Good Reason" means the occurrence of any of the following without your express written consent: (1) A change in your status, title, position or responsibilities (including reporting responsibilities) that represents a substantial reduction of the status, title, position or responsibilities in respect of the Company's business as in effect immediately prior thereto; the assignment to you of substantial duties or responsibilities that are inconsistent with such status, title, position or responsibilities; or your removal from or failure to reappoint or reelect you to any of such positions, except in connection with the termination of the your employment for Cause, for Disability or as a result of your death, or by you other than for Good Reason; (2) A reduction in your annual base salary; (3) The Company requiring you to be based at any place outside a 35-mile radius of your place of employment immediately prior to a Change in Control, except for reasonably required travel on the Company's business that is not materially greater than such travel requirements prior to such Change in Control; or (4) The Company's failure to (i) continue in effect any material compensation or benefit plan (or a reasonable replacement therefore) in which you were participating immediately prior to a Change in Control or (ii) provide you with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately prior to a Change in Control (or an in effect following the Change in Control, if greater). However, an event that is or would constitute Good Reason shall cease to be Good Reason if: (a) you do not terminate employment within 45 days after the event occurs; or (b) the Company reverses the action or cures the default that constitutes Good Reason before you terminate employment; or (c) you were a primary instigator of the Good Reason event and the circumstances make it inappropriate for you to receive benefits under this Agreement (e.g., you agree temporarily to relinquish your position on the occurrence of a merger transaction you negotiate). If you have Good Reason to terminate employment, you may do so even if you are on a leave of absence due to physical or mental illness or any other reason. (l) Person -9- "Person" has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Section 13(d) of that Act, and shall include a "group," as defined in Rule 13d-5 promulgated thereunder. However, a Person shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries; (iii) an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (m) Potential Change in Control "Potential Change in Control" means that any of the following has occurred during the term of this Agreement and no event terminating the following has occurred: (1) Agreement Signed. The Company enters into an agreement that will result in a Change in Control. (2) Notice of Intent to Seek Change in Control. The Company or any Person publicly announces an intention to take or to consider taking actions that will result in a Change in Control. (3) Board Declaration. With respect to this Agreement, the Board adopts a resolution declaring that a Potential Change in Control has occurred. (n) Severance Benefits "Severance Benefits" means your benefits under Section 6 of this Agreement. (o) Term of this Agreement "Term of this Agreement" means the period that commences on the date of this Agreement and ends on April 6, 2006. IN WITNESS WHEREOF, the parties have executed this Agreement as if the date set forth above. CATALINA MARKETING CORPORATION By:_________________________________________ Name: Frederick W. Beinecke Title: Chairman of the Board -10- [NAME] ____________________________________________ Company notices to you shall be addressed as follows (or in any other manner you notify the Company to use): [NAME]____________________________ [ADDRESS 1]_______________________ [ADDRESS 2]_______________________ -11- TABLE OF CONTENTS

-i- (f) Change in Control............................................. 8 (g) Code.......................................................... 8 (h) Company....................................................... 8 (i) Disability.................................................... 8 (j) Exchange Act.................................................. 9 (k) Good Reason................................................... 9 (l) Person........................................................ 10 (m) Potential Change in Control................................... 10 (1) Agreement Signed.................................... 10 (2) Notice of Intent to Seek Change in Control.......... 10 (3) Board Declaration................................... 10 (n) Severance Benefits............................................ 10 (o) Term of this Agreement........................................ 10 (1) Expiration.......................................... 10 (2) Change in Control................................... 10

~~-ii- -iii-~~ EX-10.14 4 g89108exv10w14.txt EX-10.14 SECOND AMENDED AND RESTATED CREDIT AGMT EXECUTION COPY Exhibit 10.14 ================================================================================ SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of November 24, 2003 among CATALINA MARKETING CORPORATION, THE INSTITUTIONS FROM TIME TO TIME PARTIES HERETO AS LENDERS, BANK ONE, NA, as Administrative Agent and WACHOVIA BANK, NATIONAL ASSOCIATION, as Syndication Agent and Documentation Agent ================================================================================ BANC ONE CAPITAL MARKETS, INC., as Lead Arranger and Sole Bookrunner ================================================================================ SIDLEY AUSTIN BROWN & WOOD LLP Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 ================================================================================ TABLE OF CONTENTS
SECTION PAGE - ------- ---- ARTICLE I: DEFINITIONS............................................................................................... 1 1.1 Certain Defined Terms..................................................................................... 1 1.2 References................................................................................................ 22 ARTICLE II: THE REVOLVING LOAN FACILITY............................................................................... 22 2.1 Revolving Loans........................................................................................... 22 2.2 Swing Line Loans.......................................................................................... 23 2.3 Rate Options for all Advances; Maximum Interest Periods................................................... 25 2.4 Optional Payments; Mandatory Prepayments.................................................................. 25 2.5 Increases and Reduction of Revolving Loan Commitments..................................................... 26 2.6 Method of Borrowing....................................................................................... 27 2.7 Method of Selecting Types and Interest Periods for Advances............................................... 27 2.8 Minimum Amount of Each Advance............................................................................ 28 2.9 Method of Selecting Types and Interest Periods for Conversion and Continuation of Advances................ 28 2.10 Default Rate.............................................................................................. 29 2.11 Method of Payment......................................................................................... 29 2.12 Evidence of Debt.......................................................................................... 29 2.13 Telephonic Notices........................................................................................ 30 2.14 Promise to Pay; Interest and Commitment Fees; Interest Payment Dates; Interest and Fee Basis; Loan and Control Accounts.......................................................................................... 30 2.15 Notification of Advances, Interest Rates, Prepayments and Aggregate Revolving Loan Commitment Reductions.. 32 2.16 Lending Installations..................................................................................... 33 2.17 Non-Receipt of Funds by the Administrative Agent.......................................................... 33 2.18 Termination Date.......................................................................................... 33 2.19 Replacement of Certain Lenders............................................................................ 34 ARTICLE III: THE LETTER OF CREDIT FACILITY............................................................................. 34 3.1 Obligation to Issue Letters of Credit..................................................................... 34 3.2 Types and Amounts......................................................................................... 35 3.3 Conditions................................................................................................ 35 3.4 Procedure for Issuance of Letters of Credit............................................................... 36 3.5 Letter of Credit Participation............................................................................ 36 3.6 Reimbursement Obligation.................................................................................. 36 3.7 Letter of Credit Fees..................................................................................... 37 3.8 Reporting Requirements.................................................................................... 37 3.9 Indemnification; Exoneration.............................................................................. 37 3.10 Cash Collateral........................................................................................... 38 ARTICLE IV: YIELD PROTECTION; TAXES................................................................................... 39
i 4.1 Yield Protection.......................................................................................... 39 4.2 Changes in Capital Adequacy Regulations................................................................... 40 4.3 Availability of Types of Advances......................................................................... 40 4.4 Funding Indemnification................................................................................... 40 4.5 Taxes..................................................................................................... 41 4.6 Lender Statements; Survival of Indemnity.................................................................. 42 ARTICLE V: CONDITIONS PRECEDENT...................................................................................... 43 5.1 Initial Advances and Letters of Credit.................................................................... 43 5.2 Each Advance and Letter of Credit......................................................................... 44 ARTICLE VI: REPRESENTATIONS AND WARRANTIES............................................................................ 45 6.1 Organization; Corporate Powers............................................................................ 45 6.2 Authority................................................................................................. 45 6.3 No Conflict; Governmental Consents........................................................................ 46 6.4 Financial Statements...................................................................................... 46 6.5 No Material Adverse Change................................................................................ 46 6.6 Taxes..................................................................................................... 46 6.7 Litigation; Loss Contingencies and Violations............................................................. 47 6.8 Subsidiaries.............................................................................................. 47 6.9 ERISA..................................................................................................... 48 6.10 Accuracy of Information................................................................................... 49 6.11 Securities Activities..................................................................................... 49 6.12 Material Agreements....................................................................................... 50 6.13 Compliance with Laws...................................................................................... 50 6.14 Assets and Properties..................................................................................... 50 6.15 Statutory Indebtedness Restrictions....................................................................... 50 6.16 Insurance................................................................................................. 50 6.17 Labor Matters............................................................................................. 50 6.18 Environmental Matters..................................................................................... 50 6.19 Benefits.................................................................................................. 51 6.20 Foreign Employee Benefit Matters.......................................................................... 51 6.21 Existing Indebtedness..................................................................................... 52 6.22 Financial Information Restatement Limit................................................................... 52 6.23 Reportable Transaction.................................................................................... 52 6.24 OFAC...................................................................................................... 52 ARTICLE VII: COVENANTS................................................................................................. 52 7.1 Reporting................................................................................................. 52 7.2 Affirmative Covenants..................................................................................... 58 7.3 Negative Covenants........................................................................................ 62 7.4 Financial Covenants....................................................................................... 69 ARTICLE VIII: DEFAULTS.................................................................................................. 70 8.1 Defaults.................................................................................................. 70

ii ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND REMEDIES........................................ 73 9.1 Termination of Revolving Loan Commitments; Acceleration................................................... 73 9.2 Defaulting Lender......................................................................................... 74 9.3 Amendments................................................................................................ 75 9.4 Preservation of Rights.................................................................................... 76 ARTICLE X: GENERAL PROVISIONS........................................................................................ 76 10.1 Survival of Representations............................................................................... 76 10.2 Governmental Regulation................................................................................... 76 10.3 Headings.................................................................................................. 76 10.4 Entire Agreement.......................................................................................... 76 10.5 Several Obligations; Benefits of this Agreement........................................................... 76 10.6 Expenses; Indemnification................................................................................. 77 10.7 Numbers of Documents...................................................................................... 79 10.8 Accounting................................................................................................ 79 10.9 Severability of Provisions................................................................................ 79 10.10 Nonliability of Lenders................................................................................... 79 10.11 GOVERNING LAW............................................................................................. 79 10.12 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL................................................... 80 10.13 Subordination of Intercompany Indebtedness................................................................ 81 10.14 Lender's Not Utilizing Plan Assets........................................................................ 82 10.15 Intercreditor Agreement and Collateral Documents.......................................................... 82 ARTICLE XI: THE ADMINISTRATIVE AGENT.................................................................................. 82 11.1 Appointment; Nature of Relationship....................................................................... 82 11.2 Powers.................................................................................................... 83 11.3 General Immunity.......................................................................................... 83 11.4 No Responsibility for Loans, Creditworthiness, Recitals, Etc.............................................. 83 11.5 Action on Instructions of Lenders......................................................................... 83 11.6 Employment of Agents and Counsel.......................................................................... 84 11.7 Reliance on Documents; Counsel............................................................................ 84 11.8 The Administrative Agent's Reimbursement and Indemnification.............................................. 84 11.9 Rights as a Lender........................................................................................ 84 11.10 Lender Credit Decision.................................................................................... 85 11.11 Successor Administrative Agent............................................................................ 85 11.12 No Duties of Documentation Agent, Syndication Agent or Arranger........................................... 85 ARTICLE XII: SET-OFF; RATABLE PAYMENTS................................................................................. 86 12.1 Set-off................................................................................................... 86 12.2 Ratable Payments.......................................................................................... 86 12.3 Application of Payments................................................................................... 86 12.4 Relations Among Lenders................................................................................... 87 12.5 Representations and Covenants Among Lenders............................................................... 87

iii ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS......................................................... 87 13.1 Successors and Assigns.................................................................................... 88 13.2 Participations............................................................................................ 88 13.3 Assignments............................................................................................... 89 13.4 Confidentiality........................................................................................... 92 13.5 Dissemination of Information.............................................................................. 92 ARTICLE XIV: NOTICES................................................................................................... 92 14.1 Giving Notice............................................................................................. 92 14.2 Change of Address......................................................................................... 93 ARTICLE XV: COUNTERPARTS.............................................................................................. 93 ARTICLE XVI: PREVIOUS AGREEMENT........................................................................................ 93 ARTICLE XVII: USA PATRIOT ACT NOTIFICATION.............................................................................. 93

iv EXHIBITS AND SCHEDULES EXHIBITS EXHIBIT A -- Revolving Loan Commitments (Definitions) EXHIBIT B -- Form of Borrowing/Election Notice (Section 2.2 and Section 2.7 and Section 2.9) EXHIBIT C -- Form of Request for Letter of Credit (Section 3.3) EXHIBIT D -- Form of Assignment and Acceptance Agreement (Sections 2.19 and 13.3) EXHIBIT E -- Form of Borrower's and Guarantors' Counsel's Opinion (Section 5.1) EXHIBIT F -- List of Closing Documents (Section 5.1) EXHIBIT G -- Form of Officer's Certificate (Sections 5.2 and 7.1(A)(iii)) EXHIBIT H -- Form of Compliance Certificate (Sections 5.2 and 7.1(A)(iii)) EXHIBIT I -- Form of Guaranty (Definitions) EXHIBIT J -- Form of Intercreditor Agreement (Definitions) EXHIBIT K -- Form of Note (Section 2.12) EXHIBIT L -- Form of Designation Agreement (Section 13.3(D)) EXHIBIT M -- Form of Security Agreement (Definitions) v SCHEDULES Schedule 1.1.1 -- Permitted Existing Investments (Definitions) Schedule 1.1.2 -- Permitted Existing Liens (Definitions) Schedule 6.3 -- Conflicts; Governmental Consents (Section 6.3) Schedule 6.7 -- Litigation; Loss Contingencies (Section 6.7) Schedule 6.8 -- Subsidiaries (Section 6.8) Schedule 6.9 -- ERISA (Section 6.9) Schedule 6.18 -- Environmental Matters (Section 6.18) Schedule 6.21 -- Existing Indebtedness (Section 6.21) Schedule 7.3(E) -- Transactions with Affiliates (Section 7.3(E)) vi SECOND AMENDED AND RESTATED CREDIT AGREEMENT This Second Amended and Restated Credit Agreement, dated as of November 24, 2003, is entered into by and among CATALINA MARKETING CORPORATION, a Delaware corporation, the institutions from time to time parties hereto as Lenders, whether by execution of this Agreement or an Assignment Agreement pursuant to Section 13.3, BANK ONE, NA, having its principal office in Chicago, Illinois, in its capacity as contractual representative for itself and the other Lenders, and WACHOVIA BANK, NATIONAL ASSOCIATION, as Syndication Agent and Documentation Agent. The Borrower, the Lenders and the Administrative Agent are parties to an Amended and Restated Credit Agreement dated as of September 25, 2003 (as amended or modified prior to the date hereof, the "Previous Agreement"). The Borrower wishes to amend and restate the Previous Agreement in its entirety and the Lenders and the Administrative Agent are willing to do so pursuant to the terms hereof. ARTICLE I: DEFINITIONS 1.1 Certain Defined Terms. In addition to the terms defined above, the following terms used in this Agreement shall have the following meanings, applicable both to the singular and the plural forms of the terms defined. As used in this Agreement: "ACCOUNTING CHANGE" is defined in Section 10.8 hereof. "ACQUISITION" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage of voting power) of the outstanding Equity Interests of another Person. "ADMINISTRATIVE AGENT" means Bank One in its capacity as contractual representative for itself and the Lenders pursuant to Article XI hereof and any successor Administrative Agent appointed pursuant to Article XI hereof. "ADVANCE" means a borrowing hereunder consisting of the aggregate amount of the several Loans made by the Lenders to the Borrower of the same Type and, in the case of Eurodollar Rate Advances, for the same Interest Period. "AFFECTED LENDER" is defined in Section 2.19 hereof. "AFFILIATE" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person is the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of greater than five percent (5%) or more of any class of voting securities (or other voting interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of Capital Stock, by contract or otherwise. "AGGREGATE REVOLVING LOAN COMMITMENT" means the aggregate of the Revolving Loan Commitments of all the Lenders, as they may be increased and/or reduced from time to time pursuant to the terms hereof. The initial Aggregate Revolving Loan Commitment is Thirty Million and 00/100 Dollars ($30,000,000.00). "AGREEMENT" means this Second Amended and Restated Credit Agreement, as it may be amended, restated or otherwise modified and in effect from time to time. "AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting principles as in effect in the United States from time to time, applied in a manner consistent with that used in preparing the financial statements of the Borrower referred to in Section 6.4(B) hereof; provided, however, except as provided in Section 10.8, that with respect to the calculation of financial ratios and other financial tests required by this Agreement, "Agreement Accounting Principles" means generally accepted accounting principles as in effect in the United States as of the date of this Agreement, applied in a manner consistent with that used in preparing the financial statements of the Borrower referred to in Section 6.4(A) hereof; provided, further, that generally accepted accounting principles in effect in the United States that differ from those used to prepare the financial statements of the Borrower referred to in Sections 6.4(A) or (B) or, prior to the completion of the Catalina Re-Audit, Section 7.1(A), shall constitute "Agreement Accounting Principles" and may be used in connection with the preparation of financial information required to be delivered hereunder if such different accounting principles arise and are applied in connection with the Catalina Re-Audit. "ALTERNATE BASE RATE" means, for any day, a fluctuating rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of (a) the Federal Funds Effective Rate for such day and (b) one-half of one percent (0.50%) per annum. "APPLICABLE COMMITMENT FEE PERCENTAGE" means, as at any date of determination, the rate per annum then applicable in the determination of the amount payable under Section 2.14(C) hereof determined in accordance with the provisions of Section 2.14(D)(ii) hereof. "APPLICABLE EURODOLLAR MARGIN" means, as at any date of determination, the rate per annum then applicable to Eurodollar Rate Loans, determined in accordance with the provisions of Section 2.14(D)(ii) hereof. "APPLICABLE FLOATING RATE MARGIN" means, as at any date of determination, the rate per annum then applicable to Floating Rate Loans, determined in accordance with the provisions of Section 2.14(D)(ii) hereof. "APPLICABLE L/C FEE PERCENTAGE" means, as at any date of determination, a rate per annum then applicable in the determination of the amount payable under Section 3.7 (i) hereof which shall equal the then effective Applicable Eurodollar Margin. 2 "ARRANGER" means Banc One Capital Markets, Inc., in its capacity as the lead arranger and sole bookrunner for the loan transaction evidenced by this Agreement. "ASSIGNMENT AGREEMENT" means an assignment and acceptance agreement entered into in connection with an assignment pursuant to Section 13.3 hereof in substantially the form of Exhibit D. "ASSET SALE" means, with respect to any Person, the sale, lease, conveyance, disposition or other transfer by such Person of any of its assets (including by way of a sale-leaseback transaction, and including the sale or other transfer of any of the Equity Interests of any Subsidiary of such Person) other than (i) the sale of Inventory in the ordinary course of business and (ii) the sale or other disposition of any obsolete manufacturing Equipment disposed of in the ordinary course of business. "AUTHORIZED OFFICER" means any of the chief executive officer, president, chief financial officer, vice president of finance or treasurer of the Borrower, acting singly. "BANK ONE" means Bank One, NA, having its principal office in Chicago, Illinois, in its individual capacity, and its successors. "BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) in respect of which the Borrower or any other member of the Controlled Group is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "BORROWER" means Catalina Marketing Corporation, a Delaware corporation, together with its successors and permitted assigns, including a debtor-in-possession on behalf of the Borrower. "BORROWING DATE" means a date on which an Advance or Swing Line Loan is made hereunder. "BORROWING/ELECTION NOTICE" is defined in Section 2.7 hereof. "BUSINESS DAY" means (i) with respect to any borrowing, payment or rate selection of Loans bearing interest at the Eurodollar Rate, a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois and on which dealings in Dollars are carried on in the London interbank market and (ii) for all other purposes a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois. "CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including Capitalized Leases and Purchase Money Indebtedness) by the Borrower and its Subsidiaries during that period that, in conformity with Agreement Accounting Principles, are required to be included in or reflected by the property, plant, Equipment or similar fixed asset accounts reflected in the consolidated balance sheet of the Borrower and its Subsidiaries. 3 "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CAPITALIZED LEASE" of a Person means any lease of property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States government or an agency thereof and backed by the full faith and credit of the United States government; (ii) domestic and Eurocurrency certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies, the long-term indebtedness of which institution at the time of acquisition is rated A- (or better) by Standard & Poor's Ratings Group or A3 (or better) by Moody's Investors Services, Inc., and which certificates of deposit and time deposits are fully protected against currency fluctuations for any such deposits with a term of more than ninety (90) days; (iii) investment grade securities (i.e., securities rated at least Baa by Moody's Investors Service, Inc. or at least BBB by Standard & Poor's Ratings Group); (iv) commercial paper of United States and foreign banks and bank holding companies and their subsidiaries and United States and foreign finance, commercial industrial or utility companies which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Ratings Group or P-1 (or better) by Moody's Investors Services, Inc. (all such institutions being "Qualified Institutions"); (v) shares of money market, mutual or similar funds having assets in excess of $100,000,000 and the investments of which are limited to those of a type set forth in clauses (i) through (iv) above; provided that the maturities of any of the foregoing Cash Equivalents described in clauses (i) through (v) above shall not exceed 365 days from the date of acquisition thereof. "CASH FLOW FROM OPERATING ACTIVITIES" means, for any period of determination, the Borrower's and its Subsidiaries' cash flow from operating activities for such period, as cash flow from operating activities shall be determined in accordance with U.S. generally accepted accounting principles in effect for such period. "CATALINA JAPANESE FINANCING" means the 3,500,000,000 yen credit facility evidenced by the Credit Agreement, dated as of November 24, 2003, by and between Catalina Marketing Japan, K.K. and Bank One, NA, as such Credit Agreement may be amended, restated, refinanced, replaced, supplemented or otherwise modified from time to time. 4 "CATALINA MARKETING NETWORK" means hardware, software, printers and peripherals and any and all improvements thereto installed and maintained by the Borrower and its Subsidiaries in supermarkets worldwide and related to the distribution of marketing and promotional materials. "CATALINA RE-AUDIT" means (x) the audit or re-audit by PricewaterhouseCoopers LLP of certain of the Borrower's annual financial statements, which audit or re-audit shall include the Borrower's annual financial statement for the fiscal year ended March 31, 2003 and the fiscal year ending March 31, 2004, and may include other annual financial statements, including the Borrower's annual financial statements for the fiscal years ended March 31, 2002 and March 31, 2001, and (y) the review by PricewaterhouseCoopers LLP of certain of the Borrower's quarterly financial statements, which review shall include the financial statements for the fiscal quarters ended June 30, 2003 and September 30, 2003, the fiscal quarters ending December 31, 2003 and June 30, 2004, and may include financial statements for fiscal quarters which end prior to or shall end after such quarters. "CHANGE" is defined in Section 4.2 hereof. "CHANGE OF CONTROL" means an event or series of events by which: (i) any "person" or "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), directly or indirectly, of thirty percent (30%) or more of the voting power of the then outstanding Capital Stock of the Borrower entitled to vote generally in the election of the directors of the Borrower; or (ii) during any period of 12 consecutive calendar months, the board of directors of the Borrower shall cease to have as a majority of its members individuals who either: (a) were directors of the Borrower on the first day of such period, or (b) were elected or nominated for election to the board of directors of the Borrower at the recommendation of or other approval by at least a majority of the directors then still in office at the time of such election or nomination who were directors of the Borrower on the first day of such period, or whose election or nomination for election was so approved. "CLOSING DATE" means the date of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "COLLATERAL" means all Property and interests in Property now owned or hereafter acquired by the Borrower or any of its Material Domestic Subsidiaries in or upon which a Lien is granted to the Collateral Agent, for the benefit of the Holders of Secured Obligations and the other parties subject to the Intercreditor Agreement, or to the Administrative Agent, for the benefit of the Holders of Secured Obligations, whether under the Security Agreement, under any of the other Collateral Documents or under any of the other Loan Documents; provided, 5 however, that any Property securing the repayment of the Wachovia Lease Program Indebtedness as of the Closing Date (including any replacement Property) shall not constitute Collateral and shall not be required to be subject to any Lien granted pursuant to the Collateral Documents until such time as the Wachovia Lease Program Indebtedness shall be fully repaid and any arrangements in connection therewith shall be terminated; provided, further, that Equity Interests in the Borrower's Affiliates that are not Domestic Subsidiaries shall not constitute Collateral. "COLLATERAL AGENT" means Bank One, NA, in its capacity as Collateral Agent under the Intercreditor Agreement, together with successor and assigns thereto permitted under the Intercreditor Agreement. "COLLATERAL DOCUMENTS" means all agreements, instruments and documents executed in connection with this Agreement that are intended to create or evidence Liens to secure the Secured Obligations and all other obligations subject to the Intercreditor Agreement, including, without limitation, the Security Agreement. "COMMISSION" means the Securities and Exchange Commission of the United States of America and any Person succeeding to the functions thereof. "CONSOLIDATED ASSETS" means the total assets of the Borrower and its Subsidiaries on a consolidated basis as determined in accordance with Agreement Accounting Principles. "CONTAMINANT" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos, polychlorinated biphenyls ("PCBS"), or any constituent of any such substance or waste that is regulated under or for which liability may be imposed under Environmental, Health or Safety Requirements of Law. "CONTINGENT OBLIGATION", as applied to any Person, means any Contractual Obligation, contingent or otherwise, of that Person with respect to any Indebtedness of another or other obligation or liability of another, including, without limitation, any such Indebtedness, obligation or liability of another directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including Contractual Obligations (contingent or otherwise) arising through any agreement to purchase, repurchase or otherwise acquire such Indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, or other financial condition, or to make payment other than for value received. The amount of any Contingent Obligation shall be equal to the present value of the portion of the obligation so guaranteed or otherwise supported, in the case of known recurring obligations, and the maximum reasonably anticipated liability in respect of the portion of the obligation so guaranteed or otherwise supported assuming such Person is required to perform thereunder, in all other cases. 6 "CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any equity or debt securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument, in any case in writing, to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "CONTROLLED GROUP" means the group consisting of (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower; (ii) a partnership or other trade or business (whether or not incorporated) which is under common control (within the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Borrower, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above. "CORPORATE BASE RATE" means a rate per annum equal to the corporate base rate or prime rate of interest announced from time to time by Bank One or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said corporate base rate or prime rate changes. "CURE LOAN" is defined in Section 9.2 hereof. "CUSTOMARY PERMITTED LIENS" means: (i) Liens (other than Environmental Liens and Liens in favor of the IRS or the PBGC or any Plan) with respect to the payment of taxes, assessments or governmental charges in all cases which are not yet due or (if foreclosure, distraint, sale or other similar proceedings shall not have been commenced or any such proceeding after being commenced is stayed) which are being contested in good faith by appropriate proceedings properly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Agreement Accounting Principles; (ii) statutory Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen, service providers or workmen and other similar Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings properly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Agreement Accounting Principles; (iii) Liens (other than Environmental Liens and Liens in favor of the IRS or the PBGC or any Plan) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), surety, appeal and performance bonds; provided that (A) all such Liens do not in the aggregate materially detract from the value of the Borrower's or its Subsidiary's assets or property taken as a whole or materially impair the use thereof in the operation of the businesses taken as a whole, and 7 (B) all Liens securing bonds to stay judgments or in connection with appeals do not secure at any time an aggregate amount exceeding $5,000,000; (iv) Liens arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar charges or encumbrances on the use of real property which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (v) Liens of attachment or judgment with respect to judgments, writs or warrants of attachment, or similar process against the Borrower or any of its Subsidiaries which do not constitute a Default under Section 8.1(H) hereof; and (vi) any interest or title of the lessor in the property subject to any operating lease entered into by the Borrower or any of its Subsidiaries in the ordinary course of business. "DEFAULT" means an event described in Article VIII hereof. "DEFECTIVE REBATE MATERIALS" means any coupons, rebates or other discount materials prepared by the Borrower or a Subsidiary thereof at the request of one of its customers that inaccurately reflect or offer a rebate or other price reduction for a good or service offered by such customer. For example, if a customer requested the preparation and circulation of a coupon offering such customer's clients a 10% purchase price reduction on a particular good, and the Borrower or any Subsidiary thereof prepared and circulated materials offering a 20% purchase price reduction, then the additional 10% price reduction would reflect the inaccuracy and would be the amount of the price reduction not requested by the customer. "DESIGNATED LENDER" means, with respect to each Designating Lender, each Eligible Designee designated by such Designating Lender pursuant to Section 13.3(D). "DESIGNATING LENDER" means, with respect to each Designated Lender, the Lender that designated such Designated Lender pursuant to Section 13.3(D). "DESIGNATION AGREEMENT" is defined in Section 13.3(D) hereof. "DISCLOSED DOMESTIC SUBSIDIARY ASSET SALES" means the sale, transfer or other disposition of (x) all or substantially all of the Property of one or more Domestic Subsidiaries of the Borrower or (y) all or substantially all of the equity interests of one or more Domestic Subsidiaries of the Borrower, in either case as disclosed to the Administrative Agent and the Lenders prior to the Closing Date and in either case to any Person that is not an Affiliate of the Borrower. "DISCLOSED FOREIGN SUBSIDIARY ASSET SALE" means the sale, transfer or other disposition of (x) all or substantially all of the Property of a non-Domestic Subsidiary of the Borrower or (y) all or substantially all of the equity interests of a non-Domestic Subsidiary of the Borrower, in either case as disclosed to the Administrative Agent and the Lenders prior to the Closing Date and in either case to a Person that is not an Affiliate of the Borrower. 8 "DISCLOSED LITIGATION" is defined in Section 6.7 hereof. "DISQUALIFIED STOCK" means any preferred stock and any Capital Stock, in each case that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the Revolving Loan Termination Date. "DIVIDEND" means any dividend or other distribution, direct or indirect, on account of any Equity Interests of the Borrower or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely in the Capital Stock of the Borrower or any of its Subsidiaries (other than Disqualified Stock) or in options, warrants or other rights to purchase Capital Stock of the Borrower or any of its Subsidiaries. "DOL" means the United States Department of Labor and any Person succeeding to the functions thereof. "DOLLAR" and "$" means dollars in the lawful currency of the United States. "DOMESTIC SUBSIDIARY" means any Subsidiary of a Person that is organized under the laws of a state of the United States or any other political subdivision thereof. "EBIT" means, for any period, on a consolidated basis for the Borrower and its Subsidiaries, the sum of the amounts for such period, without duplication, of (i) Net Income, plus (ii) Interest Expense to the extent deducted in computing Net Income, plus (iii) charges against income for foreign, federal, state and local taxes to the extent deducted in computing Net Income, plus (iv) one-time non-cash restructuring charges to the extent deducted in computing Net Income, all as determined in accordance with Agreement Accounting Principles. "EBITDA" means, for any period, on a consolidated basis for the Borrower and its Subsidiaries, the sum of the amounts for such period, without duplication, of (i) EBIT, plus (ii) depreciation expense to the extent deducted in computing Net Income, plus (iii) amortization expense, including, without limitation, amortization of goodwill and other intangible assets to the extent deducted in computing Net Income, all as determined in accordance with Agreement Accounting Principles. "ELECTRONIC ERRORS & OMISSIONS POLICY" means the insurance policy maintained by the Borrower and its Subsidiaries that provides coverage against claims brought by any customer of the Borrower or any Subsidiary thereof resulting from the Borrower or a Subsidiary thereof preparing Defective Rebate Materials on behalf of such customer. "ELIGIBLE DESIGNEE" means a special purpose corporation, partnership, limited partnership or limited liability company that is administered by a Lender or an Affiliate of a Lender and (i) is organized under the laws of the United States of America or any state thereof, (ii) is engaged primarily in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and (iii) issues (or the parent of which issues) commercial paper rated at least A-1 or the equivalent thereof by S&P or the equivalent thereof by Moody's. 9 "ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all Requirements of Law derived from or relating to foreign, federal, state and local laws or regulations relating to or addressing pollution or protection of the environment, or protection of worker health or safety, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. ("CERCLA"), the Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq. ("OSHA"), and the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq. ("RCRA"), in each case including any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder, and any state or local equivalent thereof. "ENVIRONMENTAL LIEN" means a lien in favor of any Governmental Authority for (a) any liability under Environmental, Health or Safety Requirements of Law, or (b) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. "EQUIPMENT" means all of the Borrower's and its Subsidiaries' present and future (i) equipment, including, without limitation, machinery, manufacturing, distribution, selling, data processing and office equipment, assembly systems, tools, molds, dies, fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft, aircraft engines, and trade fixtures, (ii) other tangible personal property (other than the Borrower's or Subsidiary's Inventory), and (iii) any and all accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions therefor and replacements, products and proceeds thereof. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. "EURODOLLAR BASE RATE" means, with respect to a Eurodollar Rate Loan for the relevant Interest Period, the applicable British Bankers' Association Interest Settlement Rate for deposits in U.S. dollars appearing on Reuters Screen FRBD as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, as adjusted for Reserves; provided that, (i) if Reuters Screen FRBD is not available to the Administrative Agent for any reason, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the applicable British Bankers' Association Interest Settlement Rate for deposits in U.S. Dollars as reported by any other generally recognized financial information service as of 11 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, and (ii) if no such British Bankers' Association Interest Settlement Rate is available to the Administrative Agent, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by the Administrative Agent to be the rate at which Bank One or one of its Affiliate banks offers to place deposits in U.S. Dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of 10 such Interest Period, in the approximate amount of Bank One's relevant Eurodollar Rate Loan and having a maturity equal to such Interest Period. "EURODOLLAR RATE" means, with respect to a Eurodollar Rate Loan for the relevant Interest Period, the Eurodollar Base Rate applicable to such Interest Period plus the then Applicable Eurodollar Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "EURODOLLAR RATE ADVANCE" means an Advance which bears interest at the Eurodollar Rate. "EURODOLLAR RATE LOAN" means a Loan, or portion thereof, which bears interest at the Eurodollar Rate. "EXCLUDED TAXES" means, in the case of each Lender or applicable Lending Installation and the Administrative Agent, taxes imposed on its overall net income, and franchise taxes imposed on it, by (i) the jurisdiction under the laws of which such Lender or the Administrative Agent is incorporated or organized or (ii) the jurisdiction in which the Administrative Agent's or such Lender's principal executive office or such Lender's applicable Lending Installation is located. "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "FINANCIAL INFORMATION RESTATEMENT LIMIT" means, in connection with the Catalina Re-Audit and any restatement or modification of financial information or financial statements subject thereto which results in a reduction of previously reported Cash Flow From Operating Activities for the period for which the Catalina Re-Audit is performed, an amount of not more than $20,000,000 in the aggregate. "FLOATING RATE" means, for any day for any Loan, a rate per annum equal to the Alternate Base Rate for such day, changing when and as the Alternate Base Rate changes, plus the then Applicable Floating Rate Margin. "FLOATING RATE ADVANCE" means an Advance which bears interest at the Floating Rate. "FLOATING RATE LOAN" means a Loan, or portion thereof, which bears interest at the Floating Rate. "FOREIGN EMPLOYEE BENEFIT PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of 11 the Borrower, any of its Subsidiaries or any members of its Controlled Group and is not covered by ERISA pursuant to Section 4(b)(4) of ERISA. "FOREIGN PENSION PLAN" means any employee benefit plan as described in Section 3(3) of ERISA for which the Borrower or any member of its Controlled Group is a sponsor or administrator and which (i) is maintained or contributed to for the benefit of employees of the Borrower, its Subsidiaries or any member of its Controlled Group, (ii) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA and (iii) under applicable local law, is required to be funded through a trust or other funding vehicle. "GOVERNMENTAL ACTS" is defined in Section 3.9(A) hereof. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative authority or functions of or pertaining to government, including any authority or other quasi-governmental entity established to perform any of such functions. "GROSS NEGLIGENCE" means (a) recklessness, (b) the absence of slight diligence, or (c) actions taken or omitted with conscious indifference to or the reckless disregard of consequences or rights of others affected. Gross Negligence does not mean the absence of ordinary care or diligence, or an inadvertent act or inadvertent failure to act. If the term "gross negligence" is used with respect to the Administrative Agent or any Lender or any indemnitee in any of the other Loan Documents, it shall have the meaning set forth herein. "GUARANTORS" means (i) all of the Borrower's Material Domestic Subsidiaries as of the Closing Date; (ii) any New Subsidiaries which have satisfied the provisions of Section 7.2(K) hereof; and (iii) any other Subsidiaries which become Guarantors as a result of the provisions of Section 7.2(K), and, in each case, their respective successors and permitted assigns. "GUARANTY" means that certain Amended and Restated Guaranty substantially in the form of Exhibit I hereto dated as of November 24, 2003, executed by the Guarantors in favor of the Administrative Agent, for the ratable benefit of the Holders of Secured Obligations, as it may be amended, modified, supplemented and/or restated (including to add new Guarantors), and as in effect from time to time. "HEDGING AGREEMENTS" is defined in Section 7.3(L) hereof. "HEDGING ARRANGEMENTS" is defined in the definition of Hedging Obligations below. "HEDGING OBLIGATIONS" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect such Person from the fluctuations of interest rates, commodity prices, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants or any similar derivative transactions ("HEDGING 12 ARRANGEMENTS"), and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. "HOLDERS OF SECURED OBLIGATIONS" means the holders of the Secured Obligations from time to time and shall include their respective successors, transferees and permitted assigns. "INDEBTEDNESS" of any Person means, without duplication, such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property or assets now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances or other instruments, (e) Capitalized Lease Obligations, (f) Contingent Obligations, (g) obligations with respect to letters of credit, (h) Hedging Obligations, (i) Off-Balance Sheet Liabilities, and (j) Disqualified Stock held by a Person other than the Borrower or any of its Subsidiaries. The amount of Indebtedness of any Person at any date shall be without duplication (i) the outstanding balance at such date of all unconditional obligations as described above and the maximum liability of any such Contingent Obligations at such date and (ii) in the case of Indebtedness described in clause (c) above of others secured by a Lien to which the property or assets owned or held by such Person is subject, the lesser of the fair market value at such date of any asset subject to a Lien securing the Indebtedness of others and the amount of the Indebtedness secured. "INDEMNIFIED MATTERS" is defined in Section 10.6(B) hereof. "INDEMNITEES" is defined in Section 10.6(B) hereof. "INITIAL FUNDING DATE" means the date on which the initial Revolving Loans are advanced hereunder. "INSOLVENCY EVENT" is defined in Section 10.13 hereof. "INTERCOMPANY INDEBTEDNESS" is defined in Section 10.13 hereof. "INTERCREDITOR AGREEMENT" means an intercreditor, lien subordination and collateral agency agreement, dated as of November 24, 2003, substantially in the form of Exhibit J hereto, by and among the Administrative Agent, the Lenders, Bank One, NA, as lender under the Catalina Japanese Financing, and the Collateral Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time. "INTEREST EXPENSE" means, for any period, the total interest expense of the Borrower and its consolidated Subsidiaries, whether paid or accrued (including, without duplication, the interest component of Capitalized Leases, net payments (if any) pursuant to Hedging Arrangements relating to interest rate protection, and commitment and letter of credit fees), all as determined in conformity with Agreement Accounting Principles. "INTEREST EXPENSE COVERAGE RATIO" is defined in Section 7.4(B) hereof. 13 "INTEREST PERIOD" means, with respect to a Eurodollar Rate Loan, a period of one (1), two (2) or three (3) months commencing on a Business Day selected by the Borrower on which a Eurodollar Rate Advance is made to Borrower pursuant to this Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two or three months thereafter; provided, however, that if there is no such numerically corresponding day in such next, second or third succeeding month, such Interest Period shall end on the last Business Day of such next, second or third succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day; provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day; provided, further, in no event shall any Interest Period extend beyond the Revolving Loan Termination Date. "INVENTORY" shall mean any and all goods, including, without limitation, goods in transit, wheresoever located, whether now owned or hereafter acquired by the Borrower or any of its Subsidiaries, which are held for sale or lease, furnished under any contract of service or held as raw materials, work in process or supplies, and all materials used or consumed in the business of Borrower or any of its Subsidiaries, and shall include all right, title and interest of the Borrower or any of its Subsidiaries in any property the sale or other disposition of which has given rise to Receivables and which has been returned to or repossessed or stopped in transit by the Borrower or any of its Subsidiaries. "INVESTMENT" means, with respect to any Person, (i) any purchase or other acquisition by that Person of any Indebtedness, Equity Interests or other securities, or of a beneficial interest in any Indebtedness, Equity Interests or other securities, issued by any other Person, (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business. Investment shall not include, until funded, any Contingent Obligation included in the calculation of Indebtedness. "IRS" means the Internal Revenue Service and any Person succeeding to the functions thereof. "ISSUING BANK" means Bank One in its separate capacity as an issuer of Letters of Credit pursuant to Section 3.1. "L/C DOCUMENTS" is defined in Section 3.3 hereof. "L/C DRAFT" means a draft drawn on the Issuing Bank pursuant to a Letter of Credit. "L/C INTEREST" shall have the meaning ascribed to such term in Section 3.5 hereof. "L/C OBLIGATIONS" means, without duplication, an amount equal to the sum of (i) the aggregate of the amount then available for drawing under each of the Letters of Credit, (ii) the face amount of all outstanding L/C Drafts corresponding to the Letters of Credit, which L/C 14 Drafts have been accepted by the Issuing Bank, (iii) the aggregate outstanding amount of all Reimbursement Obligations at such time and (iv) the aggregate face amount of all Letters of Credit requested by the Borrower but not yet issued (unless the request for an unissued Letter of Credit has been denied). "LENDERS" means the lending institutions listed on the signature pages of this Agreement, including the Issuing Banks and the Swing Line Bank, and each of their respective successors and assigns. "LENDING INSTALLATION" means, with respect to a Lender or the Administrative Agent, any office, branch, subsidiary or affiliate of such Lender or the Administrative Agent. "LETTER OF CREDIT" means, subject to the availability of letters of credit under Section 3.1, the letters of credit to be issued by the Issuing Bank pursuant to Section 3.1 hereof. "LEVERAGE RATIO" is defined in Section 7.4(A) hereof. "LIEN" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "LOAN(S)" means, with respect to a Lender, such Lender's portion of any Advance made pursuant to Section 2.1 hereof, as applicable, and in the case of the Swing Line Bank, any Swing Line Loan made pursuant to Section 2.2 hereof, and collectively, all Revolving Loans and Swing Line Loans, whether made or continued as or converted to Floating Rate Loans or Eurodollar Rate Loans. "LOAN ACCOUNT" is defined in Section 2.12(A) hereof. "LOAN DOCUMENTS" means this Agreement, the Intercreditor Agreement, the Guaranty, the Collateral Documents and all supplements thereto, and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, as the same may be amended, restated, supplemented or otherwise modified and in effect from time to time. "LOAN PARTIES" is defined in Section 5.1 hereof. "MARGIN STOCK" shall have the meaning ascribed to such term in Regulation U. "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the business, properties, prospects, operations or condition (financial or otherwise) of the Borrower or the Borrower and its Subsidiaries, taken as a whole, (b) the ability of the Borrower or any of its Subsidiaries to pay or perform their respective Secured Obligations, liabilities and Indebtedness under the Loan Documents in any material respects or (c) the ability of the Lenders or the Agent to enforce in any material respect the Secured Obligations. "MATERIAL DOMESTIC SUBSIDIARY" means, without duplication, each consolidated Subsidiary of the Borrower (a) that is a Domestic Subsidiary and (b) which either (i) represents 15 more than two and one-half percent (2.5%) of Consolidated Assets as would be shown in the consolidated financial statements of the Borrower and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than two and one-half percent (2.5%) of the consolidated net income of the Borrower and its Subsidiaries as reflected in the financial statements referred to in clause (i) above. "MATERIAL TERM" means, with respect to any indenture, agreement or other instrument evidencing Indebtedness or an obligation to repay Indebtedness, a provision evidencing a default, event of default or other comparable event which permits the holder of such Indebtedness to accelerate the repayment thereof, or any provision evidencing a representation, warranty or covenant. "MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by either the Borrower or any member of the Controlled Group. "NET INCOME" means, for any period, the net earnings (or loss) after taxes of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with Agreement Accounting Principles. "NEW SUBSIDIARY" is defined in Section 7.3(D). "NON-ERISA COMMITMENTS" means (i) each pension, medical, dental, life, accident insurance, disability, group insurance, sick leave, profit sharing, deferred compensation, bonus, stock option, stock purchase, retirement, savings, severance, stock ownership, performance, incentive, hospitalization or other insurance, or other welfare, benefit or fringe benefit plan, policy, trust, understanding or arrangement of any kind; and (ii) each employee collective bargaining agreement and each agreement, understanding or arrangement of any kind, with or for the benefit of any current executive officer or director of the Borrower (including, without limitation, each employment, compensation, deferred compensation, severance or consulting agreement or arrangement and any agreement or arrangement associated with a change in ownership of the Borrower or any member of the Controlled Group); to which the Borrower or any member of the Controlled Group is a party or with respect to which the Borrower or any member of the Controlled Group is or will be required to make any payment other than any Plans. "NON PRO RATA LOAN" is defined in Section 9.2 hereof. "NON-U.S. LENDER" is defined in Section 4.5(iii) hereof. 16 "NOTE" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit K hereto, evidencing the aggregate indebtedness of the Borrower to such Lender under this Agreement. "NOTICE OF ASSIGNMENT" is defined in Section 13.3(B) hereof. "OBLIGATIONS" means all Loans, L/C Obligations, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower or any of its Subsidiaries to the Administrative Agent, any Lender, the Swing Line Bank, the Arranger, any Affiliate of the Administrative Agent or any Lender, the Issuing Bank or any Indemnitee, of any kind or nature, present or future, arising under this Agreement, the L/C Documents or any other Loan Document, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements, paralegals' fees (in each case whether or not allowed), and any other sum chargeable to the Borrower or any of its Subsidiaries under this Agreement or any other Loan Document. "OFF-BALANCE SHEET LIABILITIES" of a Person means (a) any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to Receivables or notes receivable sold by such Person or any of its Subsidiaries (calculated to include the unrecovered investment of purchasers or transferees of Receivables or notes receivable or any other obligation of the Borrower or such transferor to purchasers/transferees of interests in Receivables or notes receivables or the agent for such purchasers/transferees), (b) any liability under any sale and leaseback transactions which do not create a liability on the consolidated balance sheet of such Person, (c) any liability under any financing lease or so-called "synthetic lease" transaction or "tax ownership operating lease" transaction, or (d) any obligations arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries. "OTHER TAXES" is defined in Section 4.5 hereof. "PARTICIPANTS" is defined in Section 13.2(A) hereof. "PAYMENT DATE" means the last day of each calendar quarter. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "PERMITTED EXISTING INVESTMENTS" means the Investments of the Borrower and its Subsidiaries identified as such on Schedule 1.1.1 to this Agreement. "PERMITTED EXISTING LIENS" means the Liens on assets of the Borrower and its Subsidiaries identified as such on Schedule 1.1.2 to this Agreement. 17 "PERSON" means any individual, corporation, firm, enterprise, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company or other entity of any kind, or any government or political subdivision or any agency, department or instrumentality thereof. "PREVIOUS AGREEMENT" is defined in the first paragraph of this Agreement. "PLAN" means an employee benefit plan defined in Section 3(3) of ERISA in respect of which the Borrower or any member of the Controlled Group is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "PROPERTY" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "PRO RATA SHARE" means, with respect to any Lender, the percentage obtained by dividing (A) such Lender's Revolving Loan Commitment at such time (in each case, as adjusted from time to time in accordance with the provisions of this Agreement) by (B) the Aggregate Revolving Loan Commitment at such time; provided, however, if all of the Revolving Loan Commitments are terminated pursuant to the terms of this Agreement, then "Pro Rata Share" means the percentage obtained by dividing (x) the sum of (A) such Lender's Revolving Loans, plus (B) such Lender's share of the obligations to purchase participations in Swing Line Loans and Letters of Credit, by (y) the sum of (A) the aggregate outstanding amount of Revolving Loans, plus (B) the aggregate outstanding amount of all Swing Line Loans and Letters of Credit. "PURCHASE MONEY INDEBTEDNESS" means Indebtedness incurred by the Borrower or any of its Subsidiaries after the Closing Date to finance the acquisition of assets which has a scheduled maturity and is not due on demand, and which does not exceed the cost of the applicable assets. "PURCHASERS" is defined in Section 13.3(A) hereof. "RECEIVABLE(S)" means and includes all of the Borrower's and its Subsidiaries' presently existing and hereafter arising or acquired accounts, accounts receivable, and all present and future rights of the Borrower and its Subsidiaries to payment for goods sold or leased or for services rendered (except those evidenced by instruments or chattel paper), whether or not they have been earned by performance, and all rights in any merchandise or goods which any of the same may represent, and all rights, title, security and guaranties with respect to each of the foregoing, including, without limitation, any right of stoppage in transit. "REGISTER" is defined in Section 13.3(C) hereof. "REGULATION T" means Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by and to brokers and dealers of securities for the purpose of purchasing or carrying margin stock (as defined therein). "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official 18 interpretation of said Board of Governors relating to the extension of credit by banks, non-banks and non-broker lenders for the purpose of purchasing or carrying Margin Stock applicable to member banks of the Federal Reserve System. "REGULATION X" means Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by foreign lenders for the purpose of purchasing or carrying margin stock (as defined therein). "REIMBURSEMENT OBLIGATION" is defined in Section 3.6 hereof. "RELEASE" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the environment, including the movement of Contaminants through or in the air, soil, surface water or groundwater. "REPLACEMENT LENDER" is defined in Section 2.19 hereof. "REPORTABLE EVENT" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days after such event occurs, provided, however, that a failure to meet the minimum funding standards of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "REQUIRED LENDERS" means Lenders whose Pro Rata Shares, in the aggregate, are at least fifty-one percent (51%); provided, however, that, if any of the Lenders shall have failed to fund its Pro Rata Share of (i) any Revolving Loan requested by the Borrower, (ii) any Revolving Loan required to be made in connection with reimbursement for any L/C Obligations or (iii) any Swing Line Loan as requested by the Administrative Agent, which such Lenders are obligated to fund under the terms of this Agreement and any such failure has not been cured, then for so long as such failure continues, "REQUIRED LENDERS" means Lenders (excluding all Lenders whose failure to fund their respective Pro Rata Shares of such Revolving Loans or Swing Line Loans has not been so cured) whose Pro Rata Shares represent at least fifty-one percent (51%) of the aggregate Pro Rata Shares of such Lenders; provided further, however, that, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement, "REQUIRED LENDERS" means Lenders (without regard to such Lenders' performance of their respective obligations hereunder) whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Loans and L/C Obligations are at least fifty-one percent (51%). "REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, 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 including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, Regulations T, U and X, ERISA, the Fair Labor Standards Act, the 19 Worker Adjustment and Retraining Notification Act, Americans with Disabilities Act of 1990, and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or permit or environmental, labor, employment, occupational safety or health law, rule or regulation, including Environmental, Health or Safety Requirements of Law. "RESERVES" shall mean the maximum reserve requirement, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) with respect to "Eurocurrency liabilities" or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Rate Loans is determined or category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to United States residents. "REVOLVING CREDIT AVAILABILITY" means, at any particular time, the amount by which the Aggregate Revolving Loan Commitment at such time exceeds the Revolving Credit Obligations outstanding at such time. "REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum of (i) the outstanding principal amount of the Revolving Loans at such time, plus (ii) the outstanding principal amount of the Swing Line Loans at such time, plus (iii) the outstanding L/C Obligations at such time. "REVOLVING LOAN" is defined in Section 2.1 hereof. "REVOLVING LOAN COMMITMENT" means, for each Lender, the obligation of such Lender to make Revolving Loans and to purchase participations in Letters of Credit and to participate in Swing Line Loans not exceeding the amount set forth on Exhibit A to this Agreement opposite its name thereon under the heading "Revolving Loan Commitment" or in the assignment and acceptance by which it became a Lender, as such amount may be modified from time to time pursuant to the terms of this Agreement or to give effect to any applicable assignment and acceptance. "REVOLVING LOAN TERMINATION DATE" means August 31, 2004. "RISK-BASED CAPITAL GUIDELINES" is defined in Section 4.2 hereof. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. "SECURED OBLIGATIONS" means the Obligations and any Hedging Obligations owing by the Borrower or an Affiliate thereof to any Lender or Affiliate thereof. "SECURITY AGREEMENT" means the Security and Pledge Agreement, dated as of November 24, 2003, in substantially the form of Exhibit M hereto, by and among the Borrower, certain of its Domestic Subsidiaries and the Collateral Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time. "SUBSIDIARY" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and 20 one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" means a Subsidiary of the Borrower. "SUBSTANTIAL PORTION" means, with respect to the Property of the Borrower and its Subsidiaries, Property which (i) represents more than 10% of Consolidated Assets as would be shown in the consolidated financial statements of the Borrower and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made, or (ii) is responsible for more than 10% of the consolidated net sales or of the consolidated net income of the Borrower and its Subsidiaries as reflected in the financial statements referred to in clause (i) above. "SUPERMAJORITY LENDERS" means Lenders whose Pro Rata Shares, in the aggregate, are at least seventy-five percent (75%); provided, however, that, if any of the Lenders shall have failed to fund its Pro Rata Share of (i) any Revolving Loan requested by the Borrower, (ii) any Revolving Loan required to be made in connection with reimbursement for any L/C Obligations or (iii) any Swing Line Loan as requested by the Administrative Agent, which such Lenders are obligated to fund under the terms of this Agreement and any such failure has not been cured, then for so long as such failure continues, "SUPERMAJORITY LENDERS" means Lenders (excluding all Lenders whose failure to fund their respective Pro Rata Shares of such Revolving Loans or Swing Line Loans has not been so cured) whose Pro Rata Shares represent at least seventy-five percent (75%) of the aggregate Pro Rata Shares of such Lenders; provided further, however, that, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement, "SUPERMAJORITY LENDERS" means Lenders (without regard to such Lenders' performance of their respective obligations hereunder) whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Loans and L/C Obligations are at least seventy-five percent (75%). "SWING LINE BANK" means Bank One pursuant to the terms hereof. "SWING LINE COMMITMENT" means, subject to the availability of Swing Line Loans under Section 2.2, the commitment of the Swing Line Bank, in its discretion, to make Swing Line Loans up to a maximum principal amount of $10,000,000 at any one time outstanding. "SWING LINE LOAN" means a Loan made available to the Borrower by the Swing Line Bank pursuant to Section 2.2 hereof. "TAXES" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes. "TERMINATION DATE" means the earlier of (a) the Revolving Loan Termination Date, and (b) the date of termination in whole of the Aggregate Revolving Loan Commitment pursuant to Section 2.5 hereof or the Revolving Loan Commitments pursuant to Section 9.1 hereof. "TERMINATION EVENT" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any member of the Controlled Group from a Benefit Plan 21 during a plan year in which the Borrower or such Controlled Group member was a "substantial employer" as defined in Section 4001(a)(2) of ERISA with respect to such plan or a reduction or cessation of operations which results in the termination of employment of twenty percent (20%) or more of the participants of a Benefit Plan who are employees of the Borrower or any member of the Controlled Group; (iii) the imposition of an obligation under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to terminate a Benefit Plan; (v) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; or (vi) the partial or complete withdrawal of the Borrower or any member of the Controlled Group from a Multiemployer Plan. "TRANSFEREE" is defined in Section 13.5 hereof. "TYPE" means, with respect to any Loan, its nature as a Floating Rate Loan or a Eurodollar Rate Loan. "2003 FINANCIALS DELIVERY DATE" means the date on which the Administrative Agent receives the Borrower's annual financial statement for fiscal year 2003 as audited by PricewaterhouseCoopers LLP and as filed with the Commission. "UNMATURED DEFAULT" means an event which, but for the lapse of time or the giving of notice, or both, would constitute a Default. "WACHOVIA LEASE PROGRAM INDEBTEDNESS" means all Indebtedness outstanding under that certain $30,500,000 end loaded lease financing facility described in that certain Participation Agreement dated as of October 21, 1999 by and among Catalina Marketing Sales Corporation, First Security Bank, National Association, the various lending institutions party thereto and First Union National Bank, now known as Wachovia Bank, National Association, as agent for such lending institutions, and related agreements, as the same may be amended, restated, replaced, refinanced, supplemented or otherwise modified from time to time. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Any accounting terms used in this Agreement which are not specifically defined herein shall have the meanings customarily given them in accordance with Agreement Accounting Principles. 1.2 References. Any references to Subsidiaries of the Borrower shall not in any way be construed as consent by the Administrative Agent or any Lender to the establishment, maintenance or acquisition of any Subsidiary, except as may otherwise be permitted hereunder. ARTICLE II: THE REVOLVING LOAN FACILITY 2.1 Revolving Loans. (A) Upon the satisfaction of the conditions precedent set forth in Sections 5.1 and 5.2, as applicable, from and including the Initial Funding Date and prior to the Termination Date, each Lender severally and not jointly agrees, on the terms and conditions set forth in this Agreement, 22 to make revolving loans to the Borrower from time to time, in Dollars, in an amount not to exceed such Lender's Pro Rata Share of Revolving Credit Availability at such time (each individually, a "REVOLVING LOAN" and, collectively, the "REVOLVING LOANS"); provided, however, at no time shall the Revolving Credit Obligations exceed the Aggregate Revolving Loan Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow Revolving Loans at any time prior to the Termination Date. Revolving Loans shall be, at the option of the Borrower, so long as such option complies with the terms of this Agreement, either Floating Rate Loans or Eurodollar Rate Loans. On the Termination Date, the Borrower shall repay in full the outstanding principal balance of the Revolving Loans. Each Advance under this Section 2.1 shall consist of Revolving Loans made by each Lender ratably in proportion to such Lender's respective Pro Rata Share. (B) Borrowing/Election Notice. The Borrower shall give the Administrative Agent written notice of each requested Revolving Loan in the form of a Borrowing/Election Notice, signed by it, in accordance with the terms of Section 2.7. The Administrative Agent shall promptly notify each Lender of such request. (C) Making of Revolving Loans. Promptly after receipt of the Borrowing/Election Notice under Section 2.7 in respect of Revolving Loans, the Administrative Agent shall notify each Lender by telecopy, or other similar form of transmission, of the requested Revolving Loan. Each Lender shall make available its Revolving Loan in accordance with the terms of Section 2.6. The Administrative Agent will promptly make the funds so received from the Lenders available to the Borrower at the Administrative Agent's office in Chicago, Illinois on the applicable Borrowing Date utilizing reasonable efforts to initiate the transfer of such funds so received by not later than 2:00 p.m. (Chicago time) and shall disburse such proceeds in accordance with the Borrower's disbursement instructions set forth in such Borrowing/Election Notice. The failure of any Lender to deposit the amount described above with the Administrative Agent on the applicable Borrowing Date shall not relieve any other Lender of its obligations hereunder to make its Revolving Loan on such Borrowing Date. 2.2 Swing Line Loans. (A) Amount of Swing Line Loans. Notwithstanding anything to the contrary set forth herein, Swing Line Loans shall not be available to the Borrower from the Closing Date until such time as the Lenders, the Administrative Agent and the Swing Line Bank agree in writing to make Swing Line Loans available to the Borrower. On and after the date on which the Lenders, the Administrative Agent, and the Swing Line Bank agree in writing to make Swing Line Loans available to the Borrower, the terms and conditions of this Agreement shall apply to any such Swing Line Loans. Upon the satisfaction of the conditions precedent set forth in Section 5.1 and 5.2, as applicable, from and including the consent date described above and prior to the Termination Date, the Swing Line Bank may, in its discretion, on the terms and conditions set forth in this Agreement, make swing line loans to the Borrower from time to time, in Dollars, in an amount not to exceed the Swing Line Commitment (each, individually, a "SWING LINE LOAN" and collectively, the "SWING LINE LOANS"); provided, however, at no time shall the extension of a Swing Line Loan cause the Revolving Credit Obligations to exceed the Aggregate Revolving Loan Commitment. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow Swing Line Loans at any time prior to the Termination Date. 23 (B) Borrowing/Election Notice for Swing Line Loans. The Borrower shall deliver to the Administrative Agent and the Swing Line Bank a Borrowing/Election Notice, signed by it, not later than 12:00 noon (Chicago time) on the Borrowing Date of each Swing Line Loan, specifying (i) the applicable Borrowing Date (which date shall be a Business Day and which may be the same date as the date the Borrowing/Election Notice is given), and (ii) the aggregate amount of the requested Swing Line Loan which shall be an amount not less than $500,000 and increments of $100,000 in excess thereof. The Swing Line Loans shall at all times be Floating Rate Loans. (C) Making of Swing Line Loans. Promptly (but in any event not later than 2:00 p.m. (Chicago time)) after receipt of the Borrowing/Election Notice under Section 2.2(B) in respect of Swing Line Loans, the Swing Line Bank shall make available its Swing Line Loan, in funds immediately available in Chicago, Illinois to the Administrative Agent at its address specified pursuant to Article XIV. The Administrative Agent will promptly make the funds so received from the Swing Line Bank available to the Borrower on the Borrowing Date at the Administrative Agent's aforesaid address. (D) Repayment of Swing Line Loans. Each Swing Line Loan shall be paid in full by the Borrower on or before the fifth (5th) day after the Borrowing Date for such Swing Line Loan. The Borrower may at any time pay, without penalty or premium, all outstanding Swing Line Loans or, in a minimum amount of $100,000 and increments of $50,000 in excess thereof, any portion of the outstanding Swing Line Loans, upon notice to the Administrative Agent and the Swing Line Bank. In addition, the Administrative Agent (i) may at any time in its sole discretion with respect to any outstanding Swing Line Loan, or (ii) shall on the fifth (5th) day after the Borrowing Date of any Swing Line Loan, require each Lender (including the Swing Line Bank) to make a Revolving Loan in the amount of such Lender's Pro Rata Share of such Swing Line Loan, for the purpose of repaying such Swing Line Loan. Not later than 12:00 noon (Chicago time) on the date of any notice received pursuant to this Section 2.2(D), each Lender shall make available its required Revolving Loan or Revolving Loans, in funds immediately available in Chicago, Illinois to the Administrative Agent at its address specified pursuant to Article XIV. Revolving Loans made pursuant to this Section 2.2(D) shall initially be Floating Rate Loans and thereafter may be continued as Floating Rate Loans or converted into Eurodollar Rate Loans in the manner provided in Section 2.9 and subject to the other conditions and limitations therein set forth and set forth in this Article II. Unless a Lender shall have notified the Swing Line Bank, prior to its making any Swing Line Loan, that any applicable condition precedent set forth in Sections 5.1 and 5.2, as applicable, had not then been satisfied (it being understood that the Swing Line Bank will, if asked in writing, inform a Lender whether it is aware that any such applicable conditions have not so been satisfied), such Lender's obligation to make Revolving Loans pursuant to this Section 2.2(D) to repay Swing Line Loans shall be unconditional, continuing, irrevocable and absolute and shall not be affected by any circumstances, including, without limitation, (a) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Administrative Agent, the Swing Line Bank or any other Person, (b) the occurrence or continuance of a Default or Unmatured Default, (c) any adverse change in the condition (financial or otherwise) of the Borrower or (d) any other circumstances, happening or event whatsoever. In the event that any Lender fails to make payment to the Administrative Agent of any amount due under this Section 2.2(D), the Administrative Agent shall be entitled to receive, retain and apply against such obligation the principal and interest otherwise payable to 24 such Lender hereunder until the Administrative Agent receives such payment from such Lender or such obligation is otherwise fully satisfied. In addition to the foregoing, if for any reason any Lender fails to make payment to the Administrative Agent of any amount due under this Section 2.2(D), such Lender shall be deemed, at the option of the Administrative Agent, to have unconditionally and irrevocably purchased from the Swing Line Bank, without recourse or warranty, an undivided interest and participation in the applicable Swing Line Loan in the amount of such Revolving Loan, and such interest and participation may be recovered from such Lender together with interest thereon at the Federal Funds Effective Rate for each day during the period commencing on the date of demand and ending on the date such amount is received. On the Termination Date, the Borrower shall repay in full the outstanding principal balance of the Swing Line Loans. 2.3 Rate Options for all Advances; Maximum Interest Periods. The Swing Line Loans shall be Floating Rate Loans at all times. The Revolving Loans may be Floating Rate Advances or Eurodollar Rate Advances, or a combination thereof, selected by the Borrower in accordance with Section 2.7. The Borrower may select, in accordance with Section 2.9, rate options and Interest Periods applicable to the Revolving Loans; provided that there shall be no more than ten (10) Interest Periods in effect with respect to all of the Loans at any time. 2.4 Optional Payments; Mandatory Prepayments. (A) Optional Payments. The Borrower may from time to time and at any time upon at least one (1) Business Day's prior written notice repay or prepay, without penalty or premium all or any part of outstanding Floating Rate Advances in an aggregate minimum amount of $1,000,000 and in integral multiples of $1,000,000 in excess thereof. Eurodollar Rate Advances may be voluntarily repaid or prepaid prior to the last day of the applicable Interest Period, subject to the indemnification provisions contained in Section 4.4, provided, that the Borrower may not so prepay Eurodollar Rate Advances unless it shall have provided at least three (3) Business Days' prior written notice to the Administrative Agent of such prepayment and provided, further, that optional prepayments of Eurodollar Rate Advances made pursuant to this Section 2.4 shall be in an aggregate minimum amount of $5,000,000 and in integral multiples of $1,000,000 in excess thereof (or such lesser amount as would repay all outstanding Advances). (B) Mandatory Prepayments. The Borrower shall be required to make mandatory prepayments of the Revolving Credit Obligations in accordance with the following: (i) If at any time and for any reason the Revolving Credit Obligations are greater than the Aggregate Revolving Loan Commitment, the Borrower shall immediately make a mandatory prepayment of the Revolving Credit Obligations in an amount equal to such excess. (ii) If the L/C Obligations outstanding at any time are greater than the Aggregate Revolving Loan Commitment at such time minus the sum of the outstanding principal amount of the Revolving Loans at such time and the outstanding principal amount of the Swing Line Loans at such time, the Borrower shall either prepay the Obligations in an amount equal to such excess or deposit cash Collateral with the Administrative Agent in an amount in Dollars equal to such excess. 25 (iii) On any date on which a sale, transfer or other disposition of the Borrower's or any Subsidiary's Property occurs, the Borrower shall make a mandatory prepayment of the Revolving Credit Obligations in such amount as is required by Section 7.3(A)(vi). (iv) On the date any Disclosed Domestic Subsidiary Asset Sale is consummated, the Borrower shall make a mandatory prepayment of the Revolving Credit Obligations in an amount equal to one-hundred percent (100%) of the net cash proceeds (including Cash Equivalents) resulting therefrom. (v) On the date the Disclosed Foreign Subsidiary Asset Sale is consummated, the Borrower shall make a mandatory prepayment of the Revolving Credit Obligations in an amount equal to fifty percent (50%) of the net cash proceeds (including Cash Equivalents) resulting therefrom. Mandatory prepayments arising under the foregoing clauses (iii) through (v) shall be made (x) on the same day on which the Asset Sale giving rise to such mandatory prepayment is consummated if the Borrower or the applicable Subsidiary receives the net cash proceeds of such Asset Sale by 3:00 p.m. Chicago time on such date or (y) by 9:00 a.m. Chicago time on the first Business Day to occur after the date on which such Asset Sale is consummated if the net cash proceeds of such Asset Sale are not received by the Borrower or the applicable Subsidiary by 3:00 p.m. Chicago time on the date such Asset Sale is consummated. With respect to any mandatory prepayment required under the foregoing clauses (iii) through (v), the Borrower shall (a) direct the Administrative Agent to apply such mandatory prepayment in reduction of the Revolving Credit Obligations on the date such mandatory prepayment is made, with the Borrower also remitting to the Administrative Agent for the benefit of the Lenders on such date all indemnification amounts required pursuant to Section 4.4 as a result of such mandatory prepayment; provided, however, that the Borrower shall not be required to provide the Administrative Agent or the Lenders with prior notice of such prepayment as otherwise required under Section 2.4(A) and Section 2.5(B), or (b) deposit such mandatory prepayment in a cash collateral account subject to the Administrative Agent's first priority perfected security interest and control for application to the Revolving Credit Obligations at the end of any Interest Period then outstanding; provided, however, that during the continuance of a Default, the Administrative Agent may at any time apply any prepayment on deposit in the above-described cash collateral account notwithstanding the date on which any applicable Interest Period shall end and the Borrower shall pay all indemnification amounts which result under Section 4.4 in connection with such prepayment. With respect to any mandatory prepayment, the Aggregate Revolving Loan Commitment shall be reduced by the amount of such mandatory prepayment to the extent required by and in accordance with Section 2.5(B). On the date any prepayment is received by the Administrative Agent, such prepayment shall be applied first to Floating Rate Loans and to any Eurodollar Rate Loans maturing on such date and then to subsequently maturing Eurodollar Rate Loans in order of maturity. The amount of the Revolving Credit Obligations shall be deemed to have been reduced by the amount of any mandatory prepayment deposited in the above-described cash collateral account on the date of such deposit and shall be actually reduced on the date on which such amount is withdrawn from such cash collateral account and applied in reduction of the Revolving Credit Obligations. 2.5 Increases and Reduction of Revolving Loan Commitments. 26 (A) Intentionally Omitted. (B) Reductions to Aggregate Revolving Loan Commitment. The Borrower may permanently reduce the Aggregate Revolving Loan Commitment in whole, or in part ratably among the Lenders, in an aggregate minimum amount of $5,000,000 and integral multiples of $5,000,000 in excess of that amount (unless the Aggregate Revolving Loan Commitment is reduced in whole), upon at least three (3) Business Day's prior written notice to the Administrative Agent, which notice shall specify the amount of any such reduction; provided, however, that the amount of the Aggregate Revolving Loan Commitment may not be reduced below the aggregate principal amount of the outstanding Revolving Credit Obligations. The Aggregate Revolving Loan Commitment shall be reduced by the amount of any mandatory prepayment made in connection with any sale, transfer or other disposition of Property permitted under Section 7.3(A)(v) or (vi) or permitted by the written consent of the Supermajority Lenders pursuant to the terms of the final paragraph of Section 7.3(A); provided, however, that at no time shall the Aggregate Revolving Loan Commitment be reduced below $20,000,000 as a result of prepayments made in connection with Asset Sales permitted under Section 7.3(A)(v) or (vi) or under the last paragraph of Section 7.3(A). The Aggregate Revolving Loan Commitment shall be reduced in connection with each of the Disclosed Domestic Subsidiary Asset Sales and the Disclosed Foreign Subsidiary Asset Sale by an amount equal to one-hundred percent (100%) of the net cash proceeds (including Cash Equivalents) resulting therefrom; provided, however, that at no time shall the Aggregate Revolving Loan Commitment be reduced below $20,000,000 as a result of prepayments made in connection with any Disclosed Domestic Subsidiary Asset Sale or the Disclosed Foreign Subsidiary Asset Sale. In the event the Borrower elects to deposit a mandatory prepayment into a cash collateral account in accordance with Section 2.4(A), the Aggregate Revolving Loan Commitment shall be reduced on the date the mandatory prepayment is required to be deposited into such account. In all other cases, the Aggregate Revolving Loan Commitment shall be reduced on the date the mandatory prepayment is required to be remitted to the Administrative Agent. Any reduction of the Aggregate Revolving Loan Commitment required in connection with a mandatory prepayment shall occur on the date of the applicable mandatory prepayment. All accrued commitment fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder or any reduction of the Aggregate Revolving Loan Commitment on the amount so reduced. 2.6 Method of Borrowing. Not later than 12:00 noon (Chicago time) on each Borrowing Date, each Lender shall make available its Revolving Loan, in immediately available funds, to the Administrative Agent at its address specified pursuant to Article XIV. The Administrative Agent will promptly make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. 2.7 Method of Selecting Types and Interest Periods for Advances. The Borrower shall select the Type of Advance and, in the case of each Eurodollar Rate Advance, the Interest Period applicable to each Advance from time to time. The Borrower shall give the Administrative Agent irrevocable notice in substantially the form of Exhibit B hereto (a "BORROWING/ELECTION NOTICE") not later than 10:00 a.m. (Chicago time) (a) on or before the Borrowing Date of each Floating Rate Advance and (b) three (3) Business Days before the Borrowing Date for each Eurodollar Rate Advance specifying: (i) the Borrowing Date (which shall be a Business Day) of such Advance; (ii) the aggregate amount of such Advance; (iii) the Type of Advance selected; 27 and (iv) in the case of each Eurodollar Rate Advance, the Interest Period applicable thereto. Each Floating Rate Advance and all Obligations other than Loans shall bear interest from and including the date of the making of such Advance, in the case of Loans, and the date such Obligation is due and owing in the case of such other Obligations, to (but not including) the date of repayment thereof at the Floating Rate, changing when and as such Floating Rate changes. Changes in the rate of interest on that portion of the Loans maintained as Floating Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Rate Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Rate Advance, changing when and as the Applicable Eurodollar Margin changes. Changes in the rate of interest on that portion of the Loans maintained as Eurodollar Rate Advances will take effect simultaneously with each change in the Applicable Eurodollar Margin. 2.8 Minimum Amount of Each Advance. Each Floating Rate Advance (other than an Advance to repay Swing Line Loans or a Reimbursement Obligation) shall be in the minimum amount of $1,000,000 (and in multiples of $500,000 if in excess thereof); provided, however, that any Floating Rate Advance may be in the amount of the unused Aggregate Revolving Loan Commitment. Each Eurodollar Rate Advance shall be in the minimum amount of $2,500,000 (and in multiples of $500,000 if in excess thereof). 2.9 Method of Selecting Types and Interest Periods for Conversion and Continuation of Advances. (A) Right to Convert. The Borrower may elect from time to time, subject to the provisions of Section 2.3 and this Section 2.9, to convert all or any part of a Loan of any Type into any other Type or Types of Loans; provided that any conversion of any Eurodollar Rate Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. (B) Automatic Conversion and Continuation. Floating Rate Loans shall continue as Floating Rate Loans unless and until such Floating Rate Loans are converted into Eurodollar Rate Loans. Eurodollar Rate Loans shall continue as Eurodollar Rate Loans until the end of the then applicable Interest Period therefor, at which time such Eurodollar Rate Loans shall be automatically converted into Floating Rate Loans unless the Borrower shall have given the Administrative Agent a Borrowing/Election Notice in accordance with Section 2.9(D) requesting that, at the end of such Interest Period, such Eurodollar Rate Loans continue as a Eurodollar Rate Loan. (C) No Conversion Post-Default or Post-Unmatured Default. Notwithstanding anything to the contrary contained in Section 2.9(A) or Section 2.9(B), no Loan may be converted into or continued as a Eurodollar Rate Loan (except with the consent of the Required Lenders) when any Default or Unmatured Default has occurred and is continuing. (D) Borrowing/Election Notice. The Borrower shall give the Administrative Agent an irrevocable Borrowing/Election Notice of each conversion of a Floating Rate Loan into a Eurodollar Rate Loan or continuation of a Eurodollar Rate Loan not later than 10:00 a.m. (Chicago time) three (3) Business Days prior to the date of the requested conversion or 28 continuation, specifying: (1) the requested date (which shall be a Business Day) of such conversion or continuation; (2) the amount and Type of the Loan to be converted or continued; and (3) the amount of Eurodollar Rate Loan(s) into which such Loan is to be converted or continued, and the duration of the Interest Period applicable thereto. 2.10 Default Rate. After the occurrence and during the continuance of a Default, at the option of the Administrative Agent or at the direction of the Required Lenders, (a) the interest rate(s) applicable to the Obligations (whether Floating Rate Advances, Swing Line Loans or Eurodollar Rate Advances) shall be equal to the Floating Rate, changing as and when the Floating Rate changes plus two percent (2.00%) per annum for all Loans and other Obligations and (b) the fees payable under Section 3.7 with respect to Letters of Credit shall be equal to the Applicable L/C Fee Percentage plus two percent (2.00%) per annum. 2.11 Method of Payment. All payments of principal, interest, fees, commissions and L/C Obligations hereunder shall be made, without setoff, deduction or counterclaim, in immediately available funds to the Administrative Agent at the Administrative Agent's address specified pursuant to Article XIV, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by 2:00 p.m. (Chicago time) on the date when due and shall be made ratably among the Lenders (unless such amount is not to be shared ratably in accordance with the terms hereof). Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds which the Administrative Agent received at its address specified pursuant to Article XIV or at any Lending Installation specified in a notice received by the Administrative Agent from such Lender. The Borrower authorizes the Administrative Agent to charge the account of the Borrower maintained with Bank One for each payment of principal, interest, fees, commissions and L/C Obligations as it becomes due hereunder. Each reference to the Administrative Agent in this Section 2.11 shall also be deemed to refer, and shall apply equally, to the Issuing Bank, in the case of payments required to be made by the Borrower to the Issuing Bank pursuant to Article III. 2.12 Evidence of Debt. (A) Each Lender shall maintain in accordance with its usual practice an account or accounts (a "LOAN ACCOUNT") evidencing the indebtedness of the Borrower to such Lender owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (B) The Register maintained by the Administrative Agent pursuant to Section 13.3(C) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and the amount of each Loan made hereunder, the Type thereof and the Interest Period, if any, applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, (iii) the effective date and amount of each Assignment Agreement delivered to and accepted by it and the parties thereto pursuant to Section 13.3, (iv) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof, and (v) all other appropriate debits and credits as provided in this Agreement, including, without limitation, all fees, charges, expenses and interest. 29 (C) The entries made in the Loan Account, the Register and the other accounts maintained pursuant to subsections (A) or (B) of this Section shall be prima facie evidence of the information set forth therein, and, unless the Borrower objects to information contained in the Loan Accounts, the Register or the other accounts within thirty (30) days of the Borrower's receipt of such information, shall constitute an account stated; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (D) Any Lender may request that the Revolving Loans made by it each be evidenced by a promissory note substantially in the form of Exhibit K hereto to evidence such Lender's Revolving Loans. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note for such Loans payable to the order of such Lender and substantially in the form of Exhibit K attached hereto. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 13.3) be represented by one or more promissory notes in such form payable to the order of the payee named therein. 2.13 Telephonic Notices. The Borrower authorizes the Lenders and the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Administrative Agent or any Lender in good faith reasonably believes to be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the Administrative Agent a written confirmation, signed by an Authorized Officer, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, the records of the Administrative Agent and the Lenders shall be prima facie evidence of the information set forth therein. In case of disagreement concerning such notices, if the Administrative Agent has recorded telephonic Borrowing/Election Notices, such recordings will be made available to the Borrower upon the Borrower's request therefor. 2.14 Promise to Pay; Interest and Commitment Fees; Interest Payment Dates; Interest and Fee Basis; Loan and Control Accounts. (A) Promise to Pay. The Borrower unconditionally promises to pay when due the principal amount of each Loan and all other Obligations incurred by it, and to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement and the other Loan Documents. (B) Interest Payment Dates. Interest accrued on each Floating Rate Loan shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof and at maturity (whether by acceleration or otherwise). Interest accrued on each Eurodollar Rate Loan shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Rate Loan is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on the principal balance of all other Obligations shall be payable in arrears (i) on each Payment Date, commencing on the first such Payment Date to occur following the incurrence of such Obligation, (ii) upon repayment thereof in full or in part, and (iii) if not 30 theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). (C) Commitment Fees and Administrative Agent's Fees. (i) The Borrower shall pay to the Administrative Agent, for the account of the Lenders in accordance with their Pro Rata Shares, from and after the Closing Date until the date on which the Aggregate Revolving Loan Commitment shall be terminated in whole, a commitment fee accruing at the rate of the then Applicable Commitment Fee Percentage, on the amount by which (A) the Aggregate Revolving Loan Commitment in effect from time to time exceeds (B) the Revolving Credit Obligations (excluding the outstanding principal amount of the Swing Line Loans) in effect from time to time. All such commitment fees payable under this clause (C) shall be payable in arrears on each Payment Date occurring after the Closing Date (with the first such payment being calculated for the period from the Closing Date and ending on November 30, 2003), on the date of any reduction of the Aggregate Revolving Loan Commitment for the amount so reduced and, in addition, on the date on which the Aggregate Revolving Loan Commitment shall be terminated in whole. (ii) On the Closing Date, the Borrower shall pay to the Administrative Agent for the ratable benefit of the Lenders a non-refundable upfront fee in immediately available funds equal to 0.50% times the Aggregate Revolving Loan Commitment. (iii) The Borrower agrees to pay to the Administrative Agent for the sole account of the Administrative Agent and the Arranger (unless otherwise agreed between the Administrative Agent and the Arranger and any Lender) the fees set forth in the letter agreement among the Administrative Agent, the Arranger and the Borrower dated November 24, 2003, payable at the times and in the amounts set forth therein. (D) Interest and Fee Basis; Applicable Floating Rate Margins, Applicable Eurodollar Margins; Applicable Commitment Fee Percentage and Applicable L/C Fee Percentage. (i) Interest on Eurodollar Rate Loans, interest on Floating Rate Loans where interest is calculated by reference to the Federal Funds Effective Rate and fees shall be calculated for actual days elapsed on the basis of a 360-day year for actual days elapsed. Interest on Floating Rate Loans where interest is calculated by reference to the Corporate Base Rate shall be calculated for actual days elapsed on the basis of a 365, or when appropriate 366, day year. Interest shall be payable for the day an Obligation is incurred but not for the day of any payment on the amount paid if payment is received prior to 2:00 p.m. (Chicago time) at the place of payment. If any payment of principal of or interest on a Loan or any payment of any other Obligations shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest, fees and commissions in connection with such payment. (ii) Prior to the 2003 Financials Delivery Date, the Applicable Floating Rate Margin shall equal 1.00%, the Applicable Eurodollar Margin shall equal 2.00%, the Applicable L/C Fee Percentage shall equal 2.00% and the Applicable Commitment Fee Percentage shall equal 0.50%. On and after the 2003 Financials Delivery Date, provided no Default or Unmatured Default has occurred and is then continuing, the Applicable Floating Rate Margin, the 31 Applicable Eurodollar Margin, the Applicable L/C Fee Percentage and the Applicable Commitment Fee Percentage shall be determined by reference to the table set forth below, on the basis of the then applicable Leverage Ratio:
Applicable Applicable Applicable Leverage Commitment Eurodollar Floating Rate Ratio Fee Percentage Margin Margin - ---------------------- -------------- ---------- ------------- Less than or equal to 0.25% 1.50% 0.00% 1.50 to 1.00 Less than or equal to 0.30% 1.75% 0.25% 2.00 to 1.00 and greater than 1.50 to 1.00 Greater than 2.00 to 0.35% 2.00% 0.50% 1.00
For purposes of this Section 2.14(D)(ii), the Leverage Ratio shall be calculated as provided in Section 7.4(A). Upon receipt of the financial statements from time to time delivered pursuant to Section 7.1(A), the Applicable Floating Rate Margin, the Applicable Eurodollar Margin, the Applicable L/C Fee Percentage and the Applicable Commitment Fee Percentage shall be adjusted. Each adjustment shall be effective five (5) Business Days following the Administrative Agent's receipt of the relevant financial statements and the compliance certificates required to be delivered in connection therewith pursuant to Section 7.1(A); provided that if the Borrower shall not have delivered its financial statements when required under Section 7.1(A), then, commencing on the date upon which such financial statements should have been delivered and continuing until such financial statements are actually delivered, it shall be assumed for purposes of determining the Applicable Floating Rate Margin, the Applicable Eurodollar Margin, the Applicable L/C Fee Percentage and the Applicable Commitment Fee Percentage that the Leverage Ratio is greater than 2.00 to 1.00 and pricing corresponding with such ratio shall apply. From the 2003 Financials Delivery Date through the first date thereafter on which financial statements are delivered pursuant to Section 7.1(A), the Leverage Ratio shall equal the Leverage Ratio in effect on the 2003 Financials Delivery Date. 2.15 Notification of Advances, Interest Rates, Prepayments and Aggregate Revolving Loan Commitment Reductions. Promptly after receipt thereof, the Administrative Agent will notify each Lender of the contents of each Aggregate Revolving Loan Commitment reduction notice, Borrowing/Election Notice, and repayment notice received by it hereunder. The Administrative Agent will notify each Lender of the interest rate applicable to each Eurodollar Rate Loan promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. 32 2.16 Lending Installations. Each Lender may book its Loans or Letters of Credit at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation. Each Lender may, by written or facsimile notice to the Administrative Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments and/or payments of L/C Obligations are to be made. 2.17 Non-Receipt of Funds by the Administrative Agent. (A) Non-Receipt of Funds from Lenders. Unless the Administrative Agent shall have been notified by a Lender prior to the time such Lender's share of any such Advance is to be made by such Lender that such Lender does not intend to make its share of such requested Advance available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such proceeds available to the Administrative Agent on such date, and the Administrative Agent may, in reliance upon such assumption (but shall not be obligated to), make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender on the date the Advance is made, the Administrative Agent shall be entitled to recover such amount on demand from such Lender (or, if such Lender fails to pay such amount forthwith upon such demand, from the Borrower) together with interest thereon in respect of each day during the period commencing on the date such amount was made available to the Borrower and ending on (but excluding) the date the Administrative Agent recovers such amount, at a rate per annum equal to the Federal Funds Effective Rate and from the Borrower, at a rate per annum equal to the interest rate applicable to such Advance. (B) Non-Receipt of Funds from the Borrower. Unless the Administrative Agent shall have been notified by the Borrower prior to the time the Borrower is scheduled to make a payment of principal, interest or commitment fees hereunder that the Borrower does not intend to make such payment available to the Administrative Agent, the Administrative Agent may assume that the Borrower has made such payment available to the Administrative Agent on the date such amount is due, and the Administrative Agent may, in reliance upon such assumption (but shall not be obligated to), make available to the Lenders a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by the Borrower on the date such amount is due and payable hereunder, the Administrative Agent shall be entitled to recover such amount on demand from the Borrower (or, if the Borrower fails to pay such amount forthwith upon such demand, from the Lenders) together with interest thereon in respect of each day during the period commencing on the date such amount was made available to the Lenders and ending on (but excluding) the date the Administrative Agent recovers such amount, at a rate per annum equal to the interest rate applicable to such Obligation hereunder and, from the Lenders, at a rate per annum equal to the Federal Funds Effective Rate. 2.18 Termination Date. This Agreement shall be effective until the Termination Date. Notwithstanding the termination of this Agreement, until all of the Secured Obligations (other than contingent indemnity obligations) shall have been fully and indefeasibly paid and satisfied in cash, all financing arrangements among the Borrower and the Lenders shall have been terminated (including under Hedging Agreements or other agreements with respect to Hedging 33 Obligations) and all of the Letters of Credit shall have expired, been canceled or terminated, all of the rights and remedies under this Agreement and the other Loan Documents shall survive. 2.19 Replacement of Certain Lenders. In the event a Lender ("AFFECTED LENDER") shall have: (i) failed to fund its Pro Rata Share of any Advance requested by the Borrower, or to fund a Revolving Loan in order to repay Swing Line Loans or Reimbursement Obligations, which such Lender is obligated to fund under the terms of this Agreement and which failure has not been cured, (ii) requested compensation from the Borrower under Sections 4.1, 4.2 or 4.5 to recover Taxes, Other Taxes or other additional costs incurred by such Lender which are not being incurred generally by the other Lenders, (iii) delivered a notice pursuant to Section 4.3 claiming that such Lender is unable to extend Eurodollar Rate Loans to the Borrower for reasons not generally applicable to the other Lenders or (iv) has invoked Section 10.2, then, in any such case, the Borrower or the Administrative Agent may make written demand on such Affected Lender (with a copy to the Administrative Agent in the case of a demand by the Borrower and a copy to the Borrower in the case of a demand by the Administrative Agent) for the Affected Lender to assign, and such Affected Lender shall use commercially reasonable efforts to assign pursuant to one or more duly executed Assignment Agreements five (5) Business Days after the date of such demand, to one or more financial institutions that comply with the provisions of Section 13.3 which the Borrower or the Administrative Agent, as the case may be, shall have engaged for such purpose ("REPLACEMENT LENDER"), all of such Affected Lender's rights and obligations under this Agreement and the other Loan Documents (including, without limitation, its Revolving Loan Commitment, all Loans owing to it, all of its participation interests in existing Letters of Credit, and its obligation to participate in additional Letters of Credit and Swing Line Loans hereunder) in accordance with Section 13.3. The Administrative Agent agrees, upon the occurrence of such events with respect to an Affected Lender and upon the written request of the Borrower, to use its reasonable efforts to obtain the commitments from one or more financial institutions to act as a Replacement Lender. Further, with respect to such assignment the Affected Lender shall have concurrently received, in cash, all amounts due and owing to the Affected Lender hereunder or under any other Loan Document, including, without limitation, the aggregate outstanding principal amount of the Loans owed to such Lender, together with accrued interest thereon through the date of such assignment, amounts payable under Sections 4.1, 4.2 and 4.5 with respect to such Affected Lender and compensation payable under Section 2.14(C) in the event of any replacement of any Affected Lender under clause (ii) or clause (iii) of this Section 2.19; provided that upon such Affected Lender's replacement, such Affected Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 4.1, 4.2, 4.4, 4.5 and 10.6, as well as to any fees accrued for its account hereunder and not yet paid, and shall continue to be obligated under Section 11.8. Upon the replacement of any Affected Lender pursuant to this Section 2.19, the provisions of Section 9.2 shall continue to apply with respect to Loans which are then outstanding with respect to which the Affected Lender failed to fund its Pro Rata Share and which failure has not been cured. ARTICLE III: THE LETTER OF CREDIT FACILITY 3.1 Obligation to Issue Letters of Credit. Notwithstanding anything to the contrary set forth herein, Letters of Credit shall not be issued under or in connection with this Agreement from the Closing Date until such time as the Lenders, the Administrative Agent and the Issuing Bank agree in writing to permit the issuance of Letters of Credit hereunder. On and after the 34 date on which the Lenders, the Administrative Agent, and the Issuing Bank agree in writing to permit the issuance of Letters of Credit, the terms and conditions of this Agreement shall apply to any such Letter of Credit. Subject to the terms and conditions of this Agreement and in reliance upon the representations, warranties and covenants of the Borrower herein set forth, the Issuing Bank hereby agrees to issue for the account of the Borrower through the Issuing Bank's branches as it and the Borrower may jointly agree, one or more Letters of Credit denominated in Dollars in accordance with this Article III, from time to time during the period, commencing on the consent date described above and ending on the fifth Business Day prior to the Revolving Loan Termination Date. 3.2 Types and Amounts. The Issuing Bank shall not have any obligation to and the Issuing Bank shall not: (i) issue (or amend) any Letter of Credit if on the date of issuance (or amendment), before or after giving effect to the Letter of Credit requested hereunder, (a) the Revolving Credit Obligations at such time would exceed the Aggregate Revolving Loan Commitment at such time, or (b) the aggregate outstanding amount of the L/C Obligations would exceed $10,000,000; or (ii) issue (or amend) any Letter of Credit which has an expiration date later than the date which is the earlier of (a) one (1) year after the date of issuance thereof or (b) five (5) Business Days immediately preceding the Revolving Loan Termination Date; provided that any Letter of Credit with a one-year tenor may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (b) above). 3.3 Conditions. In addition to being subject to the satisfaction of the conditions contained in Sections 5.1 and 5.2, the obligation of the Issuing Bank to issue any Letter of Credit is subject to the satisfaction in full of the following conditions: (i) the Borrower shall have delivered to the Issuing Bank at such times and in such manner as the Issuing Bank may reasonably prescribe, a request for issuance of such Letter of Credit in substantially the form of Exhibit C hereto, duly executed applications for such Letter of Credit, and such other documents, instructions and agreements as may be required pursuant to the terms thereof (all such applications, documents, instructions, and agreements being referred to herein as the "L/C DOCUMENTS"), and the proposed Letter of Credit shall be reasonably satisfactory to the Issuing Bank as to form and content; and (ii) as of the date of issuance no order, judgment or decree of any court, arbitrator or Governmental Authority shall purport by its terms to enjoin or restrain the Issuing Bank from issuing such Letter of Credit and no law, rule or regulation applicable to the Issuing Bank and no request or directive (whether or not having the force of law) from a Governmental Authority with jurisdiction over the Issuing Bank shall prohibit or request that the Issuing Bank refrain from the issuance of Letters of Credit generally or the issuance of that Letter of Credit. 35 3.4 Procedure for Issuance of Letters of Credit. (a) Subject to the terms and conditions of this Article III and provided that the applicable conditions set forth in Sections 5.1 and 5.2 hereof have been satisfied, the Issuing Bank shall, on the requested date, issue a Letter of Credit on behalf of the Borrower in accordance with the Issuing Bank's usual and customary business practices and, in this connection, the Issuing Bank may assume that the applicable conditions set forth in Section 5.2 hereof have been satisfied unless it shall have received notice to the contrary from the Administrative Agent or a Lender or has knowledge that the applicable conditions have not been met. (b) The Issuing Bank shall give the Administrative Agent written or telecopy notice, or telephonic notice confirmed promptly thereafter in writing, of the issuance of a Letter of Credit, provided, however, that the failure to provide such notice shall not result in any liability on the part of the Issuing Bank. (c) The Issuing Bank shall not extend (including as a result of any evergreen provision) or amend any Letter of Credit unless the requirements of this Section 3.4 are met as though a new Letter of Credit was being requested and issued. 3.5 Letter of Credit Participation. Immediately upon the issuance of each Letter of Credit hereunder, each Lender with a Pro Rata Share shall be deemed to have automatically, irrevocably and unconditionally purchased and received from the Issuing Bank an undivided interest and participation in and to such Letter of Credit, the obligations of the Borrower in respect thereof, and the liability of the Issuing Bank thereunder (collectively, an "L/C INTEREST") in an amount equal to the amount available for drawing under such Letter of Credit multiplied by such Lender's Pro Rata Share. The Issuing Bank will notify each Lender promptly upon presentation to it of an L/C Draft or upon any other draw under a Letter of Credit. On or before the Business Day on which the Issuing Bank makes payment of each such L/C Draft or, in the case of any other draw on a Letter of Credit, on demand by the Administrative Agent or the Issuing Bank, in either case, to the extent the Borrower fails to reimburse the Issuing Bank on such date in an amount equal to such payment or draw, each Lender shall make payment to the Administrative Agent, for the account of the Issuing Bank, in immediately available funds in an amount equal to such Lender's Pro Rata Share of the amount of such payment or draw. The obligation of each Lender to reimburse the Issuing Bank under this Section 3.5 shall be unconditional, continuing, irrevocable and absolute. In the event that any Lender fails to make payment to the Administrative Agent of any amount due under this Section 3.5, the Administrative Agent shall be entitled to receive, retain and apply against such obligation the principal and interest otherwise payable to such Lender hereunder until the Administrative Agent receives such payment from such Lender or such obligation is otherwise fully satisfied; provided, however, that nothing contained in this sentence shall relieve such Lender of its obligation to reimburse the Issuing Bank for such amount in accordance with this Section 3.5. 3.6 Reimbursement Obligation. The Borrower agrees unconditionally, irrevocably and absolutely to pay immediately to the Administrative Agent, for the account of the Lenders, the amount of each advance drawn under or pursuant to a Letter of Credit or an L/C Draft related thereto (such obligation of the Borrower to reimburse the Administrative Agent for an advance made under a Letter of Credit or L/C Draft being hereinafter referred to as a "REIMBURSEMENT OBLIGATION" with respect to such Letter of Credit or L/C Draft), each such reimbursement to be 36 made by the Borrower no later than the Business Day on which the Issuing Bank makes payment of each such L/C Draft or, in the case of any other draw on a Letter of Credit, the date specified in the demand of the Issuing Bank. If the Borrower at any time fails to repay a Reimbursement Obligation pursuant to this Section 3.6, the Borrower shall be deemed to have elected to borrow Revolving Loans from the Lenders, as of the date of the advance giving rise to the Reimbursement Obligation, equal in amount to the amount of the unpaid Reimbursement Obligation. Such Revolving Loans shall be made as of the date of the payment giving rise to such Reimbursement Obligation, automatically, without notice and without any requirement to satisfy the conditions precedent otherwise applicable to an Advance of Revolving Loans. Such Revolving Loans shall constitute a Floating Rate Advance, the proceeds of which Advance shall be used to repay such Reimbursement Obligation. If, for any reason, the Borrower fails to repay a Reimbursement Obligation on the day such Reimbursement Obligation arises and, for any reason, the Lenders are unable to make or have no obligation to make Revolving Loans, then such Reimbursement Obligation shall bear interest from and after such day, until paid in full, at the interest rate applicable to a Floating Rate Advance. 3.7 Letter of Credit Fees. The Borrower agrees to pay: (i) quarterly, in arrears, to the Administrative Agent for the ratable benefit of the Lenders, except as set forth in Section 9.2, a letter of credit fee at a rate per annum equal to the Applicable L/C Fee Percentage on the average daily outstanding face amount available for drawing under all Letters of Credit; (ii) quarterly, in arrears, to the Issuing Bank, a letter of credit fronting fee at a rate per annum equal to 0.125% on the average daily outstanding face amount available for drawing under all Letters of Credit issued by the Issuing Bank; and (iii) to the Issuing Bank, all customary fees and other issuance, amendment, cancellation, document examination, negotiation, transfer and presentment expenses and related charges in connection with the issuance, amendment, cancellation, presentation of L/C Drafts, negotiation, transfer and the like customarily charged by the Issuing Bank with respect to standby and commercial Letters of Credit, including, without limitation, standard commissions with respect to commercial Letters of Credit, payable at the time of invoice of such amounts. In determining such charges, the Issuing Bank shall treat the Borrower in a manner similar to other similarly situated customers of such Issuing Bank. 3.8 Reporting Requirements. Upon the reasonable request of any Lender, the Issuing Bank shall furnish to such Lender copies of any Letter of Credit and any application for or reimbursement agreement with respect to a Letter of Credit to which the Issuing Bank is party, and the Administrative Agent shall notify such Lender of the face amount of all outstanding Letters of Credit as of the date of such request. 3.9 Indemnification; Exoneration. (A) In addition to amounts payable as elsewhere provided in this Article III, the Borrower hereby agrees to protect, indemnify, pay and save harmless the Administrative Agent, the Issuing Bank and each Lender from and against any and all liabilities and costs which the Administrative Agent, the Issuing Bank or such Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of 37 Credit other than, in the case of the Issuing Bank, as a result of its Gross Negligence or willful misconduct, as determined by the final judgment of a court of competent jurisdiction, or (ii) the failure of the Issuing Bank to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Authority (all such acts or omissions herein called "GOVERNMENTAL ACTS"). (B) As among the Borrower, the Lenders, the Administrative Agent and the Issuing Bank, the Borrower assumes all risks of the acts and omissions of, or misuse of such Letter of Credit by, the beneficiary of any Letters of Credit. In furtherance and not in limitation of the foregoing, neither the Administrative Agent, the Issuing Bank nor any Lender shall be responsible (in the absence of Gross Negligence or willful misconduct in connection therewith, as determined by the final judgment of a court of competent jurisdiction): (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for failure of the beneficiary of a Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit (provided the provisions of this clause (iii) shall not prejudice or impair any claims the Borrower may bring under applicable law for the wrongful honor of a drawing under a Letter of Credit); (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telecopy, or other similar form of teletransmission or otherwise; (v) for errors in interpretation of technical trade terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (vii) for the misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (viii) for any consequences arising from causes beyond the control of the Administrative Agent, the Issuing Bank and the Lenders, including, without limitation, any Governmental Acts. None of the above shall affect, impair, or prevent the vesting of the Issuing Bank's rights or powers under this Section 3.9. (C) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Issuing Bank under or in connection with the Letters of Credit or any related certificates shall not, in the absence of Gross Negligence or willful misconduct, as determined by the final judgment of a court of competent jurisdiction, put the Issuing Bank, the Administrative Agent or any Lender under any resulting liability to the Borrower or relieve the Borrower of any of its obligations hereunder to any such Person. (D) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 3.9 shall survive the payment in full of principal and interest hereunder, the termination of the Letters of Credit, the termination of this Agreement until all Letters of Credit shall have expired and all indebtedness, liabilities and obligations under this Article III shall have been paid in full. 3.10 Cash Collateral. Notwithstanding anything to the contrary herein or in any application for a Letter of Credit, after the occurrence and during the continuance of a Default, 38 the Borrower shall, upon the Administrative Agent's or the Required Lenders' demand, deliver to the Administrative Agent for the benefit of the Lenders and the Issuing Bank, cash, or other Collateral of a type satisfactory to the Required Lenders, having a value, as determined by such Lenders, equal to the aggregate outstanding L/C Obligations. In addition, if the Revolving Credit Availability is at any time less than the amount of contingent L/C Obligations outstanding at any time, the Borrower shall deposit cash Collateral with the Administrative Agent in an amount equal to the amount by which such L/C Obligations exceed such Revolving Credit Availability. Any such collateral shall be held by the Administrative Agent in a separate account appropriately designated as a cash collateral account in relation to this Agreement and the Letters of Credit and retained by the Administrative Agent for the benefit of the Lenders and the Issuing Bank as collateral security for the Borrower's obligations in respect of this Agreement and each of the Letters of Credit and L/C Drafts. Such amounts shall be applied to reimburse the Issuing Bank for drawings or payments under or pursuant to Letters of Credit or L/C Drafts, or if no such reimbursement is required, but a Default has occurred and is continuing, to payment of such of the other Obligations as the Administrative Agent shall determine. If no Default shall be continuing, amounts remaining in any cash collateral account established pursuant to this Section 3.10 which are not to be applied to reimburse the Issuing Bank for amounts actually paid or to be paid by the Issuing Bank in respect of a Letter of Credit or L/C Draft, shall be returned to the Borrower (after deduction of the Administrative Agent's reasonable out-of-pocket expenses incurred in connection with such cash collateral account). Any cash Collateral deposited under this Section 3.10, and all interest earned thereon, shall be held by the Administrative Agent and invested and reinvested at the reasonable and customary expense and written direction of the Borrower in U.S. Treasury bills with maturities of no more than ninety (90) days from the date of investment. ARTICLE IV: YIELD PROTECTION; TAXES 4.1 Yield Protection. If, on or after the date of this Agreement, the adoption of any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any change in the interpretation or administration thereof by any governmental or quasi-governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or applicable Lending Installation with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (A) subjects any Lender or any applicable Lending Installation to any Taxes, or changes the basis of taxation of payments (other than with respect to Excluded Taxes) to any Lender in respect of its Loans or L/C Interests, or (B) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Rate Advances), or (C) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining its Loans or L/C 39 Interests or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with its Loans or L/C Interests, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Loans or L/C Interests held or interest received by it, by an amount deemed material by such Lender, and the result of any of the foregoing is to increase the cost to such Lender or applicable Lending Installation of making or maintaining its Loans, L/C Interests or Revolving Loan Commitment or to reduce the return received by such Lender or applicable Lending Installation in connection with such Loans, L/C Interests or Revolving Loan Commitment, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction in amount received. 4.2 Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans, L/C Interests or its Revolving Loan Commitment hereunder (after taking into account such Lender's policies as to capital adequacy). "CHANGE" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "RISK-BASED CAPITAL GUIDELINES" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 4.3 Availability of Types of Advances. If any Lender reasonably determines that maintenance of its Eurodollar Rate Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders reasonably determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Rate Advances are not available or (ii) the interest rate applicable to Eurodollar Rate Advances does not accurately reflect the cost of making or maintaining Eurodollar Rate Advances, then the Administrative Agent shall suspend the availability of Eurodollar Rate Advances and require any affected Eurodollar Rate Advances to be repaid or converted to Floating Rate Advances, subject to the payment of any funding indemnification amounts required by Section 4.4. 4.4 Funding Indemnification. If any payment of a Eurodollar Rate Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Rate Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each 40 Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain such Eurodollar Rate Advance and any loss or cost arising as a result of the failure of the Borrower to prepay any Eurodollar Rate Advance for which a notice of prepayment has been given pursuant to the Loan Documents. 4.5 Taxes. To the extent permitted by law, all payments by the Borrower to or for the account of any Lender or the Administrative Agent hereunder or under any of the Loan Documents shall be made free and clear of and without deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender, Issuing Bank or the Administrative Agent, (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.5) such Lender, Issuing Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (b) the Borrower shall make such deductions, (c) the Borrower shall pay the full amount deducted to the relevant authority in accordance with applicable law and (d) the Borrower shall furnish to the Administrative Agent the original copy of a receipt evidencing payment thereof within 30 days after such payment is made. (i) To the extent permitted by law, the Borrower hereby agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note ("OTHER TAXES"). (ii) To the extent permitted by law, the Borrower hereby agrees to indemnify the Administrative Agent and each Lender for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 4.5) paid by the Administrative Agent or such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Payments due under this indemnification shall be made within 30 days of the date the Administrative Agent or such Lender makes demand therefor pursuant to Section 4.6. (iii) Each Lender that is not incorporated under the laws of the United States of America or a state thereof (each a "NON-U.S. LENDER") agrees that it will, not more than ten Business Days after the date of this Agreement, (i) deliver to each of the Borrower and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and (ii) deliver to each of the Borrower and the Administrative Agent a United States Internal Revenue Form W-8 or W-9, as the case may be, and certify that it is entitled to an exemption from United States backup withholding tax. Each Non-U.S. Lender further undertakes to deliver to each of the Borrower and the Administrative Agent (x) renewals or additional copies of such form (or any successor form) on or before the date that such form expires or becomes obsolete, and (y) after the occurrence of any event requiring a change in the most recent forms so delivered by it, such additional forms or amendments thereto as may be reasonably requested by the Borrower or the Administrative Agent. All forms or amendments described in the preceding sentence shall certify that such Lender is entitled to receive payments under this Agreement without deduction 41 or withholding of any United States federal income taxes, unless 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 form or amendment with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (iv) For any period during which a Non-U.S. Lender has failed to provide the Borrower with an appropriate form pursuant to clause (iv), above (unless such failure is due to a change in treaty, law or regulation, or any change in the interpretation or administration thereof by any governmental authority, occurring subsequent to the date on which a form originally was required to be provided), such Non-U.S. Lender shall not be entitled to indemnification under this Section 4.5 with respect to Taxes imposed by the United States; provided that, should a Non-U.S. Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to Taxes because of its failure to deliver a form required under clause (iv), above, the Borrower shall take such steps as such Non-U.S. Lender shall reasonably request to assist such Non-U.S. Lender to recover such Taxes. (v) Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments under this Agreement or any Note pursuant to the law of any relevant jurisdiction or any treaty shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. (vi) If the U.S. Internal Revenue Service or any other governmental authority of the United States or any other country or any political subdivision thereof asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this subsection, together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent). The obligations of the Lenders under this Section 4.5(vi) shall survive the payment of the Secured Obligations, the termination of the Letters of Credit and termination of this Agreement. 4.6 Lender Statements; Survival of Indemnity. To the extent reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Rate Loans to reduce any liability of the Borrower to such Lender under Sections 4.1, 4.2 and 4.5 or to avoid the unavailability of Eurodollar Rate Advances under Section 4.3, so long as such designation is not, in the judgment of such Lender, disadvantageous to such Lender. Each Lender shall deliver a written statement of such Lender to the Borrower (with a copy to the Administrative Agent) as 42 to the amount due, if any, under Section 4.1, 4.2, 4.4 or 4.5 as promptly as practicable but in any event within ninety (90) days after it obtains actual knowledge thereof. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be prima facie evidence of the information set forth therein. Determination of amounts payable under such Sections in connection with a Eurodollar Rate Loan shall be calculated as though each Lender funded its Eurodollar Rate Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any Lender shall be payable on demand after receipt by the Borrower of such written statement. The obligations of the Borrower under Sections 4.1, 4.2, 4.4 and 4.5 shall survive payment of the Secured Obligations, termination of the Letters of Credit and termination of this Agreement. ARTICLE V: CONDITIONS PRECEDENT 5.1 Initial Advances and Letters of Credit. The Lenders shall not be required to make the initial Loans or issue or participate in any Letters of Credit unless: (A) the Borrower has furnished to the Administrative Agent each of the following, with sufficient copies for the Lenders, all in form and substance satisfactory to the Administrative Agent and the Lenders: (i) Copies of the Certificate of Incorporation of the Borrower and each of the Guarantors (collectively, the "LOAN PARTIES"), together with all amendments and a certificate of good standing, both certified by the appropriate governmental officer in its jurisdiction of organization; (ii) Copies, certified by the Secretary or Assistant Secretary of each of the Loan Parties, of its By-Laws and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) authorizing the execution of the Loan Documents entered into by it; (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of each of the Loan Parties, which shall identify by name and title and bear the signature of the officers of the Loan Parties authorized to sign the Loan Documents and of the Borrower authorized to make borrowings hereunder, upon which certificate the Lenders shall be entitled to rely until informed of any change in writing by the Borrower; (iv) The written opinion of counsel to the Borrower and the Guarantors, addressed to the Administrative Agent and the Lenders, in substantially the form attached hereto as Exhibit E and containing assumptions and qualifications acceptable to the Administrative Agent and the Lenders; (v) Written money transfer instructions reasonably requested by the Administrative Agent, addressed to the Administrative Agent and signed by an Authorized Officer; (vi) Intentionally Omitted; 43 (vii) Such other documents as the Administrative Agent or any Lender or its counsel may have reasonably requested, including, without limitation, all of the documents reflected on the List of Closing Documents attached as Exhibit F to this Agreement; (viii) Evidence satisfactory to the Administrative Agent that the agreements, documents and instruments evidencing the Wachovia Lease Program Indebtedness have been amended or otherwise modified to extend the termination dates or maturity dates thereof (or any other scheduled dates on which such Indebtedness is to be fully repaid) to or beyond the Revolving Loan Termination Date; (ix) A fully executed copy of each of the Intercreditor Agreement, the Security Agreement, and the Guaranty; (x) Evidence satisfactory to the Administrative Agent as to the perfection of the Collateral Agent's Lien upon the Collateral pursuant to the terms of the Security Agreement and the other Collateral Documents; (B) The Administrative Agent shall have determined to its reasonable satisfaction that there exists no injunction or temporary restraining order which, in the judgment of the Administrative Agent, would prohibit the making of the Loans or any litigation seeking such an injunction or restraining order; and (C) The Borrower and its Affiliates shall have caused substantially all of their cash located or otherwise maintained in the United States net of outstanding payroll and disbursement checks in excess of $5,000,000 to be deposited with one or more Lenders on terms and conditions acceptable to the Administrative Agent. 5.2 Each Advance and Letter of Credit. The Lenders shall not be required to make any Advance, or issue any Letter of Credit, unless on the applicable Borrowing Date, or in the case of a Letter of Credit, the date on which the Letter of Credit is to be issued: (A) There exists no Default or Unmatured Default; (B) The representations and warranties contained in Article VI (other than such representations and warranties as are made as of a specific date, in which case, such representations and warranties shall be true in all material respects as of such date) are true and correct as of such Borrowing Date except for changes in the Schedules to this Agreement reflecting transactions permitted by or not in violation of this Agreement; and (C) The Revolving Credit Obligations do not, and after making such proposed Advance or issuing such Letter of Credit would not, exceed the Aggregate Revolving Loan Commitment. Each Borrowing/Election Notice with respect to each such Advance and the letter of credit application with respect to each Letter of Credit shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 5.2(A) and (B) have been satisfied. The Required Lenders may require a duly completed officer's certificate in substantially the form of Exhibit G hereto and/or a duly completed compliance certificate in substantially the form of Exhibit H hereto as a condition to making an Advance. 44 ARTICLE VI: REPRESENTATIONS AND WARRANTIES In order to induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans and the other financial accommodations to the Borrower and to issue the Letters of Credit described herein, the Borrower represents and warrants as follows to each Lender and the Administrative Agent as of the Closing Date, giving effect to the consummation of the transactions contemplated by the Loan Documents on the Closing Date, and thereafter on each date as required by Section 5.2 (other than with respect to those representations and warranties made as of a specific date, in which case, such representations and warranties shall be true in all material respects as of such date): 6.1 Organization; Corporate Powers. The Borrower and each of its Subsidiaries (A) is a corporation, limited liability company, partnership or other commercial entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (B) is duly qualified to do business as a foreign entity and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing could reasonably be expected to have a Material Adverse Effect, and (C) has all requisite power and authority to own, operate and encumber its property and to conduct its business as presently conducted and as proposed to be conducted. 6.2 Authority. (A) The Borrower and each of its Subsidiaries has the requisite power and authority to execute, deliver and perform each of the Loan Documents which are to be executed by it or which have been executed by it as required by this Agreement and the other Loan Documents. (B) The execution, delivery and performance, as the case may be, of each of the Loan Documents which must be executed or filed by the Borrower or any of its Subsidiaries or which have been executed as required by this Agreement, the other Loan Documents or otherwise and to which the Borrower or any of its Subsidiaries is party, and the consummation of the transactions contemplated thereby, have been duly approved by the respective boards of directors and, if necessary, the shareholders of the Borrower and its Subsidiaries, and such approvals have not been rescinded. No other action or proceedings on the part of the Borrower or its Subsidiaries are necessary to consummate the transactions contemplated by the Loan Documents. (C) Each of the Loan Documents to which the Borrower or any of its Subsidiaries is a party has been duly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms (except as enforceability may be limited by bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally), is in full force and effect and no material term or condition thereof has been amended, modified or waived from the terms and conditions contained in the Loan Documents delivered to the Administrative Agent pursuant to Section 5.1 without the prior written consent of the Required Lenders or all of the Lenders as may be required pursuant to Section 9.3, as the case may be, and the Borrower and its Subsidiaries have performed and complied with all the terms, provisions, agreements and conditions set forth therein and required to be performed or complied 45 with by such parties on or before the Initial Funding Date, and no unmatured default, default or breach of any covenant by any such party exists thereunder. 6.3 No Conflict; Governmental Consents. The execution, delivery and performance of each of the Loan Documents to which the Borrower or any of its Subsidiaries is a party do not and will not (A) conflict with the certificate or articles of incorporation or by-laws of the Borrower or any such Subsidiary, (B) (i) constitute a tortious interference with any Contractual Obligation of any Person, (ii) conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law which could reasonably be expected to have a Material Adverse Effect, or (iii) conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any material Contractual Obligation of the Borrower or any such Subsidiary, or require termination of any such Contractual Obligation, (C) result in or require the creation or imposition of any Lien whatsoever upon any of the property or assets of the Borrower or any such Subsidiary, other than Liens permitted or created by the Loan Documents, or (D) require any approval of the Borrower's or any such Subsidiary's Board of Directors or shareholders except such as have been obtained. Except as set forth on Schedule 6.3 to this Agreement, the execution, delivery and performance of each of the Loan Documents to which the Borrower or any of its Subsidiaries is a party do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by any Governmental Authority, except filings, consents or notices which have been made, obtained or given, or which, if not made, obtained or given, individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. 6.4 Financial Statements. (A) Complete copies of the unaudited financial statements of the Borrower and its Subsidiaries for the quarter ended September 30, 2003 and the year ended March 31, 2003 have been delivered to the Administrative Agent. (B) Complete copies of the audited financial statements of the Borrower and its Subsidiaries for the fiscal year ended March 31, 2002 and the audit report related thereto have been delivered to the Administrative Agent. 6.5 No Material Adverse Change. Except as disclosed in public filings made with the Commission prior to the Closing Date, there has occurred no change in the business, properties, condition (financial or otherwise), performance, results of operations or prospects of the Borrower, or the Borrower and its Subsidiaries taken as a whole or any other event which has had or could reasonably be expected to have a Material Adverse Effect. 6.6 Taxes. (A) Tax Examinations. All deficiencies which have been asserted against the Borrower or any of the Borrower's Subsidiaries as a result of any federal, state, local or foreign tax examination for each taxable year in respect of which an examination has been conducted have been fully paid or finally settled, or are being contested in good faith and adequate reserves have been established, and no issue has been raised by any taxing authority in any such examination 46 which, by application of similar principles, reasonably can be expected to result in assertion by such taxing authority of a material deficiency for any other year not so examined which has not been reserved for in the Borrower's consolidated financial statements to the extent, if any, required by Agreement Accounting Principles. Except as permitted pursuant to Section 7.2(D), neither the Borrower nor any of the Borrower's Subsidiaries anticipates any material tax liability with respect to the years which have not been closed pursuant to applicable law. (B) Payment of Taxes. All material tax returns and reports of the Borrower and its Subsidiaries required to be filed have been timely filed, and all material taxes, assessments, fees and other governmental charges thereupon and upon their respective property, assets, income and franchises which are shown in such returns or reports to be due and payable have been paid except those items which are being contested in good faith and have been reserved for in accordance with Agreement Accounting Principles. The Borrower has no knowledge of any proposed tax assessment against the Borrower or any of its Subsidiaries that will have or could reasonably be expected to have a Material Adverse Effect. 6.7 Litigation; Loss Contingencies and Violations. Except as set forth in Schedule 6.7 (the "DISCLOSED LITIGATION"), there is no action, suit, proceeding, arbitration or, to the Borrower's knowledge, investigation before or by any Governmental Authority or private arbitrator pending or, to the Borrower's knowledge, threatened against the Borrower, any of its Subsidiaries or any property of any of them. Neither any of the Disclosed Litigation nor any action, suit, proceeding, arbitration or investigation which has commenced since the Closing Date (or the most recent update of the Disclosed Litigation) (i) challenges the validity or the enforceability of any material provision of the Loan Documents (unless if such claim is brought by any Person other than the Borrower, any Guarantor or any of their Affiliates, such claim has no reasonable likelihood of success on the merits) or (ii) has or could reasonably be expected to have a Material Adverse Effect. There is no material loss contingency within the meaning of Agreement Accounting Principles which has not been reflected in the consolidated financial statements of the Borrower prepared and delivered pursuant to Section 7.1(A) for the fiscal period during which such material loss contingency was incurred. Neither the Borrower nor any of its Subsidiaries is (A) in violation of any applicable Requirements of Law which violation will have or could reasonably be expected to have a Material Adverse Effect, or (B) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or Governmental Authority which will have or could reasonably be expected to have a Material Adverse Effect. 6.8 Subsidiaries. Schedule 6.8 to this Agreement (i) contains a description of the corporate structure of the Borrower, its Subsidiaries and any other Person in which the Borrower or any of its Subsidiaries holds an Equity Interest; and (ii) accurately sets forth (A) the correct legal name, the jurisdiction of incorporation and the jurisdictions in which each of the Borrower and the direct and indirect Subsidiaries of the Borrower are qualified to transact business as a foreign corporation, (B) the authorized, issued and outstanding shares of each class of Capital Stock of the Borrower and each of its Subsidiaries and the owners of such shares (both as of the Initial Funding Date and on a fully-diluted basis), and (C) a summary of the direct and indirect partnership, joint venture, or other Equity Interests, if any, of the Borrower and each Subsidiary of the Borrower in any Person that is not a corporation. After the formation or acquisition of any New Subsidiary permitted under Section 7.3(D), if requested by the Administrative Agent, the 47 Borrower shall provide a supplement to Schedule 6.8 to this Agreement. The outstanding Capital Stock of the Borrower and each of the Borrower's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable and is not Margin Stock. All of the Borrower's Subsidiaries are organized under the laws of any state of the United States and have substantially all of their operations conducted within the United States. 6.9 ERISA. (A) Set forth in Part A of Schedule 6.9 is a true and complete list of each Plan that, as of the date of this Agreement, is or was an "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA). Set forth in Part A of Schedule 6.9 is a true and complete list of each Plan that, as of the date of this Agreement, is or was an "employee welfare benefit plan" (as such term is defined in Section 3(1) of ERISA). (B) Set forth in Part B of Schedule 6.9 is a true and complete list of each Non-ERISA Commitment adopted by the Borrower or any of its Subsidiaries and in effect as of the date of this Agreement. Part B of Schedule 6.9 also includes a true and complete list of each Non-ERISA Commitment which as of the date of this Agreement the Borrower or any of its Subsidiaries intends to adopt. Part B of Schedule 6.9 contains a true and complete description, as of the date of this Agreement, of all oral Non-ERISA Commitments. The Borrower has not as of the date of this Agreement adopted any Non-ERISA Commitment other than those described on Schedule 6.9. (C) For purposes of this Section 6.9(C), "material" means any amount, noncompliance or basis for liability which could reasonably be likely to subject the Borrower or any of its Subsidiaries to liability, individually or in the aggregate of an amount in excess of $5,000,000. Except as disclosed on Part C of Schedule 6.9, no Benefit Plan has incurred any material accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code) whether or not waived. Neither the Borrower nor any member of the Controlled Group has incurred any material liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. With respect to each Benefit Plan, Schedule B to the most recent annual report filed with the IRS with respect to such plan is complete and accurate. Since the date of each such Schedule B, there has been no material adverse change in the funding status or financial condition of the Benefit Plan relating to such Schedule B. As of the last day of the most recent prior plan year, the market value of assets under each Benefit Plan, other than any Multiemployer Plan, was not by a material amount less than the present value of benefit liabilities thereunder (determined in accordance with the actuarial valuation assumptions described therein). Neither the Borrower nor any member of the Controlled Group has (i) failed to make a required contribution or payment to a Multiemployer Plan of a material amount or (ii) incurred a material complete or partial withdrawal under Section 4203 or Section 4205 of ERISA from a Multiemployer Plan. Neither the Borrower nor any member of the Controlled Group has failed to make an installment or any other payment of a material amount required under Section 412 of the Code on or before the due date for such installment or other payment. Neither the Borrower nor any member of the Controlled Group is required to provide security of a material amount to a Benefit Plan pursuant to Section 401(a)(29) of the Code due to a plan amendment that results in an increase in current liability for the plan year. Neither the Borrower nor any of its Subsidiaries maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA or any other arrangement which provides benefits to one or 48 more employees, officers, directors, or consultants after termination of employment other than as required by Section 601 of ERISA and other than any such plan or arrangement with respect to which the Borrower and its Subsidiaries do not have any liability of a material amount. Each Plan which is intended to be qualified under Section 401(a) of the Code as currently in effect is so qualified, and each trust related to any such Plan is exempt from federal income tax under Section 501(a) of the Code as currently in effect. With respect to each Plan, the Borrower and all Subsidiaries and all fiduciaries are in compliance in all material respects with the responsibilities, obligations and duties imposed on them by ERISA and the Code. Each Plan and Non-ERISA Commitment complies in all material respects in form, and has been administered in all material respects in accordance with its terms and, in accordance with all laws and regulations, including but not limited to ERISA and the Code. There is no material action, suit or claim pending or threatened with respect to any Plan other than routine claims for benefits. There have been no and there is no prohibited transaction described in Sections 406 of ERISA or 4975 of the Code with respect to any Plan for which a statutory or administrative exemption does not exist which could reasonably be expected to subject the Borrower to material liability. Neither the Borrower nor any member of the Controlled Group has taken or failed to take any action which would constitute or result in a Termination Event, which action or inaction could reasonably be expected to subject the Borrower or any of its Subsidiaries to material liability. Neither the Borrower nor any Subsidiary is subject to any material liability under, or has any potential material liability under, Section 4063, 4064, 4069, 4204 or 4212(c) of ERISA and no other member of the Controlled Group is subject to any material liability under, or has any potential material liability under, Section 4063, 4064, 4069, 4204 or 4212(c) of ERISA. Neither the Borrower nor any of its Subsidiaries has, by reason of the transactions contemplated by this Agreement or any of the other Loan Documents, any obligation to make any payment to any current or former employee, director, officer or consultant pursuant to any Plan or Non-ERISA Commitment or any obligation to make any such payment at a time earlier than when it would be otherwise payable. 6.10 Accuracy of Information. The information, exhibits and reports furnished by or on behalf of the Borrower and any of its Subsidiaries to the Administrative Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents, the representations and warranties of the Borrower and its Subsidiaries contained in the Loan Documents, and all certificates and documents delivered to the Administrative Agent and the Lenders pursuant to the terms thereof, taken as a whole, do not contain as of the date furnished any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading; provided, however, it is understood by the Lenders that all financial information provided by the Borrower and its Subsidiaries to the Administrative Agent and the Lenders shall be subject to the Catalina Re-Audit and any restatements of or modifications to financial statements or financial information resulting therefrom up to the Financial Information Restatement Limit, and if any such modification is required, the fact that such modification is required, to the extent that such modification does not exceed the Financial Information Restatement Limit, shall not, other than with respect to Section 8.1(R), be deemed a breach of this representation and warranty or of this Agreement for purposes of Article VIII hereof. 6.11 Securities Activities. Neither the Borrower nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock. 49 6.12 Material Agreements. Other than any default which has been waived, there exists no default by the Borrower or any of its Subsidiaries, or, to the best of the Borrower's knowledge, by any other party under any Contractual Obligation to which the Borrower or any of its Subsidiaries are party, which default is reasonably likely to have a Material Adverse Effect. 6.13 Compliance with Laws. The Borrower and its Subsidiaries are in compliance with all Requirements of Law (other than Environmental, Health and Safety Requirements of Law, compliance with which shall be governed pursuant to the provisions of Section 6.18 below) applicable to them and their respective businesses, in each case where the failure to so comply individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. 6.14 Assets and Properties. The Borrower and each of its Subsidiaries has good and marketable title to all of its assets and properties (tangible and intangible, real or personal) owned by it or a valid leasehold interest in all of its leased assets (except insofar as marketability may be limited by any laws or regulations of any Governmental Authority affecting such assets), and all such assets and property are free and clear of all Liens, except Liens permitted under Section 7.3(B). Substantially all of the assets and properties owned by, leased to or used by the Borrower and/or each such Subsidiary of the Borrower are in adequate operating condition and repair, ordinary wear and tear excepted. Neither this Agreement nor any other Loan Document, nor any transaction contemplated under any such agreement, will affect any right, title or interest of the Borrower or such Subsidiary in and to any of such assets in a manner that has or could reasonably be expected to have a Material Adverse Effect. 6.15 Statutory Indebtedness Restrictions. Neither the Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940, or any other federal or state statute or regulation which limits its ability to incur indebtedness or its ability to consummate the transactions contemplated hereby. 6.16 Insurance. The insurance policies and programs in effect with respect to the respective properties, assets, liabilities and business reflect coverage that is reasonably consistent with prudent industry practice. 6.17 Labor Matters. To the best of the Borrower's knowledge, no attempt to organize the employees of the Borrower, and no labor disputes, strikes or walkouts affecting the operations of the Borrower or any of its Subsidiaries, is pending, or, to the Borrower's knowledge, threatened, planned or contemplated, which has or could reasonably be expected to have a Material Adverse Effect. 6.18 Environmental Matters. (A) Except as disclosed on Schedule 6.18 to this Agreement: (i) the operations of the Borrower and its Subsidiaries comply in all material respects with applicable Environmental, Health or Safety Requirements of Law; 50 (ii) the Borrower and its Subsidiaries have all material permits, licenses or other authorizations required under Environmental, Health or Safety Requirements of Law and are in material compliance with such permits; (iii) neither the Borrower, any of its Subsidiaries nor any of their respective present property or operations, or, to the Borrower's or any of its Subsidiaries' knowledge, any of their respective past property or operations, are subject to or the subject of, any investigation known to the Borrower or any of its Subsidiaries, any judicial or administrative proceeding, order, judgment, decree, settlement or other agreement respecting: (A) any material violation of Environmental, Health or Safety Requirements of Law; (B) any remedial action; or (C) any material claims or liabilities arising from the Release or threatened Release of a Contaminant into the environment; (iv) there is not now, nor to the Borrower's or any of its Subsidiaries' knowledge has there ever been at any time during or prior to the Borrower's or any of its Subsidiaries' use thereof, on or in the real property used by the Borrower or any of its Subsidiaries any landfill, waste pile, underground storage tanks, aboveground storage tanks, surface impoundment or hazardous waste storage facility of any kind (as defined in RCRA or any state equivalent), any polychlorinated biphenyls (PCBs) used in hydraulic oils, electric transformers or other equipment, or any asbestos containing material that would be reasonably likely to result in material remediation costs or material penalties to the Borrower or any of its Subsidiaries; and (v) neither the Borrower nor any of its Subsidiaries has any material Contingent Obligation in connection with any Release or threatened Release of a Contaminant into the environment. (B) For purposes of this Section 6.18 "material" means any noncompliance or basis for liability which could reasonably be likely to subject the Borrower or any of its Subsidiaries to liability, individually or in the aggregate, in excess of $5,000,000. 6.19 Benefits. Each of the Borrower and the Guarantors will benefit from the financing arrangement established by this Agreement. The Administrative Agent and the Lenders have stated and the Borrower acknowledges that, but for the agreement by each of the Guarantors to execute and deliver the Guaranty, the Administrative Agent and the Lenders would not have made available the credit facilities established hereby on the terms set forth herein. 6.20 Foreign Employee Benefit Matters. (A) Each Foreign Employee Benefit Plan is in compliance in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plan; (B) the aggregate of the accumulated benefit obligations under all Foreign Pension Plans does not exceed to any material extent the current fair market value of the assets held in the trusts or similar funding vehicles for such Plans; (C) with respect to any Foreign Employee Benefit Plan maintained or contributed to by the Borrower or any Subsidiary or any member of its Controlled Group (other than a Foreign Pension Plan), reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained; and (D) there are no material actions, suits or claims (other than routine claims for 51 benefits) pending, or to the knowledge of the Borrower and its Subsidiaries, threatened against the Borrower and its Subsidiaries or any member of its Controlled Group with respect to any Foreign Employee Benefit Plan. For purposes of this Section 6.20, the term "material" shall have the meaning set forth in Section 6.9. 6.21 Existing Indebtedness. As of the Closing Date, neither the Borrower nor any Subsidiary thereof has incurred or is otherwise obligated to repay Indebtedness other than Indebtedness identified on Schedule 6.21, which Schedule 6.21 sets forth, as of the Closing Date, a list of each agreement, document and instrument pursuant to which the Borrower or such Subsidiary incurred such Indebtedness (or the obligation to repay such Indebtedness), the amount of Indebtedness outstanding under each such agreement, document or instrument, and the amount of the applicable lender's commitment under each such agreement, document or instrument. Schedule 6.21 shall not be amended or modified without the written consent of the Administrative Agent and the Lenders. 6.22 Financial Information Restatement Limit. To the best of the Borrower's knowledge, the Catalina Re-Audit will not cause modifications or restatements of financial information or financial statements that result in changes to previously provided Cash Flow From Operating Activities in excess of the Financial Information Restatement Limit. 6.23 Reportable Transaction. The Borrower does not intend to treat the Advances and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4). In the event the Borrower determines to take any action inconsistent with such intention, it will promptly notify the Administrative Agent thereof. 6.24 OFAC. Neither the Borrower nor any of its Subsidiaries or Affiliates is a country, individual, or entity named on the Specifically Designated National and Blocked Persons (SDN) list issued by the Office of Foreign Asset Control of the Department of the Treasury of the United States of America. ARTICLE VII: COVENANTS The Borrower covenants and agrees that so long as any Revolving Loan Commitments are outstanding and thereafter until all of the Secured Obligations (other than contingent indemnity obligations) shall have been fully and indefeasibly paid and satisfied in cash, all financing arrangements among the Borrower and the Lenders shall have been terminated (including under Hedging Agreements or other agreements with respect to Hedging Obligations) and all of the Letters of Credit shall have expired, been canceled or terminated, unless the Required Lenders shall otherwise give prior written consent: 7.1 Reporting. The Borrower shall: (A) Financial Reporting. Furnish to the Administrative Agent (with sufficient copies for each of the Lenders): (i) Quarterly Reports. Other than with respect to the periods covered by Section 7.1(A)(iv), as soon as practicable, and in any event within fifty (50) days after the end of each of the first three fiscal quarters of the Borrower's fiscal year, (a) so long as the 52 Borrower is a reporting company under the Securities and Exchange Act of 1934, the Borrower's quarterly report on Form 10-Q (or any replacement form adopted by the Commission) and (b) if the Borrower is no longer a reporting company under the Securities and Exchange Act of 1934, the consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such period and the related consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, in either such case, certified by an Authorized Officer of the Borrower on behalf of the Borrower as fairly presenting the consolidated and consolidating financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated in accordance with Agreement Accounting Principles, subject to normal year-end audit adjustments; provided, however, that all such financial information and certifications shall be subject to the Catalina Re-Audit up to the Financial Information Restatement Limit, and any restatements of or modifications to financial statements or financial information resulting therefrom; provided, further, that failure to deliver any audited or reviewed document required pursuant to this Section for the fiscal quarters ending December 31, 2003 and June 30, 2004 prior to the completion of the Catalina Re-Audit shall not be deemed to be a breach of this Agreement or a Default under Article VIII hereof. (ii) Annual Reports. Other than with respect to the periods covered by Section 7.1(A)(iv), as soon as practicable, and in any event within ninety-five (95) days after the end of each fiscal year, (a) so long as the Borrower is a reporting company under the Securities and Exchange Act of 1934, the Borrower's annual report on Form 10-K (or any replacement form adopted by the Commission) and (b) if the Borrower is no longer a reporting company under the Securities and Exchange Act of 1934, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, and in comparative form the corresponding figures for the previous fiscal year along with consolidating schedules in form and substance sufficient to calculate the financial covenants set forth in Section 7.4, and, in either case, an audit report on such financial statements (other than the consolidating schedules) of independent certified public accountants of recognized national standing, which audit report shall be unqualified and shall state that such financial statements fairly present the consolidated and consolidating financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated in conformity with Agreement Accounting Principles and that the examination by such accountants in connection with such consolidated and consolidating financial statements has been made in accordance with generally accepted auditing standards; provided, however, that all such financial information and certifications shall be subject to the Catalina Re-Audit and any restatements of or modifications to financial statements or financial information resulting therefrom up to the Financial Information Restatement Limit; provided, further, that failure to deliver any audited document required pursuant to this Section for the fiscal year ending March 31, 2004 prior to the completion of the Catalina Re-Audit shall not be deemed to be a breach of this Agreement or a Default under Article VIII hereof. 53 (iii) Officer's Certificate. Together with each delivery of any financial statement (a) pursuant to clauses (i) and (ii) of this Section 7.1(A), an Officer's Certificate of the Borrower, substantially in the form of Exhibit G attached hereto and made a part hereof, stating that (x) the representations and warranties of the Borrower contained in Article VI hereof (unless such representation and warranty is made as of a specific date, in which case, such representation and warranty shall be true in all material respects as of such date) shall have been true and correct in all material respects at all times during the period covered by such financial statements and as of the date of such Officer's Certificate and (y) as of the date of such Officer's Certificate, other than any default under any other agreement that has been waived, no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof and (b) pursuant to clauses (i) and (ii) of this Section 7.1(A), a compliance certificate, substantially in the form of Exhibit H attached hereto and made a part hereof, signed by an Authorized Officer of the Borrower, setting forth calculations for the period which demonstrate compliance, when applicable, with the provisions of Sections 7.3(A) through (P) and Section 7.4, and which, on and after the 2003 Financials Delivery Date, (x) calculate the Leverage Ratio for purposes of determining the Applicable Floating Rate Margin, the Applicable Eurodollar Margin, the Applicable L/C Fee Percentage and the Applicable Commitment Fee Percentage then in effect, and (y) set forth the Borrower's determination of such Applicable Floating Rate Margin, Applicable Eurodollar Margin, Applicable L/C Fee Percentage and Applicable Commitment Fee Percentage then in effect (which determination shall be subject to review and approval by the Administrative Agent). (iv) Reporting Subject to Catalina Re-Audit. Notwithstanding the timing requirements of Sections 7.1(A)(i) and (ii), for the fiscal year ended March 31, 2003, the fiscal year ending March 31, 2004, the fiscal quarters ended June 30, 2003 and September 30, 2003, and the fiscal quarters ending December 31, 2003 and June 30, 2004, the Borrower shall make all of the audited or reviewed deliveries required by Section 7.1(A) with respect to such periods promptly upon the completion of the Borrower's financial statements for such periods and the Catalina Re-Audit. Unaudited financials that have not been reviewed or otherwise subjected to the Catalina Re-Audit shall be delivered in advance of the audited and reviewed financials in accordance with the terms of Section 7.1(A). Such deliveries must satisfy all of the requirements of Section 7.1(A) other than the timing requirements with respect to the delivery of audited and/or reviewed annual and quarterly financial statements. (v) Audit Updates; Additional Audits and Restated Financials. Prior to the completion of the Catalina Re-Audit, the Borrower shall cause to be delivered to the Administrative Agent from time to time status reports with respect to the Catalina Re-Audit. Such status reports shall be in form and substance acceptable to the Required Lenders and shall be delivered promptly after the Required Lenders' requests therefor; provided, however, that, such requests shall not be made more frequently than once every two weeks until the occurrence and during the continuance of a Default, at which time such requests may be made more frequently. In the event financial statements previously delivered to the Administrative Agent and the Lenders are subject to the Catalina Re-Audit and restatements of or modifications to financial statements or financial 54 information result therefrom, the Borrower shall cause such newly audited and/or restated or modified financial statements to be delivered to the Administrative Agent upon the prompt completion thereof. The Borrower shall provide status reports with respect to such newly audited and/or restated or modified financial statements in accordance with the first two sentences of this paragraph, including, without limitation, updates as to the specific financial statements subject to such additional audits and/or restatements or modifications. (B) Notice of Default and Adverse Developments. Promptly upon any Authorized Officer of the Borrower obtaining knowledge (i) of any condition or event which constitutes a Default or Unmatured Default, or becoming aware that any Lender or Administrative Agent has given any written notice with respect to a claimed Default or Unmatured Default under this Agreement, (ii) that any Person has given any written notice to the Borrower or any Subsidiary of the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 8.1(E), or (iii) that any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect has occurred, deliver notice to the Administrative Agent specifying (a) the nature and period of existence of any such claimed default, Default, Unmatured Default, condition or event, (b) the notice given or action taken by such Person in connection therewith, and (c) what action the Borrower has taken, is taking and proposes to take with respect thereto. Notwithstanding the foregoing, in no event shall the Administrative Agent be deemed to have knowledge of any such default, Default, Unmatured Default, condition or event until the Administrative Agent shall have received written notice thereof from the Borrower or a Lender. (C) Lawsuits. (i) Promptly upon the Borrower obtaining knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Borrower or any of its Subsidiaries or any property of the Borrower or any of its Subsidiaries not previously disclosed pursuant to Section 6.7, which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Borrower's reasonable judgment, the Borrower or any of its Subsidiaries to liability in an amount aggregating $5,000,000 or more, give written notice thereof to the Administrative Agent and the Lenders and provide such other information as may be reasonably available to enable each Lender and the Administrative Agent and its counsel to evaluate such matters; (ii) promptly upon the Borrower or any of its Subsidiaries obtaining knowledge of any material adverse developments with respect to any of the Disclosed Litigation, give written notice thereof to the Administrative Agent and the Lenders and provide such other information as may be reasonably available to enable each Lender and the Administrative Agent and its counsel to evaluate such matters, and (iii) in addition to the requirements set forth in clauses (i) and (ii) of this Section 7.1(C), upon request of the Administrative Agent or the Required Lenders, promptly give written notice of the status of any Disclosed Litigation or any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to clause (i) above and provide such other information, to the extent permitted by law, as may be reasonably available to it that would not jeopardize any attorney-client privilege by disclosure to the Lenders to enable each Lender and the Administrative Agent and its counsel to evaluate such matters. 55 (D) ERISA Notices. Deliver or cause to be delivered to the Administrative Agent and the Lenders, at the Borrower's expense, the following information and notices as soon as reasonably possible, and in any event: (i) (a) within ten (10) Business Days after the Borrower obtains knowledge that a Termination Event has occurred, a written statement of an Authorized Officer of the Borrower describing such Termination Event and the action, if any, which the Borrower has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto and (b) within ten (10) Business Days after any member of the Controlled Group obtains knowledge that a Termination Event has occurred which could reasonably be expected to subject the Borrower to liability individually or in the aggregate in excess of $5,000,000, a written statement of an Authorized Officer of the Borrower describing such Termination Event and the action, if any, which the member of the Controlled Group has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto; (ii) within ten (10) Business Days after the Borrower or any of its Subsidiaries obtains knowledge that a prohibited transaction (as defined in Sections 406 of ERISA or Section 4975 of the Code) has occurred with respect to any Plan, or that the IRS or DOL or any other Governmental Authority is investigating, or otherwise reviewing whether any such prohibited transaction might have occurred, a statement of an Authorized Officer of the Borrower describing such transaction and the action which the Borrower or such Subsidiary has taken, is taking or proposes to take with respect thereto; (iii) within fifteen (15) Business Days after the material increase in the benefits of any existing Plan or the establishment of any new Plan or the commencement of, or obligation to commence, contributions to any Plan or Multiemployer Plan to which the Borrower or any member of the Controlled Group was not previously contributing, notification of such increase, establishment, commencement or obligation to commence and the amount of such contributions; (iv) within ten (10) Business Days after the Borrower or any of its Subsidiaries receives notice of any unfavorable determination letter from or of any investigation or review by the IRS regarding the qualification of a Plan under Section 401(a) of the Code, a copy of such letter; (v) within fifteen (15) Business Days after the establishment of any foreign employee benefit plan or the commencement of, or obligation to commence, contributions to any foreign employee benefit plan to which the Borrower or any Subsidiary was not previously contributing, notification of such establishment, commencement or obligation to commence and the amount of such contributions; (vi) within fifteen (15) Business Days after request by the Administrative Agent or any Lender therefor, a copy of the most recent annual report (form 5500 series), including Schedule B thereto, as filed with the DOL, IRS or PBGC, a copy of such annual report; 56 (vii) within fifteen (15) Business Days after request by the Administrative Agent or any Lender therefor, each actuarial report received by the Borrower or any member of the Controlled Group with respect to any Benefit Plan or Multiemployer Plan and each annual report for any Multiemployer Plan, a copy of such report; (viii) within ten (10) Business Days after the filing of any funding waiver request with the IRS, a copy of such funding waiver request and thereafter all communications received by the Borrower or a member of the Controlled Group with respect to such request within ten (10) Business Days such communication is received; (ix) within ten (10) Business Days after receipt by the Borrower or any member of the Controlled Group of any notice of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, a copy of such notice; (x) within ten (10) Business Days after receipt by the Borrower or any member of the Controlled Group of a notice from a Multiemployer Plan regarding the imposition of withdrawal liability, a copy of such notice; (xi) within ten (10) Business Days after the Borrower or any member of the Controlled Group fails to make an installment or any other payment required under Section 412 of the Code on or before the due date for such installment or payment, a notification of such failure; and (xii) within ten (10) Business Days after the Borrower or any member of the Controlled Group knows or has reason to know that (a) a Multiemployer Plan has been terminated, (b) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan, a notice describing such matter. For purposes of this Section 7.1(D), the Borrower, any of its Subsidiaries and any member of the Controlled Group shall be deemed to know all facts known by the administrator of any Plan of which the Borrower or any member of the Controlled Group or any such Subsidiary is the plan sponsor. (E) Other Indebtedness. Deliver to the Administrative Agent and to each Lender (i) a copy of each notice or communication regarding potential or actual defaults (including any accompanying officer's certificate) delivered by or on behalf of the Borrower or any of its Subsidiaries to the holders of Indebtedness pursuant to the terms of the agreements governing such Indebtedness, such delivery to be made at the same time and by the same means as such notice or other communication is delivered to such holders and (ii) a copy of each notice or other communication regarding potential or actual defaults received by the Borrower or any of its Subsidiaries from the holders of Indebtedness pursuant to the terms of such Indebtedness, such delivery to be made promptly after such notice or other communication is received by the Borrower or any of its Subsidiaries. (F) Environmental Notices. As soon as possible and in any event within ten (10) days after the receipt by the Borrower, deliver to the Administrative Agent and the Lenders a copy of 57 (i) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the Release by the Borrower, any of its Subsidiaries or any other Person of any Contaminant into the environment, and (ii) any notice alleging any violation of any Environmental, Health or Safety Requirements of Law by the Borrower or any of its Subsidiaries if, in either case, such notice or claim relates to an event which could reasonably be expected to subject the Borrower and its Subsidiaries to liability individually or in the aggregate in excess of $5,000,000. (G) Receivables Aging. As soon as possible and in any event within fifteen (15) days after the end of every month, a Receivables aging report in form and substance reasonably acceptable to the Administrative Agent. Such Receivables aging report shall include, without limitation, a list of Receivables agings for the ten (10) obligors with the greatest dollar amounts of Receivables owing during such month. (H) Other Information. Promptly upon receiving a request therefor from the Administrative Agent or the Required Lenders, prepare and deliver to the Administrative Agent and the Lenders such other information with respect to the Borrower, any of its Subsidiaries, or their respective businesses and assets as from time to time may be reasonably requested by the Administrative Agent or the Required Lenders. 7.2 Affirmative Covenants. (A) Corporate Existence, Etc. Except as permitted pursuant to Section 7.3(F), the Borrower shall, and shall cause each of the Guarantors to, at all times maintain its existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses. (B) Corporate Powers; Conduct of Business. The Borrower shall, and shall cause each of the Guarantors to, qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified and where the failure to be so qualified will have or could reasonably be expected to have a Material Adverse Effect. The Borrower will, and will cause each Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and any business or activities which are reasonably similar, related or incidental thereto or logical extensions thereof. (C) Compliance with Laws, Etc. The Borrower shall, and shall cause its Subsidiaries to, (a) comply with all Requirements of Law and all restrictive covenants affecting such Person or the business, properties, assets or operations of such Person, and (b) obtain as needed all permits necessary for its operations and maintain such permits in good standing except in each case where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. (D) Payment of Taxes and Claims; Tax Consolidation. The Borrower shall pay, and cause each of its Subsidiaries to pay, (i) all taxes, assessments and other governmental charges imposed upon it or on any of its properties or assets or in respect of any of its franchises, business, income or property before any penalty or interest accrues thereon, and (ii) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which 58 have become due and payable and which by law have or may become a Lien (other than a Lien permitted by Section 7.3(B)) upon any of the Borrower's or such Subsidiary's property or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, however, that no such taxes, assessments and governmental charges referred to in clause (i) above or claims referred to in clause (ii) above (and interest, penalties or fines relating thereto) need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with Agreement Accounting Principles shall have been made therefor. (E) Insurance. The Borrower shall maintain for itself and its Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force and effect, insurance policies and programs as reflect coverage that is reasonably consistent with prudent industry practice. Such policies shall not be cancelled or cancellable by the Borrower, the Subsidiaries or the providers thereof without at least thirty days prior written notice thereof to the Borrower and the Collateral Agent. The Borrower shall deliver to the Administrative Agent endorsements in form and substance reasonably acceptable to the Administrative Agent (x) to all "All Risk" physical damage insurance policies on all of the Borrower's and its Material Domestic Subsidiaries' tangible personal property naming the Collateral Agent as loss payee and (y) to all general liability and other liability policies naming the Administrative Agent, the Collateral Agent and the Lenders as additional insureds. In the event the Borrower or any of its Subsidiaries at any time or times hereafter shall fail to obtain or maintain any of the policies or insurance required herein or to pay any premium in whole or in part relating thereto, then the Administrative Agent, without waiving or releasing any obligations or resulting Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Administrative Agent reasonably deems advisable. All sums so disbursed by the Administrative Agent shall constitute part of the Obligations, payable as provided in this Agreement. The Borrower shall direct (and, if applicable, shall cause its Material Domestic Subsidiaries to direct) all insurers under policies of property damage and boiler and machinery insurance and payors under any condemnation claim or award relating to the property to pay all proceeds payable under such policies or with respect to such claim or award for any loss with respect to the Collateral directly to the Collateral Agent, for the benefit of the Collateral Agent, the Administrative Agent, the Holders of Secured Obligations, and the other parties subject to the Intercreditor Agreement; provided, however, in the event that such proceeds or awards are less than $1,000,000 ("Excluded Proceeds"), unless a Default shall have occurred and be continuing, the Borrower shall be entitled to retain such Excluded Proceeds; provided, further, that notwithstanding the foregoing, unless a Default shall have occurred and be continuing, the Borrower may retain or receive any insurance proceeds resulting from the damage or destruction of any of its or its Subsidiaries' Property if (x) such insurance proceeds are used by the Borrower or the applicable Subsidiary within 365 days of the occurrence of such damage or destruction to acquire new Property in replacement of such damaged or destroyed Property and (y) the value of the new Property is either (1) less than the value of the damaged or destroyed Property, in which case the Borrower shall promptly prepay the Revolving Credit Obligations in an amount equal to the excess of the insurance proceeds resulting from such loss over the value of the new Property, or (2) reasonably equivalent to or exceeds the value of the damaged or destroyed Property. Each such policy shall contain a loss-payable endorsement naming the Collateral Agent as loss payee, which endorsement shall be in form and substance acceptable to the Collateral Agent. Notwithstanding anything to the contrary 59 set forth above, the Borrower shall not be required to remit to the Collateral Agent, the Administrative Agent or any Holder of Secured Obligations any insurance proceeds resulting under its Electronic Errors & Omissions Policy so long as such proceeds are promptly remitted to the customer of the Borrower or the applicable Subsidiary entitled to such proceeds. If the Administrative Agent or any Lender receives insurance proceeds arising under the Electronic Errors & Omissions Policy, the Administrative Agent or the applicable Lender shall remit such proceeds to the Borrower for application toward the applicable customer's claim. (F) Inspection of Property; Books and Records; Discussions. The Borrower shall permit and cause each of the Borrower's Subsidiaries to permit, the Administrative Agent (or its Affiliates) or any authorized representative(s) designated by the Administrative Agent consisting of (1) employees of one or more of the other Lenders (or their Affiliates), (2) financial advisors or financial consultants, including, without limitation, auditors or (3) asset valuation or asset audit advisors or consultants to visit and inspect any of the properties of the Borrower or any of its Subsidiaries, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby (including, without limitation, in connection with environmental compliance, hazard or liability), and to discuss their affairs, finances and accounts with their officers and independent certified public accountants (and such accountants are hereby authorized to disclose to the Administrative Agent and the Lenders any and all financial statements and other supporting financial documents with respect to the business, financial conditions and other affairs of the Borrower and its Subsidiaries), all upon reasonable notice and at such reasonable times during normal business hours; provided no more than two such audits or examinations shall be conducted during any twelve-month period unless a Default has occurred and is continuing. The Borrower shall keep and maintain, and cause each of the Borrower's Subsidiaries to keep and maintain, in all material respects, proper books of record and account in which entries in conformity with Agreement Accounting Principles shall be made of all dealings and transactions in relation to their respective businesses and activities. If a Default has occurred and is continuing, the Borrower, upon the Administrative Agent's or the Required Lenders' request, shall turn over copies of any such records to the Administrative Agent or its representatives. (G) ERISA Compliance. The Borrower shall, and shall cause each of the Borrower's Subsidiaries to, establish, maintain and operate all Plans and Non-ERISA Commitments to comply in all material respects with the provisions of ERISA, the Code, all other applicable laws, and the regulations and interpretations thereunder and the respective requirements of the governing documents for such Plans and Non-ERISA Commitments except where such non-compliance will not have or is not reasonably likely to subject the Borrower or any of its Subsidiaries to liability, individually or in the aggregate, in excess of $5,000,000. (H) Maintenance of Property. The Borrower shall cause all property used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order, ordinary wear and tear excepted, and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 7.2(H) shall prevent the 60 Borrower from discontinuing the operation or maintenance of any of such property if such discontinuance is, in the judgment of the Borrower, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Administrative Agent or the Lenders. (I) Environmental Compliance. The Borrower and its Subsidiaries shall comply with all Environmental, Health or Safety Requirements of Law, except where noncompliance will not have or is not reasonably likely to subject the Borrower or any of its Subsidiaries to liability, individually or in the aggregate, in excess of $5,000,000 (excluding from such calculation liabilities covered by insurance as to which a claim has been filed and the insurance company has not disclaimed or reserved the right to disclaim coverage). (J) Use of Proceeds. The Borrower shall use the proceeds of the Loans for general corporate purposes of the Borrower and its Subsidiaries. (K) Addition of Guarantors; Subsidiary Collateral Documents. The Borrower shall cause each Material Domestic Subsidiary (including Subsidiaries existing as of the date hereof which are or become Material Domestic Subsidiaries and any New Subsidiaries which qualify as Material Domestic Subsidiaries) to execute and deliver to the Administrative Agent, the Guaranty or a supplement thereto in the form of Exhibit I attached hereto to become a Guarantor under the Guaranty and deliver appropriate corporate resolutions, opinions and other documentation in form and substance reasonably satisfactory to the Administrative Agent, such Guaranty or supplement thereto and other documentation to be delivered to the Administrative Agent (i) as promptly as possible but in any event within thirty (30) days after the date of the creation, acquisition of capitalization of a New Subsidiary which qualifies as a Material Domestic Subsidiary, and (ii) as promptly as possible but in any event within thirty (30) days of determination that a Subsidiary needs to be added as a Guarantor. Within such thirty (30) day period, the Borrower shall cause such new Material Domestic Subsidiary to also execute and deliver (i) a supplement to the Security Agreement or a security agreement in form and substance substantially similar to the Security Agreement, pursuant to which such new Material Domestic Subsidiary shall grant to the Collateral Agent a Lien upon substantially all of its personal property, including, without limitation, all of its Equity Interests in its Domestic Subsidiaries, and (ii) if requested by the Administrative Agent or the Collateral Agent, such other Collateral Documents, including, without limitation, financing statements, stock certificates, stock powers and control agreements, in order to provide the Collateral Agent with a first priority perfected Lien upon substantially all of such new Material Domestic Subsidiary's personal property. The Borrower shall also cause such new Material Domestic Subsidiary to execute and/or deliver appropriate organizational documents, resolutions and other documentation in form and substance reasonably acceptable to the Administrative Agent and the Collateral Agent evidencing, among other things, the authority and power of such new Material Domestic Subsidiary to enter into the aforementioned Loan Documents and, if requested by the Administrative Agent or the Collateral Agent, opinions of counsel in form and substance reasonably acceptable to the Administrative Agent or Collateral Agent, as applicable. (L) Foreign Employee Benefit Compliance. The Borrower shall, and shall cause each of its Subsidiaries and each member of its Controlled Group to establish, maintain and operate all Foreign Employee Benefit Plans to comply in all material respects with all laws, regulations and 61 rules applicable thereto and the respective requirements of the governing documents for such Plans, except where noncompliance will not have or is not reasonably likely to subject the Borrower or any of its Subsidiaries to liability, individually or in the aggregate, in excess of $5,000,000. (M) Restructuring Advisor. At any time prior to the completion of the Catalina Re-Audit, within 30 days of a request by the Administrative Agent and the Required Lenders, the Borrower shall retain a restructuring advisor acceptable to the Administrative Agent. Any such restructuring advisor shall report directly to the Borrower's Board of Directors and shall, among other things, counsel the Borrower with respect to issues reasonably identified by the Administrative Agent or take actions reasonably requested by the Administrative Agent. In addition, if the Administrative Agent or the Required Lenders so direct, the Administrative Agent (or its counsel) will engage, at the Borrower's expense, a restructuring advisor or a forensic accountant to act on behalf of the Administrative Agent and the Lenders. (N) Cash Management. Until the occurrence of the 2003 Financials Delivery Date, the Borrower shall maintain, and shall cause each of its Affiliates to maintain, substantially all of their respective cash located or otherwise maintained in the United States net of outstanding payroll and disbursement checks in excess of $5,000,000 (such amount up to $5,000,000, the "Payroll Amount") with one or more Lenders on terms and conditions acceptable to the Administrative Agent; provided, however, that if a Default or Unmatured Default is in existence on the 2003 Financials Delivery Date, the Borrower and its Affiliates shall be required to continue to maintain their cash with the Lenders until such Default or Unmatured Default is cured or waived. The Payroll Amount shall be deposited with SunTrust Bank or one or more Lenders. 7.3 Negative Covenants. (A) Sales of Assets. Neither the Borrower nor any of its Subsidiaries shall sell, assign, transfer, lease, convey or otherwise dispose of any Property, whether now owned or hereafter acquired, or any income or profits therefrom, or enter into any agreement to do so, except: (i) where such transaction is entered into in the ordinary course of business and consistent with past practices; (ii) the disposition in the ordinary course of business of property that is obsolete, excess or no longer useful in the Borrower's or its Subsidiaries' businesses; (iii) sales of Equity Interests in Subsidiaries of the Borrower to employees or the Borrower or its Subsidiaries, provided after taking into account such transactions the Borrower remains in compliance with Section 7.3(F); (iv) the disposition or conversion in the ordinary course of business of Investments consisting of Cash Equivalents; (v) the Disclosed Foreign Subsidiary Asset Sale and each Disclosed Domestic Subsidiary Asset Sale; provided, however, that not less than 80% of the consideration received in connection with any such Disclosed Foreign Subsidiary Asset Sale or 62 Disclosed Domestic Subsidiary Asset Sale shall be cash or Cash Equivalents; provided, further, that the Borrower shall comply with the requirements of Section 2.4(A) and Section 2.5(B) in connection with any such Disclosed Foreign Subsidiary Asset Sale or Disclosed Domestic Subsidiary Asset Sale; or (vi) leases, sales, assignments, transfers, conveyances or other dispositions of its Property (other than transactions pursuant to clauses (i) through (v) above) if: (1) such transaction is for not less than fair market value (as determined in the good faith judgment of the Borrower's Board of Directors), (2) not less than 80% of the consideration received shall be cash or Cash Equivalents, (3) the lesser of (i) an amount equal to the net cash proceeds (including Cash Equivalents) from such transaction and (ii) the aggregate outstanding amount of the Revolving Credit Obligations is paid by the Borrower on the date of consummation of such transaction for application to the Revolving Credit Obligations; provided, however, that no such prepayment shall be required until the aggregate amount of net cash proceeds resulting from all leases, sales, assignments, transfers, conveyances or other dispositions of Property subject to this Section 7.3(A)(vi) exceeds $5,000,000; provided, further, that only amounts in excess of such initial $5,000,000 shall be subject to the foregoing prepayment requirement, and, (4) simultaneously with any prepayment required under the foregoing clause (3), the Aggregate Revolving Loan Commitment is reduced by the amount of such prepayment; provided, however, that in accordance with the foregoing clause (3), the Aggregate Revolving Loan Commitment shall not be reduced by the first $5,000,000 of net cash proceeds resulting from transactions subject to this Section 7.3(A)(vi); The Borrower shall be required to obtain the written consent of the Supermajority Lenders prior to the consummation of any Asset Sale governed by Section 7.3(A)(vi) if (x) such Asset Sale occurs after the date on which the Borrower and/or its Subsidiaries have consummated Asset Sales permitted under Section 7.3(A)(vi) which generated aggregate net cash proceeds (including Cash Equivalents) in excess of $5,000,000 or (y) such Asset Sale would generate proceeds that would cause such aggregate net cash proceeds to exceed $5,000,000. Prepayments required under this Section 7.3(A) shall be made on the dates and in the manner required under Section 2.4(A) and Section 2.5(B). 63 (B) Liens. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of their respective property or assets except: (i) Liens, if any, created by the Loan Documents or otherwise securing the Secured Obligations; (ii) Permitted Existing Liens; (iii) Customary Permitted Liens; (iv) purchase money Liens (including the interest of a lessor under a Capitalized Lease and Liens to which any property is subject at the time of the Borrower's acquisition thereof) securing Purchase Money Indebtedness; provided that such Liens shall not apply to any property of the Borrower or its Subsidiaries other than that purchased or subject to such Capitalized Lease and provided further the Indebtedness secured thereby does not exceed $1,000,000 in the aggregate principal amount outstanding at any time; (v) Liens in favor of the Collateral Agent pursuant to the Collateral Documents and subject to the Intercreditor Agreement securing Indebtedness evidenced by the Catalina Japanese Financing; (vi) Liens securing Indebtedness of the Borrower or its Subsidiaries to a Loan Party so long as such Liens are subordinated, pursuant to terms acceptable to the Collateral Agent and the Administrative Agent, to the Liens created under the Loan Documents; (vii) Liens existing on the Closing Date and securing Wachovia Lease Program Indebtedness permitted under Section 7.3(O) (including, without limitation, Liens upon Property that replaces Property initial securing Wachovia Lease Program Indebtedness on the Closing Date); (viii) Liens against the Borrower's headquarters, consisting of real property, including leasehold improvements, located in St. Petersburg, Florida; and (ix) Liens granted by Catalina Marketing Japan, K.K. upon its Property or Liens granted on the Equity Interests of Catalina Marketing Japan, K.K. to secure obligations owing in connection with the Catalina Japanese Financing. In addition, neither the Borrower nor any of its Subsidiaries shall become a party to any agreement, note, indenture or other instrument, or take any other action, which would prohibit the creation of a Lien on any of its properties or other assets in favor of the Collateral Agent for the benefit of the parties subject to the Intercreditor Agreement or the Administrative Agent for the benefit of itself and the Holders of Secured Obligations, as collateral for the Secured Obligations or the obligations subject to the Intercreditor Agreement, as applicable; provided that any agreement, note, indenture or other instrument in connection with Purchase Money Indebtedness (including Capitalized Leases) may prohibit the creation of a Lien in favor of the 64 Collateral Agent for the benefit of itself and the other parties subject to the Intercreditor Agreement or Administrative Agent for the benefit of itself and the Holders of Secured Obligations or require the subordination of any such Lien on the items of property obtained with the proceeds of such Purchase Money Indebtedness. (C) Investments. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly make or own any Investment except: (i) Investments in cash and Cash Equivalents; (ii) Permitted Existing Investments in an amount not greater than the amount thereof on the Closing Date; (iii) Investments in trade receivables or received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (iv) Investments consisting of deposit accounts maintained by the Borrower and its Subsidiaries in the ordinary course of business in connection with its cash management system; (v) Investments consisting of non-cash consideration from a sale, assignment, transfer, lease, conveyance or other disposition of property permitted by Section 7.3(A); (vi) Investments of the Borrower in any Guarantor or Investments of any Guarantor in the Borrower or any other Guarantor; (vii) Investments of the Borrower in non-Guarantor Subsidiaries and other Persons in an aggregate amount not to exceed $10,000,000; and (viii) Investments in counterparties arising out of Hedging Arrangements permitted pursuant to Section 7.3(L). (D) Conduct of Business; New Subsidiaries; Acquisitions. Neither the Borrower nor any of its Subsidiaries shall engage in any business other than the businesses engaged in by the Borrower and its Subsidiaries on the date hereof and any business or activities which are reasonably similar, related or incidental thereto or logical extensions thereof. The Borrower may create or capitalize any Subsidiary ("NEW SUBSIDIARY") after the date hereof if (i) no Default or Unmatured Default shall have occurred and be continuing or would result therefrom; (ii) after such creation, acquisition or capitalization, all of the representations and warranties contained herein shall be true and correct; and (iii) after such creation capitalization the Borrower shall be in compliance with the terms of Section 7.2(K). The Borrower shall not make any Acquisitions. (E) Transactions with Shareholders and Affiliates. Except for transactions (i) disclosed on Schedule 7.3(E), (ii) between the Borrower and the Guarantors or between Guarantors and (ii) otherwise permitted herein, neither the Borrower nor any of its Subsidiaries shall enter into or permit to be consummated any transaction after the Closing Date, including, without limitation, 65 the purchase, sale, lease or exchange of property, real or personal, or the rendering of any service, with any holder or holders of Equity Interests of the Borrower or any of its Subsidiaries or with any Affiliates, except, (i) that such Persons may render services to the Borrower or any of its Subsidiaries for compensation at the same rates generally paid by Persons engaged in the same or similar businesses for the same or similar services, (ii) that the Borrower or any of its Subsidiaries may render services to such Persons for compensation at the same rates generally charged by the Borrower or such Subsidiary and (iii) in either case in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's (or any Subsidiary's) business consistent with past practice of the Borrower and its Subsidiaries and upon fair and reasonable terms. (F) Restriction on Fundamental Changes; Guarantor Equity Ownership. Neither the Borrower nor any of its Subsidiaries shall enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of the Borrower's or any such Subsidiary's business or property, whether now or hereafter acquired, except (i) transactions permitted under Sections 7.3(A) or 7.3(D), (ii) a Subsidiary of the Borrower may be merged into, liquidated into or consolidated with the Borrower (in which case the Borrower shall be the surviving corporation) or any wholly-owned Subsidiary of the Borrower, provided if a Guarantor is merged into, liquidated into or consolidated with another Subsidiary of the Borrower (or entity so acquired), the surviving Subsidiary (or entity so acquired) shall also be or shall become a Guarantor. Other than as a result of a transaction permitted under the terms of this Agreement, the Borrower shall not cease to own, of record and beneficially, with sole voting and dispositive power at least 80% of the outstanding shares of Capital Stock of each of the Guarantors and shall not cease to have the power, directly or indirectly, to elect (a) a majority of the members of the board of directors of each of the Guarantors and (b) if under the applicable articles or certificate of incorporation (or similar governing document), shareholder's agreements or under applicable law a higher percentage of the board of directors is required for the consummation of any transaction by any Guarantor, then such larger percentage of the members of the board of directors. (G) Margin Regulations. Neither the Borrower nor any of its Subsidiaries, shall use all or any portion of the proceeds of any credit extended under this Agreement to purchase or carry Margin Stock. (H) ERISA. The Borrower shall not (i) engage, or permit any of its Subsidiaries to engage, in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the DOL; (ii) permit to exist any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the Code), with respect to any Benefit Plan, whether or not waived; 66 (iii) fail, or permit any Controlled Group member to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (iv) terminate, or permit any Controlled Group member to terminate, any Benefit Plan which would result in liability of the Borrower or any Controlled Group member under Title IV of ERISA; (v) fail to make any contribution or payment to any Multiemployer Plan which the Borrower or any Controlled Group member may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; (vi) fail, or permit any Controlled Group member to fail, to pay any required installment or any other payment required under Section 412 of the Code on or before the due date for such installment or other payment; or (vii) amend, or permit any Controlled Group member to amend, a Plan resulting in an increase in current liability for the plan year such that the Borrower or any Controlled Group member is required to provide security to such Plan under Section 401(a)(29) of the Code, except where such transactions, events, circumstances, or failures are not, individually or in the aggregate, reasonably expected to result in liability individually or in the aggregate in excess of $5,000,000 or have a Material Adverse Effect. (I) Corporate Documents. Neither the Borrower nor any of its Subsidiaries shall amend, modify or otherwise change any of the terms or provisions in any of their respective constituent documents as in effect on the date hereof in any manner materially adverse to the interests of the Lenders, without the prior written consent of the Required Lenders. (J) Fiscal Year. Neither the Borrower nor any of its consolidated Subsidiaries shall change its fiscal year for accounting or tax purposes from a twelve-month period ending March 31 of each year. (K) Subsidiary Covenants. The Borrower will not, and will not permit any Subsidiary to, create or otherwise cause to become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary to pay dividends or make any other distribution on its stock, pay any Indebtedness or other Obligation owed to the Borrower or any other Subsidiary, make loans or advances or other Investments in the Borrower or any other Subsidiary, to sell, transfer or otherwise convey any of its property to the Borrower or any other Subsidiary or merge, consolidate with or liquidate into the Borrower or any other Subsidiary. (L) Hedging Obligations. The Borrower shall not and shall not permit any of its Subsidiaries to enter into any Hedging Arrangements other than Hedging Arrangements entered into by the Borrower or its Subsidiaries with Lenders pursuant to which the Borrower or such Subsidiary has hedged its or its Subsidiaries reasonably estimated interest rate, foreign currency or commodity exposure and which are of a non-speculative nature. Such permitted Hedging 67 Arrangements entered into by the Borrower and any Lender or any affiliate of any Lender are sometimes referred to herein as "HEDGING AGREEMENTS." (M) Non-Guarantor Subsidiaries. The Borrower will not at any time permit the EBITDA attributable to all of its Subsidiaries which are not Guarantors to exceed twenty percent (20%) of Consolidated EBITDA of the Borrower and its consolidated Subsidiaries. (N) Restricted Payments. The Borrower shall not and shall not permit any of its Subsidiaries to declare or make any Dividend, except Dividends of any Subsidiary of the Borrower to the Borrower or to a Guarantor. Neither the Borrower nor any of its Subsidiaries shall make or cause any redemption, retirement, purchase or other acquisition for value, direct or indirect, of any Equity Interests of the Borrower or any of its Subsidiaries now or hereafter outstanding. (O) Indebtedness. Neither the Borrower nor any Subsidiary shall incur or be liable in respect of any Indebtedness other than: (i) Indebtedness evidenced by this Agreement; (ii) Indebtedness under facilities or other instruments of Indebtedness identified in Schedule 6.21; (iii) Indebtedness owing by the Borrower to a Material Domestic Subsidiary or by a Material Domestic Subsidiary to the Borrower or another Material Domestic Subsidiary; provided, that no Indebtedness owing by a Material Domestic Subsidiary to the Borrower or any other Material Domestic Subsidiary shall be permitted under this clause (iii) unless such Material Domestic Subsidiary shall have made the deliveries required of it under Section 7.2(K); (iv) Indebtedness owing by the Borrower or a Subsidiary thereof to an Affiliate thereof that is not covered by the foregoing clause (iii) and constitutes an Investment permitted under Section 7.3(C); (v) Indebtedness which constitutes a replacement, renewal, refinancing or extension of any Indebtedness permitted by this Agreement that (i) does not exceed the aggregate principal amount (plus accrued interest and any applicable premium and associated fees and expenses) of the Indebtedness being replaced, renewed, refinanced or extended, (ii) does not have a weighted average life to maturity at the time of such replacement, renewal, refinancing or extension that is less than the weighted average life to maturity of the Indebtedness being replaced, renewed, refinanced or extended, and (iii) does not rank at the time of such replacement, renewal, refinancing or extension senior to the Indebtedness being replaced, renewed, refinanced or extended; (vi) Indebtedness evidenced by the Catalina Japanese Financing, including, without limitation, obligations arising under guarantees by the Borrower and certain of its Affiliates of amounts owing in connection with the Catalina Japanese Financing; (vii) Wachovia Lease Program Indebtedness; and 68 (viii) Indebtedness not described in clauses (i) through (vii) so long as the aggregate amount of such Indebtedness at no time exceeds $3,000,000. (P) Most Favored Lender. The Borrower will not (a) enter into or, with respect to Indebtedness in excess of the dollar equivalent of $1,000,000, remain party to any indenture, agreement or other instrument under which it has incurred or is otherwise liable for Indebtedness, or (b) agree to any amendment, waiver, consent, modification, refunding, refinancing or replacement of any indenture, agreement or other instrument, in either case, with terms the effect of which is to (i) include a Material Term which imposes a restriction, limitation or obligation in favor of another lender not imposed upon the Borrower in favor of the Administrative Agent and the Lenders by this Agreement or the other Loan Documents, or (ii) revise or alter any Material Term set forth in any indenture, agreement or instrument the effect of which is to impose a restriction, limitation or obligation in favor of another lender not imposed upon the Borrower in favor of the Administrative Agent and the Lenders by this Agreement or any other Loan Document, unless the Borrower concurrently (x) notifies the Administrative Agent thereof and (y) incorporates into this Agreement such additional, altered or revised Material Term. If the Administrative Agent at the time so elects by notice to the Borrower and the Lenders, the incorporation of each such additional Material Term shall be deemed to occur automatically without any further action or the execution of any additional document by any of the parties to this Agreement. If the Administrative Agent does not elect to effect such an automatic incorporation of a Material Term, the Administrative Agent shall promptly tender to the Borrower for its execution an amendment (executed by the Administrative Agent on behalf of itself and the Lenders) incorporating such additional Material Term into this Agreement and shall promptly deliver a copy of such amendment to the Lenders. The Borrower, the Administrative Agent, and the Lenders agree that all Material Terms now or from time to time hereafter set forth in the agreements, documents, and instruments evidencing the Wachovia Lease Program Indebtedness that impose restrictions, limitations or obligations upon the Borrower that are not imposed by this Agreement or the other Loan Documents are hereby automatically incorporated herein and that no notice with respect thereto need be delivered by the Borrower on the Closing Date; provided, however, that no default, event of default, representation, warranty, agreement, restriction, limitation or obligation with respect to or otherwise relating to collateral securing the repayment of the Wachovia Lease Program Indebtedness that is set forth in the agreements, documents and instruments evidencing such Wachovia Lease Program Indebtedness is incorporated by reference in this Agreement or the other Loan Documents. 7.4 Financial Covenants. The Borrower shall comply with the following: (A) Maximum Leverage Ratio. The Borrower shall not permit the ratio (the "LEVERAGE RATIO") of (i) the sum of (a) all Indebtedness (other than (i) Hedging Obligations and (ii) the Wachovia Lease Program Indebtedness) of the Borrower and its Subsidiaries to (ii) EBITDA at any time to be greater than 2.50 to 1.00. The Leverage Ratio shall be calculated, in each case, determined as of the last day of each month based upon (a) for Indebtedness, Indebtedness as of the last day of each such month; and (b) for EBITDA, the actual amount for the twelve month period ending on such day. All financial information used to calculate the Leverage Ratio shall be subject to the Catalina Re-Audit and any restatements of or modifications to financial statements or financial information resulting therefrom. 69 (B) Interest Expense Coverage Ratio. The Borrower shall maintain a ratio (the "INTEREST EXPENSE COVERAGE RATIO") of (i) EBIT for such period to (ii) Interest Expense for such period of at least 3.00 to 1.00. The Interest Expense Coverage Ratio shall be calculated as of the last day of each month for the twelve month period ending on such day. All financial information used to calculate the Interest Expense Coverage Ratio shall be subject to the Catalina Re-Audit and any restatements of or modifications to financial statements or financial information resulting therefrom. (C) Capital Expenditures. During the period beginning on the Closing Date and ending on the later of the Termination Date and the date on which all of the Revolving Loan Commitments have been terminated or have expired and all of the Secured Obligations have been fully repaid, the Borrower shall not, nor shall it permit any Subsidiary to, expend, or be committed to expend, in excess of $70,000,000 for Capital Expenditures in the aggregate for the Borrower and its Subsidiaries. ARTICLE VIII: DEFAULTS 8.1 Defaults. Each of the following occurrences shall constitute a Default under this Agreement: (A) Failure to Make Payments When Due. The Borrower shall (i) fail to pay when due any of the Obligations consisting of principal with respect to the Loans, (ii) shall fail to pay within three (3) Business Days of the date when due any of the Obligations consisting of interest with respect to the Loans, or (iii) shall fail to pay within five (5) Business Days of the date when due any of the other Obligations under this Agreement or the other Loan Documents. (B) Breach of Certain Covenants. The Borrower shall fail duly and punctually to perform or observe any agreement, covenant or obligation binding on the Borrower or there shall otherwise be a breach of any covenant under: (i) Sections 7.1 (excluding, however, clause (B) of Section 7.1), 7.2 (excluding, however, clauses (K), (M) and (N) of Section 7.2) or clauses (B), (H), (I) or (J) of Section 7.3 and such failure or breach shall continue unremedied for fifteen days; (ii) Clause (B) of Section 7.1, Section 7.3 (other than those clauses of Section 7.3 covered pursuant to clause (i) above) or Section 7.4; or (iii) Clauses (K), (M) or (N) of Section 7.2 and such failure or breach shall continue unremedied for five days. (C) Breach of Representation or Warranty. Any representation or warranty made or deemed made by the Borrower to the Administrative Agent or any Lender herein or by the Borrower or any of its Subsidiaries in any of the other Loan Documents or in any statement or certificate at any time given by any such Person pursuant to any of the Loan Documents shall be false or misleading in any material respect on the date as of which made (or deemed made). (D) Other Defaults. The Borrower shall default in the performance of or compliance with any term contained in this Agreement (other than as covered by paragraphs (A), (B) or (C) 70 of this Section 8.1), or the Borrower or any of its Subsidiaries shall default in the performance of or compliance with any term contained in any of the other Loan Documents, and such default shall continue for thirty (30) days after the occurrence thereof. (E) Default as to Indebtedness. The Borrower or any of its Subsidiaries shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness (other than Indebtedness hereunder, but including, without limitation, Disqualified Stock held by a Person other than the Borrower or any of its Subsidiaries and Off-Balance Sheet Liabilities), beyond any period of grace provided with respect thereto; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness, beyond any period of grace, if any, provided with respect thereto, if the effect thereof is to cause an acceleration, mandatory redemption, a requirement that the Borrower offer to purchase such Indebtedness or other required repurchase of such Indebtedness, or permit the holder(s) of such Indebtedness to accelerate the maturity of any such Indebtedness or require a redemption or other repurchase of such Indebtedness; or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by the Borrower or any of its Subsidiaries (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof. (F) Involuntary Bankruptcy; Appointment of Receiver, Etc. (i) An involuntary case shall be commenced against the Borrower or any of the Borrower's Subsidiaries and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of the Borrower's Subsidiaries in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any of the Borrower's Subsidiaries or over all or a substantial part of the property of the Borrower or any of the Borrower's Subsidiaries shall be entered; or an interim receiver, trustee or other custodian of the Borrower or any of the Borrower's Subsidiaries or of all or a substantial part of the property of the Borrower or any of the Borrower's Subsidiaries shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the property of the Borrower or any of the Borrower's Subsidiaries shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days after entry, appointment or issuance. (G) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower or any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, 71 under any such law, (iii) consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property, (iv) make any assignment for the benefit of creditors, (v) take any corporate action to authorize any of the foregoing or (vi) is generally not paying, or admits in writing its inability to pay, its debts as they become due. (H) Judgments and Attachments. Any money judgment(s), writ or warrant of attachment, or similar process against the Borrower or any of its Subsidiaries or any of their respective assets involving in any single case or in the aggregate an amount in excess of $5,000,000 is or are entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than fifteen (15) days prior to the date of any proposed sale thereunder (excluding from such calculation amounts covered by insurance as to which a claim has been filed and the insurance company has not disclaimed or reserved the right to disclaim coverage unless enforcement has commenced with respect to such judgment and the applicable insurance company has not reimbursed the Borrower or its Subsidiaries for such amounts covered by insurance). (I) Dissolution. Any order, judgment or decree shall be entered against the Borrower or any Guarantor decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or the Borrower or any Guarantor shall otherwise dissolve or cease to exist except as specifically permitted by this Agreement. (J) Loan Documents. At any time, for any reason, (i) any Loan Document as a whole that materially affects the ability of the Administrative Agent, or any of the Lenders to enforce the Secured Obligations ceases to be in full force and effect, (ii) the Borrower or any of the Borrower's Subsidiaries party thereto seeks to repudiate its obligations under any Loan Document, and (iii) any Lien in favor of the Collateral Agent, the Administrative Agent or any Holder of Secured Obligations granted under the Loan Documents shall be unperfected or shall not have the priority contemplated by the Loan Documents and such lack of perfection or priority shall result in a Material Adverse Effect. (K) Termination Event. Any Termination Event occurs which the Required Lenders believe is reasonably likely to subject either the Borrower or any Controlled Group member to liability individually or in the aggregate in excess of $5,000,000. (L) Waiver of Minimum Funding Standard. If the plan administrator of any Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Code and any Lender believes the substantial business hardship upon which the application for the waiver is based could reasonably be expected to subject either the Borrower or any Controlled Group member to liability individually or in the aggregate in excess of $5,000,000. (M) Change of Control. A Change of Control shall occur. (N) Hedging Agreements. Nonpayment by the Borrower within three (3) Business Days when due of any obligation under any Hedging Agreement or the breach by the Borrower of any 72 other term, provision or condition contained in any such Hedging Agreement and such breach shall continue unremedied for thirty (30) days. (O) Environmental Matters. The Borrower or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to (i) the Release by the Borrower or any of its Subsidiaries of any Contaminant into the environment, (ii) the liability of the Borrower or any of its Subsidiaries arising from the Release by any other Person of any Contaminant into the environment, or (iii) any violation of any Environmental, Health or Safety Requirements of Law which by the Borrower or any of its Subsidiaries, which, in any case, has or is reasonably likely to subject either the Borrower or its Subsidiaries to liability individually or in the aggregate in excess of $5,000,000 (excluding from such calculation amounts covered by insurance as to which a claim has been filed and the insurance company has not disclaimed or reserved the right to disclaim coverage unless enforcement has commenced with respect to such payment of such liabilities and the applicable insurance company has not reimbursed the Borrower or its Subsidiaries for such amounts covered by insurance). (P) Guarantor Revocation. Other than in connection with the release of a Guarantor in connection with a transaction permitted under this Agreement, any Guarantor shall terminate or revoke any of its obligations under the Guaranty or breach any of the material terms of the Guaranty. (Q) Financial Information Restatement Limit. At any time during the period which the Catalina Re-Audit takes place, all or any part of the Catalina Re-Audit shall result in a reduction of previously reported Cash Flow From Operating Activities for any individual period or several periods taken together in excess of $20,000,000. (R) Termination or Resignation of Auditor. PricewaterhouseCoopers LLP shall either be terminated or resign from its audit of the Borrower's and its Subsidiaries' financial statements, including, without limitation, its engagement to conduct the Catalina Re-Audit. A Default shall be deemed "continuing" until cured or until waived in writing in accordance with Section 9.3. ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND REMEDIES 9.1 Termination of Revolving Loan Commitments; Acceleration. If any Default described in Section 8.1(F) or 8.1(G) occurs with respect to the Borrower, the obligations of the Lenders to make Loans hereunder and the obligation of the Issuing Bank to issue Letters of Credit hereunder shall automatically terminate and the Secured Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Default occurs, the Required Lenders may terminate or suspend the obligations of the Lenders to make Loans hereunder and the obligation of the Issuing Bank to issue Letters of Credit hereunder, or declare the Secured Obligations to be due and payable, or both, whereupon, upon notice of such to the Borrower, the Secured Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower expressly waives. 73 9.2 Defaulting Lender. In the event that any Lender fails to fund its Pro Rata Share of any Advance requested or deemed requested by the Borrower (or an Advance to repay Swing Line Loans to the Swing Line Bank or Reimbursement Obligations to the Issuing Bank), which such Lender is obligated to fund under the terms of this Agreement (the funded portion of such Advance being hereinafter referred to as a "NON PRO RATA LOAN"), until the earlier of such Lender's cure of such failure and the termination of the Revolving Loan Commitments, the proceeds of all amounts thereafter repaid to the Administrative Agent by the Borrower and otherwise required to be applied to such Lender's share of all other Obligations pursuant to the terms of this Agreement shall be advanced to the Borrower by the Administrative Agent on behalf of such Lender to cure, in full or in part, such failure by such Lender, but shall nevertheless be deemed to have been paid to such Lender in satisfaction of such other Obligations (the amounts so advanced being referred to as "CURE LOANS"). Notwithstanding anything in this Agreement to the contrary: (i) the foregoing provisions of this Section 9.2 shall apply only with respect to the proceeds of payments of Obligations and shall not affect the conversion or continuation of Loans pursuant to Section 2.9; (ii) any such Lender shall be deemed to have cured its failure to fund its Pro Rata Share, of any Advance at such time as an amount equal to such Lender's original Pro Rata Share of the requested principal portion of such Advance is fully funded to the Borrower, whether made by such Lender itself or by operation of the terms of this Section 9.2, and whether or not the Non Pro Rata Loan with respect thereto has been repaid, converted or continued; (iii) regardless of whether or not a Default has occurred or is continuing, and notwithstanding the instructions of the Borrower as to its desired application, all repayments of principal which, in accordance with the other terms of this Agreement, would be applied to the outstanding Loans shall be applied first, ratably to all Loans constituting Non Pro Rata Loans, second, ratably to Loans other than those constituting Non Pro Rata Loans or Cure Loans and, third, ratably to Cure Loans; (iv) for so long as and until the earlier of any such Lender's cure of the failure to fund its Pro Rata Share of any Advance and the termination of the Revolving Loan Commitments, the term (x) "Required Lenders" for purposes of this Agreement shall mean Lenders (excluding all Lenders whose failure to fund their respective Pro Rata Share of such Advance have not been so cured) whose Pro Rata Shares represent at least fifty-one percent (51%) of the aggregate Pro Rata Shares of such Lenders, and (y) "Supermajority Lenders" for purposes of this Agreement shall mean Lenders (excluding all Lenders whose failure to fund their respective Pro Rata Share of such Advance have not been so cured) whose Pro Rata Shares represent at least seventy-five percent (75%) of the aggregate Pro Rata Shares of such Lenders; and (v) for so long as and until any such Lender's failure to fund its Pro Rata Share of any Advance is cured in accordance with Section 9.2(ii), (A) such Lender shall not be entitled to any commitment fees with respect to its Revolving Loan Commitment and (B) such Lender shall not be entitled to any letter of credit fees, which commitment fees and 74 letter of credit fees shall accrue in favor of the Lenders which have funded their respective Pro Rata Share of such requested Advance, shall be allocated among such performing Lenders ratably based upon their relative Revolving Loan Commitments, and shall be calculated based upon the average amount by which the aggregate Revolving Loan Commitments of such performing Lenders exceeds the sum of (I) the outstanding principal amount of the Loans owing to such performing Lenders, plus (II) the outstanding Reimbursement Obligations owing to such performing Lenders, plus (III) the aggregate participation interests of such performing Lenders arising pursuant to Section 3.5 with respect to undrawn and outstanding Letters of Credit. 9.3 Amendments. Subject to the provisions of this Article IX, the Required Lenders (or the Administrative Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement, shall, without the consent of the Supermajority Lenders, amend, modify or waive the requirements of Section 7.3(A) or Section 7.3(C); provided, further, that no such supplemental agreement shall, without the consent of each Lender affected thereby: (i) Postpone or extend the Revolving Loan Termination Date or any other date fixed for any payment of principal of, or interest on, the Loans, the Reimbursement Obligations or any fees or other amounts payable to such Lender; (ii) Reduce the principal amount of any Loans or L/C Obligations, or reduce the rate or extend the time of payment of interest or fees thereon (other than (i) a waiver of the application of the default rate of interest pursuant to Section 2.10 hereof and (ii) as a result of a change in the definition of Leverage Ratio or any of the components thereof or the method of calculation thereof); (iii) Reduce the percentage specified in the definition of Required Lenders or Supermajority Lenders or any other percentage of Lenders specified to be the applicable percentage in this Agreement to act on specified matters or amend the definitions of "Required Lenders", "Supermajority Lenders" or "Pro Rata Share"; (iv) Increase the amount of the Revolving Loan Commitment of such Lender hereunder or increase such Lender's Pro Rata Share; (v) Permit the Borrower to assign its rights under this Agreement; (vi) Other than pursuant to a transaction permitted by the terms of this Agreement, release any Guarantor from its obligations under the Guaranty; (vii) Amend this Section 9.3; (viii) Amend Section 12.2; or (ix) Other than pursuant to a transaction permitted by the terms of this Agreement or any other Loan Document, release any Collateral. 75 No amendment of any provision of this Agreement relating to (a) the Administrative Agent shall be effective without the written consent of the Administrative Agent, (b) Swing Line Loans shall be effective without the written consent of the Swing Line Bank and (c) the Issuing Bank shall be effective without the written consent of the Issuing Bank. The Administrative Agent may waive payment of the fee required under Section 13.3(B) without obtaining the consent of any of the Lenders. 9.4 Preservation of Rights. No delay or omission of the Lenders or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan or the issuance of a Letter of Credit notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan or issuance of such Letter of Credit shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the requisite number of Lenders required pursuant to Section 9.3, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Lenders until all of the Obligations (other than contingent indemnity obligations) shall have been fully and indefeasibly paid and satisfied in cash, all financing arrangements among the Borrower and the Lenders shall have been terminated (including under Hedging Agreements or other agreements with respect to Hedging Obligations) and all of the Letters of Credit shall have expired, been canceled or terminated. ARTICLE X: GENERAL PROVISIONS 10.1 Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive delivery of this Agreement and the making of the Loans herein contemplated. 10.2 Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 10.3 Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 10.4 Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower, the Administrative Agent and the Lenders and supersede all prior agreements and understandings among the Borrower, the Administrative Agent and the Lenders relating to the subject matter thereof. 10.5 Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other Lender (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any 76 other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 10.6 Expenses; Indemnification. (A) Expenses. The Borrower, without duplication, shall reimburse the Administrative Agent, the Collateral Agent and the Arranger for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable attorneys' and paralegals' fees and time charges of attorneys and paralegals for the Administrative Agent and the Collateral Agent, which attorneys and paralegals may be employees of the Administrative Agent or the Collateral Agent) paid or incurred by the Administrative Agent, the Collateral Agent or the Arranger in connection with the preparation, negotiation, execution, delivery, syndication, distribution (including via the Internet), review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees, without duplication, to reimburse the Administrative Agent, the Collateral Agent and the Arranger and the Lenders for any costs, internal charges and out-of-pocket expenses (including attorneys' and paralegals' fees and time charges of attorneys and paralegals for the Administrative Agent, the Collateral Agent and the Arranger and the Lenders, which attorneys and paralegals may be employees of the Administrative Agent, the Collateral Agent or the Arranger or the Lenders) paid or incurred by the Administrative Agent, the Collateral Agent or the Arranger or any Lender in connection with the collection of the Secured Obligations and enforcement of the Loan Documents. In addition to expenses set forth above, the Borrower agrees, without duplication, to reimburse the Administrative Agent or the Collateral Agent, as applicable, promptly after the Administrative Agent's or the Collateral Agent's request therefor, for each audit, or other business analysis performed by or for the benefit of the Lenders in connection with this Agreement or the other Loan Documents in an amount equal to the Administrative Agent's or the Collateral Agent's then customary charges which it charges to other similarly situated customers for each person employed to perform such audit or analysis, plus all costs and expenses (including without limitation, travel expenses) incurred by the Administrative Agent or the Collateral Agent, as applicable, in the performance of such audit or analysis; provided, the Borrower shall not be required to pay expenses for more than two (2) such audits or analyses conducted in any twelve-month period if at a time when no Default has occurred and is continuing. The Administrative Agent or the Collateral Agent, as applicable, shall provide the Borrower with a detailed statement of all reimbursements requested under this Section 10.6(A). (B) Indemnity. The Borrower further agrees to defend, protect, indemnify, and hold harmless the Administrative Agent, the Collateral Agent, the Arranger and each and all of the Lenders and each of their respective Affiliates, and each of such Administrative Agent's, Collateral Agent's, Arranger's, Lender's, or Affiliate's respective officers, directors, trustees, investment advisors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article V) (collectively, the "INDEMNITEES") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel and other independent advisors for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be 77 designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of: (i) this Agreement, the other Loan Documents or any act, event or transaction related thereto, the making of the Loans, and the issuance of and participation in Letters of Credit hereunder, the management of such Loans or Letters of Credit, the use or intended use of the proceeds of the Loans or Letters of Credit hereunder, or any of the other transactions contemplated by the Loan Documents; or (ii) any liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or remedial action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future relating to violation of any Environmental, Health or Safety Requirements of Law arising from or in connection with the past, present or future operations of the Borrower, its Subsidiaries or any of their respective predecessors in interest, or, the past, present or future environmental, health or safety condition of any respective property of the Borrower or its Subsidiaries, the presence of asbestos-containing materials at any respective property of the Borrower or its Subsidiaries or the Release or threatened Release of any Contaminant into the environment (collectively, the "INDEMNIFIED MATTERS"); provided, however, the Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters caused primarily by or resulting primarily from the willful misconduct or Gross Negligence of such Indemnitee with respect to the Loan Documents, as determined by the final non-appealed judgment of a court of competent jurisdiction. Notwithstanding the provisions of clause (ii) above, in the event that the Lenders foreclose upon the property of the Borrower or its Subsidiaries or otherwise assume control of such property, then the provisions of Section 10.6(B)(ii) shall not apply to losses or costs attributable to environmental conditions first caused by the Lenders or their agents or representatives following the Lenders' foreclosure or other assumption of control. If the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. (C) Waiver of Certain Claims; Settlement of Claims. The Borrower further agrees to assert no claim against any of the Indemnitees on any theory of liability seeking consequential, special, indirect, exemplary or punitive damages. No settlement shall be entered into by the Borrower or any of its Subsidiaries with respect to any claim, litigation, arbitration or other proceeding relating to or arising out of the transactions evidenced by this Agreement, the other Loan Documents or in connection with the transactions contemplated hereby and thereby (whether or not the Administrative Agent, the Collateral Agent or any Lender or any Indemnitee is a party thereto) unless such settlement releases all Indemnitees from any and all liability with respect thereto. 78 (D) Survival of Agreements. The obligations and agreements of the Borrower under this Section 10.6 shall survive the termination of this Agreement. 10.7 Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Lenders. 10.8 Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. If any changes the impact of which is material in generally accepted accounting principles are hereafter required or permitted and are adopted by the Borrower or any of its Subsidiaries with the agreement of its independent certified public accountants and such changes result in a change in the method of calculation of any of the financial covenants, tests, restrictions or standards herein or in the related definitions or terms used therein ("ACCOUNTING CHANGES"), the parties hereto agree, at the Borrower's request, to enter into negotiations, in good faith, in order to amend such provisions in a credit neutral manner so as to reflect equitably such changes with the desired result that the criteria for evaluating the Borrower's and its Subsidiaries' financial condition shall be the same after such changes as if such changes had not been made; provided, however, until such provisions are amended in a manner reasonably satisfactory to the Administrative Agent and the Required Lenders, no Accounting Change shall be given effect in such calculations and all financial statements and reports required to be delivered hereunder shall be prepared in accordance with Agreement Accounting Principles without taking into account such Accounting Changes. In the event such amendment is entered into, all references in this Agreement to Agreement Accounting Principles shall mean generally accepted accounting principles as of the date of such amendment. 10.9 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 10.10 Nonliability of Lenders. The relationship between the Borrower and the Lenders and the Administrative Agent shall be solely that of borrower and lender. Neither the Administrative Agent nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Administrative Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 10.11 GOVERNING LAW. THE ADMINISTRATIVE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF ITSELF AND THE LENDERS, AT NEW YORK, NEW YORK BY ACKNOWLEDGING AND AGREEING TO IT THERE. ANY DISPUTE BETWEEN THE BORROWER AND THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY OTHER HOLDER OF SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, 79 EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES) OF THE STATE OF NEW YORK. 10.12 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. (A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY OTHER HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE BORROWER TO THE EXTENT THAT SUCH PERSON CANNOT OBTAIN PERSONAL JURISDICTION IN NEW YORK PURSUANT TO PARAGRAPH (A) ABOVE OR (2) IN ORDER TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON ANY SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON BUT SHALL ONLY BE PERMITTED TO BRING ANY SUCH PERMISSIVE COUNTERCLAIM IN A PROCEEDING BROUGHT PURSUANT TO CLAUSE (A). THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B). (C) VENUE. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF 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 WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE. 80 (D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (E) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENT TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF SECTION 10.6 AND THIS SECTION 10.12, WITH ITS COUNSEL. 10.13 Subordination of Intercompany Indebtedness. The Borrower agrees that any and all claims of the Borrower against any of its Subsidiaries that is a Guarantor with respect to any "Intercompany Indebtedness" (as hereinafter defined), any endorser, obligor or any other guarantor of all or any part of the Secured Obligations, or against any of its properties shall be subordinate and subject in right of payment to the prior payment, in full and in cash, of all Secured Obligations; provided that, and not in contravention of the foregoing, so long as no Default has occurred and is continuing the Borrower may make loans to and receive payments in the ordinary course with respect to such Intercompany Indebtedness from each such Guarantor to the extent not prohibited by the terms of this Agreement and the other Loan Documents. Notwithstanding any right of the Borrower to ask, demand, sue for, take or receive any payment from any Guarantor, all rights, liens and security interests of the Borrower, whether now or hereafter arising and howsoever existing, in any assets of any Guarantor shall be and are subordinated to the rights of the Holders of Secured Obligations and the Administrative Agent in those assets. The Borrower shall have no right to possession of any such asset or to foreclose upon any such asset, whether by judicial action or otherwise, unless and until all of the Secured Obligations (other than contingent indemnity obligations) shall have been fully paid and satisfied (in cash) and all financing arrangements pursuant to any Loan Document or Hedging Agreement among the Borrower and the Holders of Secured Obligations (or any affiliate thereof) have been terminated. If all or any part of the assets of any Guarantor, or the proceeds thereof, are subject to any distribution, division or application to the creditors of such Guarantor, whether partial or complete, voluntary or involuntary, and whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding, or if the business of any such Guarantor is dissolved or if substantially all of the assets of any such Guarantor are sold, then, and in any such event (such events being herein referred to as an "INSOLVENCY EVENT"), any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to any indebtedness of any Guarantor to the Borrower ("INTERCOMPANY INDEBTEDNESS") shall be paid or delivered directly to the Administrative Agent for application on any of the 81 Secured Obligations, due or to become due, until such Secured Obligations (other than contingent indemnity obligations) shall have first been fully paid and satisfied (in cash). Should any payment, distribution, security or instrument or proceeds thereof be received by the Borrower upon or with respect to the Intercompany Indebtedness after an Insolvency Event prior to the satisfaction of all of the Secured Obligations (other than contingent indemnity obligations) and the termination of all financing arrangements pursuant to any Loan Document and or Hedging Agreement among the Borrower and the Holders of Secured Obligations (and their affiliates), the Borrower shall receive and hold the same in trust, as trustee, for the benefit of the Holders of Secured Obligations and shall forthwith deliver the same to the Administrative Agent, for the benefit of such Persons, in precisely the form received (except for the endorsement or assignment of the Borrower where necessary), for application to any of the Secured Obligations, due or not due, and, until so delivered, the same shall be held in trust by the Borrower as the property of the Holders of Secured Obligations. If the Borrower fails to make any such endorsement or assignment to the Administrative Agent, the Administrative Agent or any of its officers or employees are irrevocably authorized to make the same. The Borrower agrees that until the Secured Obligations (other than the contingent indemnity obligations) have been paid in full (in cash) and satisfied and all financing arrangements pursuant to any Loan Document or Hedging Agreement among the Borrower and the Holders of Secured Obligations (and their affiliates) have been terminated, the Borrower will not assign or transfer to any Person (other than the Administrative Agent) any claim the Borrower has or may have against any Guarantor. 10.14 Lender's Not Utilizing Plan Assets. None of the consideration used by any of the Lenders to make its Loans constitute for any purpose of ERISA or Section 4975 of the Code assets of any "plan" as defined in Section 3(3) of ERISA or Section 4975 of the Code and the rights and interests of each of the Lenders in and under the Loan Documents shall not constitute such "plan assets" under ERISA. 10.15 Intercreditor Agreement and Collateral Documents. Each Lender authorizes the Administrative Agent to enter into the Intercreditor Agreement and to take all actions contemplated thereby. Each Lender further authorizes Bank One, NA, as Collateral Agent under the Intercreditor Agreement, to enter into the Collateral Documents and take all actions contemplated thereunder so long as such actions are consistent with the terms of the Intercreditor Agreement. ARTICLE XI: THE ADMINISTRATIVE AGENT 11.1 Appointment; Nature of Relationship. Bank One, NA, having its principal office in Chicago, Illinois is appointed by the Lenders as the Administrative Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Administrative Agent agrees to act as such contractual representative upon the express conditions contained in this Article XI. Notwithstanding the use of the defined term "Administrative Agent," it is expressly understood and agreed that the Administrative Agent shall not have any fiduciary responsibilities to any Holder of Secured Obligations by reason of this Agreement and that the Administrative Agent is merely acting as the representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' 82 contractual representative, the Administrative Agent (i) does not assume any fiduciary duties to any of the Holders of Secured Obligations, (ii) is a "representative" of the Holders of Secured Obligations within the meaning of Section 9-102 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders, for itself and on behalf of its affiliates as Holders of Secured Obligations, agrees to assert no claim against the Administrative Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Holder of Secured Obligations waives. In its capacity as the Lenders' contractual representative, the Administrative Agent shall promptly distribute to the Lenders copies of all reports, certificates and notices of the Borrower required to be delivered thereto pursuant to the terms of this Agreement and the other Loan Documents. 11.2 Powers. The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties or fiduciary duties to the Lenders, or any obligation to the Lenders to take any action hereunder or under any of the other Loan Documents except any action specifically provided by the Loan Documents required to be taken by the Administrative Agent. 11.3 General Immunity. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is found in a final judgment by a court of competent jurisdiction to have arisen solely from the Gross Negligence or willful misconduct of such Person. 11.4 No Responsibility for Loans, Creditworthiness, Recitals, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document; (iii) the satisfaction of any condition specified in Article V, except receipt of items required to be delivered solely to the Administrative Agent; (iv) the existence or possible existence of any Default or (v) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith. The Administrative Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties herein or in any of the other Loan Documents, for the perfection or priority of the Liens on Collateral, if any, or for the execution, effectiveness, genuineness, validity, legality, enforceability, collectibility, or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of any guarantor of any or all of the Secured Obligations, the Borrower or any of its Subsidiaries. 11.5 Action on Instructions of Lenders. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders (or all of the Lenders in the event that and to the extent that this Agreement expressly requires such), and such 83 instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all owners of Loans and on all Holders of Secured Obligations. The Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its reasonable satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 11.6 Employment of Agents and Counsel. The Administrative Agent may execute any of its duties as the Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorney-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Administrative Agent and the Lenders and all matters pertaining to the Administrative Agent's duties hereunder and under any other Loan Document. 11.7 Reliance on Documents; Counsel. Absent any Gross Negligence or willful misconduct on the part of the Administrative Agent or its representatives, the Administrative Agent shall be entitled to rely upon any notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent. 11.8 The Administrative Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Administrative Agent ratably in proportion to their respective Pro Rata Shares (i) for any amounts not reimbursed by the Borrower for which the Administrative Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other reasonable expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have arisen solely from the Gross Negligence or willful misconduct of the Administrative Agent. 11.9 Rights as a Lender. With respect to its Revolving Loan Commitment, Loans made by it, and Letters of Credit issued by it, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender or the Issuing Bank and may exercise the same as though it were not the Administrative Agent, and the term "Lender" or "Lenders" or "Issuing Bank" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, 84 in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries in which such Person is not prohibited hereby from engaging with any other Person. 11.10 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, the Arranger or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 11.11 Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. Notwithstanding anything herein to the contrary, so long as no Default has occurred and is continuing, each such successor Administrative Agent shall be subject to the prior written consent of the Borrower, which consent shall not be unreasonably withheld. Such successor Administrative Agent shall be a commercial bank having capital and retained earnings of at least $500,000,000. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article XI shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder and under the other Loan Documents. 11.12 No Duties of Documentation Agent, Syndication Agent or Arranger. None of the Persons identified on the cover page to this Agreement, the signature pages to this Agreement or otherwise in this Agreement or any of the other Loan Documents as a "Syndication Agent," "Documentation Agent" or "Arranger" shall have any right, power, obligation, liability, responsibility or duty under this Agreement or the other Loan Documents other than, if such Person is a Lender, those applicable to all Lenders as such. Without limiting the foregoing, none of the Persons identified on the cover page to this Agreement, the signature pages to this Agreement or otherwise in this Agreement as a "Syndication Agent," "Documentation Agent" or "Arranger" shall have or be deemed to have any fiduciary duty to or fiduciary relationship with any Lender. In addition to the agreements set forth in Section 11.10, each of the Lenders acknowledges that it has not relied, and will not rely, on any of the Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. 85 ARTICLE XII: SET-OFF; RATABLE PAYMENTS 12.1 Set-off. In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Default occurs and is continuing, any indebtedness from any Lender to the Borrower (including all account balances, whether provisional or final and whether or not collected or available) may be offset and applied toward the payment of the Secured Obligations owing to such Lender, whether or not the Secured Obligations, or any part hereof, shall then be due. Each Lender agrees to notify the Borrower of any such set-off and application, provided that the failure to give such notice shall not effect the validity of such set-off and application. 12.2 Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to Sections 4.1, 4.2 or 4.4) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Secured Obligation or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to the obligations owing to them. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. 12.3 Application of Payments. Subject to the provisions of Section 9.2, the Administrative Agent shall, unless otherwise specified at the direction of the Required Lenders which direction shall be consistent with the penultimate sentence of this Section 12.3, apply all payments and prepayments in respect of any Obligations received after the occurrence and during the continuance of a Default or Unmatured Default in the following order: (A) first, to pay interest on and then principal of any portion of the Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower; (B) second, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Administrative Agent; (C) third, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Lenders and the issuer(s) of Letters of Credit; (D) fourth, to pay interest due in respect of Swing Line Loans; (E) fifth, to pay interest due in respect of Loans (other than Swing Line Loans) and L/C Obligations; (F) sixth, to the ratable payment or prepayment of principal outstanding on Swing Line Loans; 86 (G) seventh, to the ratable payment or prepayment of principal outstanding on Loans (other than Swing Line Loans), Reimbursement Obligations and Hedging Obligations under Hedging Agreements; (H) eighth, to provide required cash Collateral, if required pursuant to Section 3.10; and (I) ninth, to the ratable payment of all other Secured Obligations. Unless otherwise designated (which designation shall only be applicable prior to the occurrence of a Default) by the Borrower, all principal payments in respect of Loans (other than Swing Line Loans) shall be applied to the outstanding Revolving Loans first, to repay outstanding Floating Rate Loans, and then to repay outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier expiring Interest Periods being repaid prior to those which have later expiring Interest Periods. The order of priority set forth in this Section 12.3 and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Administrative Agent, the Lenders, the Swing Line Bank and the issuer(s) of Letters of Credit as among themselves. The order of priority set forth in clauses (D) through (I) of this Section 12.3 may at any time and from time to time be changed by the Required Lenders without necessity of notice to or consent of or approval by the Borrower, or any other Person; provided, that the order of priority of payments in respect of Swing Line Loans may be changed only with the prior written consent of the Swing Line Bank. The order of priority set forth in clauses (A) through (C) of this Section 12.3 may be changed only with the prior written consent of the Administrative Agent. 12.4 Relations Among Lenders. (A) Except with respect to the exercise of set-off rights of any Lender in accordance with Section 12.1, the proceeds of which are applied in accordance with this Agreement, and except as set forth in the following sentence, each Lender agrees that it will not take any action, nor institute any actions or proceedings, against the Borrower or any other obligor hereunder or with respect to any Loan Document, without the prior written consent of the Required Lenders and subject to the terms of the Intercreditor Agreement or, as may be provided in this Agreement or the other Loan Documents, at the direction of the Administrative Agent. (B) The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender. 12.5 Representations and Covenants Among Lenders. Each Lender represents and covenants for the benefit of all other Lenders and the Administrative Agent that such Lender is not satisfying and shall not satisfy any of its obligations pursuant to this Agreement with any assets considered for any purposes of ERISA or Section 4975 of the Code to be assets of or on behalf of any "plan" as defined in section 3(3) of ERISA or section 4975 of the Code, regardless of whether subject to ERISA or Section 4975 of the Code. ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 87 13.1 Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents without the consent of all of the Lenders, and any such assignment in violation of this Section 13.1(i) shall be null and void, and (ii) any assignment by any Lender must be made in compliance with Section 13.3 hereof. Notwithstanding clause (ii) of this Section 13.1 or Section 13.3, any Lender may at any time, without the consent of the Borrower or the Administrative Agent, assign all or any portion of its rights under this Agreement to a Federal Reserve Bank. The Administrative Agent may treat each Lender as the owner of the Loans made by such Lender hereunder for all purposes hereof unless and until such Lender complies with Section 13.3 hereof in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Administrative Agent. Any assignee or transferee of a Loan, Revolving Loan Commitment, L/C Interest or any other interest of a lender under the Loan Documents agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of any Loan, shall be conclusive and binding on any subsequent owner, transferee or assignee of such Loan. 13.2 Participations. (A) Permitted Participants; Effect. Subject to the terms set forth in this Section 13.2, any Lender may, in the ordinary course of its 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 Revolving Loan Commitment of such Lender, any L/C Interest of such Lender or any other interest of such Lender under the Loan Documents on a pro rata or non-pro rata basis. Notice of such participation to the Borrower and the Administrative Agent shall be required prior to any participation becoming effective with respect to a Participant which is not a Lender or an Affiliate thereof. Upon receiving said notice, the Administrative Agent shall record the participation in the Register it maintains. Moreover, notwithstanding such recordation, such participation shall not be considered an assignment under Section 13.3 of this Agreement and such Participant shall not be considered a Lender. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the owner of all Loans made by it for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents except that, for purposes of Article IV hereof, the Participants shall be entitled to the same rights as if they were Lenders provided no Participant shall be entitled to reimbursement under Article IV hereof for any amount which would exceed the amount that would have been payable by the Borrower to the Lender from which the Participant obtained its participation under the applicable circumstances. (B) Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan, Letter 88 of Credit or Revolving Loan Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable pursuant to the terms of this Agreement with respect to any such Loan or Revolving Loan Commitment, postpones any date fixed for any regularly-scheduled payment (but not prepayments) of principal of, or interest or fees on, any such Loan or Revolving Loan Commitment, or releases all or substantially all of the collateral or guarantees, if any, securing any such Loan or Letter of Credit. (C) Benefit of Setoff. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 12.1 hereof in respect to its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 12.1 hereof with respect to the amount of participating interests sold to each Participant except to the extent such Participant exercises its right of setoff. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 12.1 hereof, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 12.2 as if each Participant were a Lender. 13.3 Assignments. (A) Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("PURCHASERS") all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, its Revolving Loan Commitment, all Loans owing to it, all of its participation interests in existing Letters of Credit, and its obligation to participate in additional Letters of Credit hereunder) in accordance with the provisions of this Section 13.3, provided that upon such assignment, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 4.1, 4.2, 4.4, 4.5 and 10.6, as well as to any fees accrued for its account hereunder and not yet paid, and shall continue to be obligated under Section 11.8. Each assignment shall be of a constant, and not a varying, ratable percentage of all of the assigning Lender's rights and obligations under this Agreement and the other Loan Documents. Such assignment shall be substantially in the form of Exhibit D hereto and shall not be permitted hereunder unless such assignment is either for all of such Lender's rights and obligations under the Loan Documents or, without the prior written consent of the Administrative Agent and the Borrower, involves loans and commitments in an aggregate amount of at least $3,000,000 (which minimum amount shall not apply to any assignment between Lenders, or to an Affiliate of any Lender); provided however no such consent of the Borrower shall be required if a Default has occurred and is continuing. The prior written consent of the Administrative Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate of such Lender, which consent shall not be unreasonably withheld or delayed. Provided no Default has occurred and is continuing, the prior written consent of the Borrower shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender (other than a "Dissenting Lender" as defined below) or an Affiliate of the assigning Lender, which consent shall not be unreasonably withheld or delayed. For any assignment to another Lender where such Lender has previously withheld its consent to an amendment 89 to or waiver under this Agreement where such amendment or waiver was approved by the Required Lenders (a "Dissenting Lender"), provided no Default has occurred and is continuing at the time of such assignment, the prior written consent of the Borrower shall be required. (B) Effect; Effective Date. Upon (i) delivery to the Administrative Agent of a notice of assignment, substantially in the form attached as Appendix I to Exhibit D hereto (a "NOTICE OF ASSIGNMENT"), together with any consent required by Section 13.3(A) hereof, and (ii) payment of a $3,500 fee by the assignee or the assignor (as agreed) to the Administrative Agent for processing such assignment, such assignment shall become effective on the later of such date when the requirements in clause (i), (ii) and (iii) are met or the effective date specified in such Notice of Assignment. The Notice of Assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Revolving Loan Commitment, Loans and L/C Obligations under the applicable assignment agreement constitute for any purpose of ERISA or Section 4975 of the Code assets of any "plan" as defined in Section 3(3) of ERISA or Section 4975 of the Code and that the rights and interests of the Purchaser in and under the Loan Documents will not constitute such "plan assets". On and after the effective date of such assignment, such Purchaser, if not already a Lender, shall for all purposes be a Lender party to this Agreement and any other Loan Documents executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Administrative Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Revolving Loan Commitment, Loans and Letter of Credit and Swing Line Loan participations assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 13.3(B), the transferor Lender, the Administrative Agent and the Borrower shall make appropriate arrangements so that, to the extent notes have been issued to evidence any of the transferred Loans, replacement notes are issued to such transferor Lender and new notes or, as appropriate, replacement notes, are issued to such Purchaser, in each case in principal amounts reflecting their Revolving Loan Commitment, as adjusted pursuant to such assignment. (C) The Register. Notwithstanding anything to the contrary in this Agreement, the Borrower hereby designates the Administrative Agent, and the Administrative Agent, hereby accepts such designation, to serve as the Borrower's contractual representative solely for purposes of this Section 13.3(C). In this connection, the Administrative Agent shall maintain at its address referred to in Section 14.1 a copy of each assignment delivered to and accepted by it pursuant to this Section 13.3 and a register (the "REGISTER") for the recordation of the names and addresses of the Lenders and the Revolving Loan Commitment of and principal amount of the Loans owing to, each Lender from time to time and whether such Lender is an original Lender or the assignee of another Lender pursuant to an assignment under this Section 13.3. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower and each of its Subsidiaries, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (D) Designated Lender. 90 (i) Subject to the terms and conditions set forth in this Section 13.3(D), any Lender may from time to time elect to designate an Eligible Designee to provide all or any part of the Loans to be made by such Lender pursuant to this Agreement; provided that the designation of an Eligible Designee by any Lender for purposes of this Section 13.3(D) shall be subject to the approval of the Borrower and the Administrative Agent (which consent shall not be unreasonably withheld or delayed). Upon the execution by the parties to each such designation of an agreement in the form of Exhibit L hereto (a "DESIGNATION AGREEMENT") and the acceptance thereof by the Borrower and the Administrative Agent, the Eligible Designee shall become a Designated Lender for purposes of this Agreement. The Designating Lender shall thereafter have the right to permit the Designated Lender to provide all or a portion of the Loans to be made by the Designating Lender pursuant to the terms of this Agreement and the making of the Loans or portion thereof shall satisfy the obligations of the Designating Lender to the same extent, and as if, such Loan was made by the Designating Lender. As to any Loan made by it, each Designated Lender shall have all the rights a Lender making such Loan would have under this Agreement and otherwise; provided, (x) that all voting rights under this Agreement shall be exercised solely by the Designating Lender, (y) each Designating Lender shall remain solely responsible to the other parties hereto for its obligations under this Agreement, including the obligations of a Lender in respect of Loans made by its Designated Lender and (z) no Designated Lender shall be entitled to reimbursement under Article IV hereof for any amount which would exceed the amount that would have been payable by the Borrower to the Lender from which the Designated Lender obtained any interests hereunder. No additional Notes shall be required with respect to Loans provided by a Designated Lender; provided, however, to the extent any Designated Lender shall advance funds, the Designating Lender shall be deemed to hold the Notes in its possession as an agent for such Designated Lender to the extent of the Loan funded by such Designated Lender. Such Designating Lender shall act as administrative agent for its Designated Lender and give and receive notices and communications hereunder. Any payments for the account of any Designated Lender shall be paid to its Designating Lender as administrative agent for such Designated Lender and neither the Borrower not the Administrative Agent shall be responsible for any Designating Lender's application of such payments. In addition, any Designated Lender may (1) with notice to, but without the consent of the Borrower and the Administrative Agent, assign all or portions of its interests in any Loans to its Designating Lender or to any financial institution consented to by the Borrower and the Administrative Agent providing liquidity and/or credit facilities to or for the account of such Designated Lender and (2) subject to advising any such Person that such information is to be treated as confidential in accordance with such Person's customary practices for dealing with confidential, non-public information, disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any guarantee, surety or credit or liquidity enhancement to such Designated Lender. (ii) Each party to this Agreement hereby agrees that it shall not institute against, or join any other Person in instituting against any Designated Lender any bankruptcy, reorganization, arrangements, insolvency or liquidation proceeding or other proceedings under any federal or state bankruptcy or similar law for one year and a day after the payment in full of all outstanding senior indebtedness of any Designated Lender; provided that the Designating Lender for each Designated Lender hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage and expense arising out of their inability to institute any such 91 proceeding against such Designated Lender. This Section 13.3(D)(ii) shall survive the termination of this Agreement. 13.4 Confidentiality. Subject to Section 13.5, the Administrative Agent and the Lenders and their respective representatives shall hold all nonpublic information obtained pursuant to the requirements of this Agreement in accordance with such Person's customary procedures for handling confidential information of this nature and in accordance with safe and sound commercial lending or investment practices, and in any event may disclose any and all confidential and non-confidential information received from or with respect to the Borrower or any of its Affiliates to any of the Lenders and may make disclosure reasonably required by a prospective Transferee in connection with the contemplated participation or assignment or as required or requested by any Governmental Authority or any securities exchange or similar self-regulatory organization or representative thereof or pursuant to a regulatory examination or legal process, or to any Affiliate of a Lender or to any direct or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor or as may be reasonably required in connection with the exercise of remedies under this Agreement, and shall require any such Transferee to agree (and require any of its Transferees to agree) to comply with this Section 13.4. In no event shall the Administrative Agent or any Lender be obligated or required to return any materials furnished by the Borrower; provided, however, each prospective Transferee shall be required to agree that if it does not become a participant or assignee it shall return all materials furnished to it by or on behalf of the Borrower in connection with this Agreement. Notwithstanding anything herein to the contrary, confidential information shall not include, and each party hereto (and each employee, representative or other agent of any party hereto) may disclose to any and all Persons, without limitation of any kind, the U.S. federal income tax treatment and U.S. federal income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are or have been provided to such party relating to such tax treatment or tax structure, and it is hereby confirmed that each party hereto has been authorized to make such disclosures since the commencement of discussions regarding the transactions contemplated hereby. 13.5 Dissemination of Information. The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any prospective Transferee any and all information in such Lender's possession concerning the Borrower and its Subsidiaries; provided that prior to any such disclosure, such prospective Transferee shall agree to preserve in accordance with Section 13.4 the confidentiality of any confidential information described therein. ARTICLE XIV: NOTICES 14.1 Giving Notice. Except as otherwise permitted by Section 2.13 with respect to Borrowing/Election Notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Documents shall be in writing or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto, and with respect to the Borrower, or at such other address as may be designated by such party in a notice to the other parties. Any notice, (1) if transmitted by facsimile, shall be deemed given when transmitted; or (2) if transmitted by reputable overnight courier, shall be deemed given one (1) Business Day after deposit with a reputable overnight carrier services, with all charges paid; 92 provided that notices to the Administrative Agent under Article II shall not be effective until received. 14.2 Change of Address. The Borrower, the Administrative Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto given as provided in Section 14.1. ARTICLE XV: COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Administrative Agent and the Lenders and each party has notified the Administrative Agent by telecopy or telephone, that it has taken such action. ARTICLE XVI: PREVIOUS AGREEMENT The Borrower, the Lenders, and the Administrative Agent agree that, upon (i) the execution and delivery of this Agreement by each of the parties hereto and (ii) satisfaction (or waiver by the aforementioned parties) of the conditions precedent set forth in Section 5.1, the terms and provisions of the Previous Agreement shall be and hereby are amended, superseded and restated in their entirety by the terms and provisions of this Agreement. This Agreement is not intended to and shall not constitute a novation of the Previous Agreement or the Indebtedness created thereunder. The commitment of each Lender that is a party to the Previous Agreement shall, on the effective date hereof, automatically be deemed amended and the only commitments shall be those hereunder. ARTICLE XVII: USA PATRIOT ACT NOTIFICATION The following notification is provided to the Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318: IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. WHAT THIS MEANS FOR THE BORROWER: When the Borrower opens an account, if the Borrower is an individual, the Administrative Agent and the Lenders will ask for the Borrower's name, residential address, tax identification number, date of birth, and other information that will allow the Administrative Agent and the Lenders to identify the Borrower, and, if the Borrower is not an individual, the Administrative Agent and the Lenders will ask for the Borrower's name, tax identification number, business address, and other information that will allow the Administrative Agent and the Lenders to identify the Borrower. The Administrative Agent and the Lenders may also, ask, if the Borrower is an individual, to see the Borrower's driver's license or other identifying documents, and, if the Borrower is not an individual, to see the Borrower's legal organizational documents or other identifying documents. 93 IN WITNESS WHEREOF, the Borrower, the Lenders and the Administrative Agent have executed this Agreement as of the date first above written. CATALINA MARKETING CORPORATION, as the Borrower By: /s/ Joanne Freiberger --------------------- Name: Joanne Freiberger Title: Vice President Finance Address: 200 Carillon Parkway St. Petersburg, Florida 33716 Attention: Christopher W. Wolf, Executive VP & Chief Financial Officer Phone: 727-579-5000 Fax: 727-563-5675 with a copy to: Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, New York 10022 Attention: Michael Chernick Phone: 212-318-6000 Fax: 212-319-4090 SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CATALINA MARKETING CREDIT AGREEMENT BANK ONE, NA, individually and as Administrative Agent By: /s/ Ronald Edwards ------------------ Name: Ronald Edwards Title: Director/Senior Underwriter Address: 1 Bank One Plaza Suite IL1-0324 Chicago, Illinois 60670 Attention: Ronald Edwards Telephone No.: 312-732-1542 Facsimile No.: 312-732-2991 SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CATALINA MARKETING CREDIT AGREEMENT WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ Steven L. Hipsman --------------------- Name: Steven L. Hipsman Title: Director Address: 191 Peachtree Street Atlanta, Georgia 30303 Attention: Steven L. Hipsman, Director Phone: 404-332-6830 Fax: 404-332-5016 SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CATALINA MARKETING CREDIT AGREEMENT BARCLAYS BANK PLC By: /s/ John Giannone ----------------- Name: John Giannone Title: Director Address: 200 Park Avenue New York, New York 10166 Attention: David E. Barton Phone: 212-412-7693 Fax: 212-412-7511 SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CATALINA MARKETING CREDIT AGREEMENT MIZUHO CORPORATE BANK, LTD. By: /s/ Raymond Ventura ------------------- Name: Raymond Ventura Title: Senior Vice President Address: 1251 6th Avenue 32nd floor New York, New York 10020 Attention: Yudesh Sohan Phone: 212-282-4428 Fax: 212-354-7205 SIGNATURE PAGE TO SECOND AMENDED AND RESTATED CATALINA MARKETING CREDIT AGREEMENT EX-10.15 5 g89108exv10w15.txt EX-10.15 NOVEMBER 24, 2003 CREDIT AGREEMENT EXECUTION COPY Exhibit 10.15 CREDIT AGREEMENT DATED NOVEMBER 24, 2003 BETWEEN BANK ONE, NA AND CATALINA MARKETING JAPAN, K.K. ================================================================================ CREDIT AGREEMENT THIS CREDIT AGREEMENT (this "Agreement") is made as of November 24, 2003 between BANK ONE, NA, having a registered branch office at 7th Floor, Hibiya Central Building, 2-9, Nishi-shimbashi, 1-chome, Minato-ku, Tokyo (the "Lender") and Catalina Marketing Japan, K.K., registered at 6F Otemachi-Tatemono Aoyama Bldg., 3-1-31, Minami- Aoyama, Minato-ku, Tokyo 107-0062, Japan (the "Borrower"). The parties hereto agree as follows: ARTICLE I -- DEFINITIONS As used in this Agreement: "Aggregate Revolving Loan Commitment" means the obligation of the Lender to make Revolving Loans not exceeding the amount of Yen 1,500,000,000, as such amount may be modified from time to time pursuant to the terms hereof. "Aggregate Term Loan Commitment" means the obligation of the Lender to make Term Loans not exceeding Yen 2,000,000,000, as such amount may be modified from time to time pursuant to the terms hereof. "Applicable Commitment Fee Rate" means at any time prior to the 2003 Financials Delivery Date .50% per annum and at any time after the 2003 Financials Delivery Date, at any date of determination (i) .20% per annum if the Leverage Ratio (as defined in Section 7.4(A) of the Parent Credit Agreement) is less than or equal to 1.0 to 1.0 as indicated in the financial statements and compliance certificates most recently delivered in accordance with Section 7.1(A) of the Parent Credit Agreement, (ii) .25% per annum if the Leverage Ratio (as defined in Section 7.4(A) of the Parent Credit Agreement) is less than or equal to 1.5 to 1.0 as indicated in the financial statements and compliance certificates most recently delivered in accordance with Section 7.1(A) of the Parent Credit Agreement, (iii) .30% per annum if the Parent's Leverage Ratio is less than or equal to 2.0 to 1.0 and greater than 1.5 to 1.0 as indicated in the financial statements and compliance certificates most recently delivered in accordance with Section 7.1(A) of the Parent Credit Agreement, (iv) .35% per annum if the Parent's Leverage Ratio is greater than 2.0 to 1.0 as indicated in the financial statements and compliance certificates most recently delivered in accordance with Section 7.1(A) of the Parent Credit Agreement. The Applicable Commitment Fee Rate shall be adjusted five (5) Business Days following the Lender's receipt of the relevant financial statements and compliance certificates required to be delivered pursuant to Section 7.1(A) of the Parent Credit Agreement and the Guaranty provided that if the Parent has not delivered its financial statements when required under Section 7.1(A) of the Parent Credit Agreement then, commencing on the date when such financial statements should have been delivered and continuing until such financial statements are delivered, the Applicable Commitment Fee Rate shall be ..35%. "Applicable TIBOR Margin" means at any time prior to the 2003 Financials Delivery Date 2.00% per annum and at any time after the 2003 Financials Delivery Date, at any date of determination (i) 1.00% per annum if the Leverage Ratio (as defined in Section 7.4(A) of the Parent Credit Agreement) is less than or equal to 1.0 to 1.0 as indicated in the financial statements and compliance certificates most recently delivered in accordance with Section 7.1(A) of the Parent Credit Agreement, (ii) 1.50% per annum if the Leverage Ratio (as defined in Section 7.4(A) of the Parent Credit Agreement) is less than or equal to 1.5 to 1.0 as indicated in the financial statements and compliance certificates most recently delivered in accordance with Section 7.1(A) of the Parent Credit Agreement, (iii) 1.75% per annum if the Parent's Leverage Ratio is less than or equal to 2.0 to 1.0 and greater than 1.5 to 1.0 as indicated in the financial statements and compliance certificates most recently delivered in accordance with Section 7.1(A) of the Parent Credit Agreement, (iv) 2.00% per annum if the Parent's Leverage Ratio is greater than 2.0 to 1.0 as indicated in the financial statements and compliance certificates most recently delivered in accordance with Section 7.1(A) of the Parent Credit Agreement. The Applicable TIBOR Margin shall be adjusted five (5) Business Days following the Lender's receipt of the relevant financial statements and compliance certificates required to be delivered pursuant to Section 7.1(A) of the Parent Credit Agreement and the Guaranty provided that if the Parent has not delivered its financial statements when required under Section 7.1(A) of the Parent Credit Agreement then, commencing on the date when such financial statements should have been delivered and continuing until such financial statements are delivered, the Applicable TIBOR Margin shall be 2.00%. "Applicable Term Loan Facility Fee" means at any time prior to the 2003 Financials Delivery Date .75% per annum and at any time after the 2003 Financials Delivery Date, at any date of determination, zero. "Borrowing Date" means a date on which a Loan is made hereunder. "Borrowing Notice" is defined in Section 2.6. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Revolving Loans, a day (other than a Saturday or Sunday) on which banks generally are open in Tokyo for the conduct of substantially all of their commercial lending activities and on which dealings in Yen are carried on in the Tokyo interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Tokyo for the conduct of substantially all of their commercial lending activities. "Commitment" means the Lender's commitment to make Loans hereunder, including the Aggregate Revolving Loan Commitment and the Aggregate Term Loan Commitment. "Default" means an event described in Article VII. "Guarantors" means Catalina Marketing Corporation and certain of its Subsidiaries party to the Guaranty. "Guaranty" means the Amended and Restated Guaranty given by Catalina Marketing Corporation and certain of its Subsidiaries party to the Guaranty for the benefit of the Lender dated November 24, 2003 and pursuant to which Catalina Marketing Corporation and certain of its Subsidiaries party to the Guaranty have, among other things, absolutely, unconditionally and irrevocably guaranteed all of the obligations of the Borrower hereunder and in connection herewith. -2- "Indebtedness" of a Person means such Person's (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (iv) obligations that are evidenced by notes, acceptances, or other instruments, (v) obligations of such Person to purchase securities or other Property arising out of or in connection with the sale of the same or substantially similar securities or Property, (vi) capitalized lease obligations, (vii) net liabilities under interest rate swap, exchange or cap agreements, (viii) contingent obligations and (ix) any other obligation for borrowed money or other financial accommodation which in accordance with generally accepted accounting principles in the United States would be shown as indebtedness on the consolidated balance sheet of such Person. "Interest Period" means, with respect to a Revolving Loan, a period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on the day that corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Interest Period shall end on the immediately preceding Business Day. "Lending Installation" means any office, branch, subsidiary or affiliate of the Lender. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, capitalized lease or other title retention agreement). "Loan" means a borrowing hereunder (or a conversion or continuation thereof). "Loan Documents" means this Agreement, the Guaranty, the Note and the other documents and agreements contemplated hereby and executed by the Borrower or any Guarantor in favor of the Lender. "Material Adverse Effect" means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Lender thereunder. "Note" is defined in Section 2.10. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations -3- of the Borrower or any Guarantor to the Lender or any indemnified party arising under any of the Loan Documents. "Parent" means Catalina Marketing Corporation. "Parent Credit Agreement" means that certain Second Amended and Restated Credit Agreement dated as of November 24, 2003 by and among the Parent, Bank One, NA, as Administrative Agent, and certain other Lenders party thereto, as such agreement may be amended, restated, refinanced, replaced, supplemented or otherwise modified from time to time. "Person" means any natural person, corporation, firm, joint venture, partnership, association, limited liability company, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Revolving Commitment Termination Date" means August 31, 2004. "Revolving Loan" means a revolving loan made hereunder (or a conversion or continuation thereof) pursuant to the Lender's commitment to lend set forth in Section 2.1.1. "Revolving Loan Rate" means, with respect to a Revolving Loan for the relevant Interest Period, the sum of (i) the Yen TIBOR applicable to such Interest Period plus (ii) the Applicable TIBOR Margin. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Term Loan Termination Date" means March 31, 2005. "Term Loan" means a term loan made hereunder or evidenced hereby (or a conversion or continuation thereof) pursuant to the Lender's commitment to lend set forth in Section 2.1.2. "Term Loan Rate" means, with respect to a Term Loan, the sum of (i) the applicable three-year JPY/JPY Interest Rate Swap market rate against LIBOR as determined by the Lender two Business Days prior to the first day of disbursement of such Term Loan, plus (ii) 1.25% per annum, plus (iii) the Applicable Term Loan Facility Fee. "2003 Financial Delivery Date" means the date on which the Lender receives the Parent's annual financial statement for fiscal year 2003 as audited by PricewaterhouseCoopers LLP and as filed with the United States Securities and Exchange Commission. -4- "Unmatured Default" means an event or condition which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Yen TIBOR" means, with respect to a Revolving Loan for the relevant Interest Period, the applicable Yen Tokyo Interbank Offered Rate as determined by the Lender two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II -- THE CREDITS 2.1. Commitments. The Lender agrees, on and subject to the terms and conditions set forth in this Agreement, to make Loans to the Borrower. 2.1.1 Aggregate Revolving Loan Commitment. From and including the date of this Agreement and prior to the Revolving Commitment Termination Date, the Lender, subject to the terms and conditions herein, agrees to make Revolving Loans in amounts not to exceed in the aggregate at any one time outstanding the amount of the Aggregate Revolving Loan Commitment. Subject to Section 2.5, the Borrower may permanently reduce the Aggregate Revolving Loan Commitment, in integral multiples of Yen 50,000,000, upon at least five Business Days' written notice to the Lender; provided, however, that the amount of the Commitment may not be reduced below the aggregate principal amount of the outstanding Revolving Loans. 2.1.2 Aggregate Term Loans. This Agreement re-evidences and amends and restates the indebtedness of the Borrower to the Lender in connection with term loans made by the Lender to the Borrower pursuant to that certain Loan Agreement dated March 27, 2002 by Borrower and Lender and any notes issued in connection therewith. 2.2. Types of Loans; Minimum Amount; Lending Installations. 2.2.1 Revolving Loans. Subject to the terms of this Agreement, the Borrower with respect to Revolving Loans may borrow, repay and reborrow at any time prior to the Revolving Commitment Termination Date and provided that the aggregate of Revolving Loans at any one time outstanding shall not exceed the amount of the Aggregate Revolving Loan Commitment. 2.2.2 Term Loans. Subject to Section 2.3.3 below, the Term Loans may be prepaid at any time in whole or in part in minimum amounts of Yen 50,000,000 or the outstanding balance if less. Once repaid, Term Loans may not be reborrowed. 2.2.3 Minimum Amount. Each Loan shall be in the minimum amount of Yen 50,000,000 or any lesser amount of the balance of the Commitment. -5- 2.2.4 Lending Installations. The Lender may book the Loans at any Lending Installation, as selected by the Lender. All terms of the Loan Documents shall apply to and may be enforced by or on behalf of any such Lending Installation. 2.3. Principal Payments. 2.3.1 Term Loan Principal Payments. No Term Loan may be prepaid prior to the Term Loan Termination Date without payment of related breakage costs pursuant to Section 2.3.3 below. Outstanding principal for each Term Loan shall be repaid in one lump sum at maturity on the Term Loan Termination Date. 2.3.2 Revolving Loan Principal Payments. The Borrower may from time to time pay, without penalty or premium, all outstanding Revolving Loans, or, in a minimum aggregate amount of Yen 50,000,000 or any integral multiple of Yen 50,000,000 in excess thereof, any portion of the outstanding Revolving Loans upon three Business Days' prior notice to the Lender. 2.3.3 Borrower Indemnity. If any payment of principal occurs with respect to a Revolving Loan or a Term Loan , whether because of acceleration, prepayment or otherwise, or if a Revolving Loan or a Term Loan is not made on the date specified by the Borrower for any reason other than default by the Lender, then the Borrower will indemnify the Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Loan. 2.3.4 Payment of Outstanding Amounts. Any outstanding Loans and all other unpaid Obligations shall be paid in full by the Borrower, and the Lender's commitments to lend hereunder shall expire, on (a) with respect to the Revolving Loans, the Revolving Commitment Termination Date, and (b) otherwise, the Term Loan Termination Date. 2.4. Commitment Fee. The Borrower agrees to pay to the Lender commitment fees which shall accrue at (a) the Applicable Commitment Fee Rate on the daily unborrowed portion of the Aggregate Revolving Loan Commitment from the date hereof to and including the Revolving Commitment Termination Date, and (b) the Applicable Commitment Fee Rate on the daily unborrowed portion of the Aggregate Term Loan Commitment from the date hereof to and including the Term Commitment Termination Date. Such commitment fees shall be calculated by the Lender and be payable on the last day of each sixth month hereafter and on the Revolving Commitment Termination Date and the Term Commitment Termination Date, respectively. All accrued fees shall be payable on the effective date of any termination of the obligations of the Lender to make Loans hereunder. 2.5. Revolving Loan Minimum Usage. With respect to Revolving Loans, the Borrower agrees to maintain an average outstanding principal amount borrowed hereunder of at least 50% of the Aggregate Revolving Loan Commitment, as calculated by the Lender every six months hereafter, based upon a 364 or 365-day year. If the Borrower fails to maintain such minimum amount, the Borrower shall pay the Lender such amount that, together with any interest paid with respect to the outstanding Revolving Loans, equals the total amount of interest that would have accrued and been payable if the Borrower had maintained such minimum -6- amount. Such amount shall be calculated by the Lender and be payable on the last day of each sixth month hereafter and on the Revolving Commitment Termination Date. 2.6 Notice of New Loans. The Borrower shall select the Interest Period, if any, applicable to each Revolving Loan from time to time. The Borrower shall give the Lender irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m. (Tokyo time) at least three Business Day before the Borrowing Date of each Loan, specifying for each Loan: (i) the Borrowing Date, which shall be a Business Day, (ii) the aggregate amount, (iii) whether such Loan is to be a Revolving Loan or Term Loan, and (iv) with respect to Revolving Loans, the Interest Period, if any, applicable thereto. The Lender will make the funds available to the Borrower at the Lender's address specified pursuant to Article XII. 2.7 Changes in Interest Rate. Each Revolving Loan shall bear interest on the outstanding principal amount thereof for each day during the Interest Period applicable thereto from and including the first day of such Interest Period to (but not including) the last day of such Interest Period at the Revolving Loan Rate applicable thereto. No Interest Period may end after the Revolving Commitment Termination Date. 2.8. Rates Applicable After Default. During the continuance of a Default, the Lender may, at its option, by notice to the Borrower, declare that each Loan shall bear interest at the rate otherwise applicable plus 1% per annum, provided that, during the continuance of a Default under Section 7.2, 7.6 or 7.7, such interest rate shall be applicable to all Loans without any election or action on the part of the Lender. 2.9. Method of Payment; Taxes. All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Lender at the Lender's address, by 2:00 p.m. (local time) on the date when due. The Lender is hereby authorized to charge the account of the Borrower maintained with the Lender for each payment of principal, interest and fees as it becomes due hereunder. Any and all payments made by the Borrower under this Agreement 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 in respect of any jurisdiction from or through which any payment is made hereunder (collectively, "Taxes"), excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Lender. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld or deducted from any amounts payable to the Lender hereunder, the amounts so payable to the Lender shall be increased to the extent necessary to compensate the Lender (after payment of all such Non-Excluded Taxes) for interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement so that such net sum is equal to what the Lender would have received and so retained had no such deduction or withholding been required or made. 2.10. Evidence of Indebtedness. The Lender shall maintain in accordance with its usual practice an account or accounts in which it will record (a) the amount of each Loan made hereunder, and, for Revolving Loans, the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to the -7- Lender hereunder and (c) the amount of any sum received by the Lender hereunder from the Borrower. The entries maintained in such accounts shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms. The Loans will be evidenced by promissory notes ("Notes") in a form supplied by the Lender. 2.11. Notices. The Borrower hereby authorizes the Lender to extend or continue Loans, to transfer funds and otherwise take actions with respect to this agreement based on written notices made by any person or persons the Lender in good faith believes to be acting on behalf of the Borrower and listed on Schedule A (as the same may be amended from time to time by written notice from the Borrower to the Lender). If the Borrower's records differ in any material respect from the action taken by the Lender, the records of the Lender shall govern absent manifest error. 2.12. Interest Payment Dates; Interest and Fee Basis. 2.12.1 Revolving Loans. Interest accrued on each Revolving Loan shall be payable on the last day of its applicable Interest Period, on any date on which the Revolving Loan is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Revolving Loan having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. 2.12.2 Term Loans. Interest accrued on each Term Loan shall be payable on the last day of each three-month interval beginning on the disbursement of such Loan, on any date on which the Term Loan is prepaid in accordance with the terms hereof, whether by acceleration or otherwise, and at maturity. 2.12.3 Calculations. Interest and commitment fees shall be calculated for actual days elapsed on the basis of a 364 or 365-day year. Interest shall be payable for the day a Loan is made but not for the day of any payment if payment is received prior to 2:00 p.m. (local time) at the place of payment. If any payment of principal of or interest on a Loan shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. ARTICLE III -- CHANGE IN CIRCUMSTANCES The Borrower agrees to indemnify, hold harmless and pay to the Lender such amounts as will compensate the Lender for any increase in the cost to the Lender of making or maintaining any Loan hereunder or of maintaining the Commitment to make Loans hereunder, by reason of a change in any reserve, tax, capital guidelines, special deposit, or similar requirement with respect to assets of, deposits with or for the account of, or credit extended by, or commitments extended by, the Lender which are imposed on, or deemed applicable by, the Lender, under any law, treaty, rule, regulation, any interpretation thereof by any governmental, fiscal, monetary or other authority charged with the administration thereof or having jurisdiction over such Loan or the Lender, or any requirement imposed by any such authority, whether or not having the force of -8- law. Such additional amounts shall be payable promptly after demand. The Lender may suspend the availability of any Revolving Loan if maintenance of such Loan at a suitable Lending Installation becomes illegal or if deposits matching such Loan are unavailable to the Lender or if the Yen TIBOR or Term Loan Rate fails to reflect the cost to the Lender of making or maintaining such Loan. ARTICLE IV -- CONDITIONS PRECEDENT 4.1. Initial Loan. The Lender shall not be required to make the initial Loan hereunder unless the Borrower has furnished to the Lender a Note payable to the Lender, if so requested by the Lender, and such opinions of counsel, certificates of incumbency, resolutions, by-laws and articles of incorporation and such other closing documents as the Lender has requested, including, without limitation, (i) copies of the articles or certificate of incorporation of the Borrower, together with all amendments, and a certificate of incorporation of the Borrower, together with all amendments, and a certificate of goods standing, each certified by the appropriate governmental officer in its jurisdiction of incorporation; (ii) copies certified by the Secretary or Assistant Secretary of the Borrower, of its Board of Directors' resolutions and of resolutions or actions of any other body authorizing execution of the Facility documentation; (iii) an incumbency certificate, executed by the Secretary of the Borrower, which shall identify by name and title and bear the signatures of the authorized officers or the Borrower authorized to sign the Facility documentation; (iv) a certificate, signed by the chief financial officer of the Borrower stating that on the initial borrowing date no Default or Unmatured Default has occurred and is continuing; (v) a copy of the Guaranty duly executed by the Guarantors; (vi) a copy of the Parent Credit Agreement duly executed by the Parent and the other parties thereto and evidence satisfactory to the Lender that all of the conditions precedent set forth in Section 5.1 of the Parent Credit Agreement have been satisfied; (vii) a legal opinion of the Guarantors' U.S. counsel concerning the Guarantors' authority to enter into the Guaranty; and (viii) such other documents as the Lender may have requested. 4.2. Each Loan. The Lender shall not be required to make any Loan, unless on the applicable Borrowing Date: (i) there exists no Default or Unmatured Default; (ii) the representations and warranties contained in Article V are true and correct as of such Borrowing Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall be true and correct on and as of such earlier date; and (iii) all legal matters incident to the making of such Loan shall be satisfactory to the Lender and its counsel in their reasonable discretion. Each Borrowing Notice with respect to each such Loan shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. ARTICLE V -- REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lender that: 5.1. Corporate Existence and Standing. Each of the Guarantors, the Borrower and its Subsidiaries is a corporation or limited liability company duly and properly incorporated or organized, as the case may be, validly existing and (to the extent such concept applies to such -9- entity) in good standing under the laws of its jurisdiction of incorporation or organization and has all requisite authority to conduct its business in each jurisdiction in which failure to be so qualified and in good standing could reasonably be expected to have a Material Adverse Effect. 5.2. Authorization and Validity. Each of the Guarantors and the Borrower has the power and authority and legal right to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery by each of the Borrower and the Guarantors of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents constitute legal, valid and binding obligations of the Borrower and the Guarantors enforceable against the Borrower and the Guarantors in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3. No Conflict; Government Consent. Neither the execution and delivery by the Borrower and the Guarantors of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Guarantors, the Borrower or any of its Subsidiaries or (ii) the Guarantors', the Borrower's or any Subsidiary's articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which any of the Guarantors, the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of any of the Guarantors, the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement which in the case of clauses (i), (ii) or (iii) could reasonably be expected to have a Material Adverse Effect. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by any of the Guarantors, the Borrower or any of its Subsidiaries, is required to be obtained by any of the Guarantors, the Borrower or any of its Subsidiaries in connection with the execution and delivery of the Loan Documents, the borrowings under this Agreement, the payment and performance by the Borrower and the Guarantors of the Obligations or the legality, validity, binding effect or enforceability of any of the Loan Documents. 5.4. Financial Statements. The December 31, 2002 consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lender were prepared in accordance with generally accepted accounting principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations for the period then ended, subject to possible modification upon completion of the Catalina Re-Audit (as defined in the Parent Credit Agreement). 5.5. Material Adverse Change. Since December 31, 2002, there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. -10- 5.6. Litigation and Contingent Obligations. There is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting any of the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has any material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4 which could reasonably be expected to have a Material Adverse Effect. 5.7. Compliance With Laws. Each of the Borrower and its Subsidiaries have complied with all applicable statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property, in each case where the failure to so comply individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable environmental, health and safety statutes and regulations or the subject of any investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.8. Parent Credit Agreement. Each of the representations and warranties made by the Parent in Sections 6.4, 6.5, 6.7 and 6.13 of the Parent Credit Agreement are true and accurate in all material respects. ARTICLE VI -- COVENANTS During the term of this Agreement, unless the Lender shall otherwise consent in writing: 6.1. Financial Reporting. The Borrower will maintain or cause to be maintained, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Lender: (a) Within 120 days after the close of each of its fiscal years, an unqualified audit report certified by independent certified public accountants reasonably acceptable to the Lender, prepared in accordance with generally accepted accounting principles in the United States on a consolidated and consolidating basis (consolidating statements need not be certified by such accountants) for the Borrower and the Subsidiaries, including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows subject to possible modification as a result of the Catalina Re-Audit (as defined in the Parent Credit Agreement), accompanied by any management letter prepared by said accountants. (b) Together with the financial statements required hereunder, a compliance certificate (in a form approved by the Lender) signed by the Chief Financial Officer or Vice President-Finance of the Parent showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. -11- (c) Such other information (including non-financial information) as the Lender may from time to time reasonably request. 6.2. Affirmative Covenants. The Borrower will, and will cause each Subsidiary to: (a) give prompt notice in writing to the Lender of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect. (b) carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and do all things necessary to remain duly incorporated or organized, validly existing and in good standing as a domestic corporation, partnership or limited liability company in its jurisdiction of incorporation or organization, as the case may be, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. (c) timely file complete and correct applicable tax returns required by law and pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. (d) comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject non-compliance with which could reasonably be expected to have a Material Adverse Effect. (e) permit the Lender, by its respective representatives and agents, upon reasonable prior notice to inspect any of the Property, books and financial records of the Borrower and any Subsidiary of the Borrower, to examine and make copies of the books of accounts and other financial records of the Borrower and any Subsidiary of the Borrower, and to discuss the affairs, finances and accounts of the Borrower and any Subsidiary of the Borrower with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lender may designate. 6.3. Negative Covenants. The Borrower will not, nor will it permit any Subsidiary to: (a) merge or consolidate with or into any other Person, except that a Subsidiary may merge with the Borrower or a wholly-owned Subsidiary. (b) create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books; (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business that secure payment of obligations not more than 60 days past due; (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; and (iv) Utility easements, building -12- restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or the Subsidiaries. ARTICLE VII -- DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1. Any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries to the Lender under or in connection with this Agreement, any Loan, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 7.2. Nonpayment of principal of any Loan when due, or nonpayment of interest upon any Loan or of any commitment fee or other obligations under any of the Loan Documents within five days after the same becomes due. 7.3. The breach by the Borrower of any of the terms or provisions of Section 6.2(a) or 6.3. 7.4. The breach by the Borrower (other than a breach which constitutes a Default under another Section of this Article VII) of any of the terms or provisions of this Agreement which is not remedied within thirty days after the occurrence thereof. 7.5. Failure of the Borrower or any of its Subsidiaries or any Guarantors to pay any Indebtedness when due; or a default shall occur under any agreement governing any Indebtedness of the Borrower or any Subsidiary or any Guarantors or any other event shall occur or condition shall exist, the effect of which default, event or condition is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any Indebtedness of the Borrower or any of its Subsidiaries or any Guarantors shall be declared to be due and payable or required to be prepaid or repurchased (other than by a regularly scheduled payment) prior to the stated maturity thereof; or the Borrower or any of its Subsidiaries or any Guarantors shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6. The Borrower or any of its Subsidiaries shall (i) have an order for relief entered with respect to it under the bankruptcy, insolvency or reorganization laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial portion of its Property, (iv) institute any proceeding seeking an order for relief under the bankruptcy, insolvency or reorganization laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, -13- (v) take any action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7. Without the application, approval or consent of the Borrower or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Subsidiaries or any substantial portion of its Property, or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8. The Borrower or any of its Subsidiaries shall fail within 30 days to pay, bond or otherwise discharge one or more (i) judgments or orders for the payment of money in excess of Yen 50,000,000 or the equivalent in the aggregate, or (ii) nonmonetary judgments or orders which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which judgment(s), in any such case, is/are not stayed on appeal or otherwise being appropriately contested in good faith. 7.9. The Parent shall cease to own, directly or indirectly, free and clear of all Liens or other encumbrances, all of the outstanding shares of voting stock of the Borrower on a fully diluted basis. 7.10. The Guaranty shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the Guaranty, or the Guarantors shall fail to comply with any of the terms or provisions of the Guaranty, or any Guarantor denies that it has any further liability under the Guaranty, or gives notice to such effect. ARTICLE VIII -- ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligation of the Lender to make Loans hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Lender. If any other Default occurs, the Lender may terminate or suspend the obligations to make Loans hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. 8.2. Amendments. Subject to the provisions of this Article VIII, the Lender and the Borrower may enter into agreements supplemental hereto for the purpose of amending the Loan Documents in any manner or waiving any Default hereunder. 8.3. Preservation of Rights. No delay or omission of the Lender to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not -14- preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Borrower and the Lender, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Lender until the Obligations have been paid in full. ARTICLE IX -- GENERAL PROVISIONS 9.1. Entire Agreement; Severability of Provisions. The Loan Documents embody the entire agreement and understanding between the Borrower and the Lender and supersede all prior agreements and understandings between the Borrower and the Lender relating to the subject matter thereof. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.2. Benefits of this Agreement. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns, provided, however, that the parties hereto expressly agree that Banc One Capital Markets, Inc. (the "Arranger") shall enjoy the benefits of the provisions of Section 9.3 to the extent specifically set forth therein and shall have the right to enforce such provisions on its own behalf and in its own name to the same extent as if it were a party to this Agreement. 9.3. Expenses; Indemnification. The Borrower, without duplication, shall reimburse the Lender and the Arranger for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable fees and expenses of Sidley Austin Brown & Wood/Nishikawa &Partners and any other attorneys' fees and time charges of attorneys for the Lender) paid or incurred by the Lender or the Arranger in connection with the preparation, negotiation, execution, delivery, syndication, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Arranger and the Lender for any costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Arranger and the Lender) paid or incurred by the Arranger or the Lender in connection with the collection and enforcement of the Loan Documents. The Borrower further agrees to indemnify the Arranger and the Lender, its directors, officers, agents and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of investigating or defending against any liability or action, or of litigation or preparation therefor whether or not the Arranger or the Lender is a party thereto and including the fees, charges and expenses of attorneys who may be outside counsel) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder except to the extent that they are determined in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross -15- negligence or willful misconduct of the party seeking indemnification. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 9.4. Survival of Representations; Taxes. All representations and warranties of the Borrower contained in this Agreement shall survive delivery of the Note and the making of the Loans herein contemplated. Any taxes or other similar assessments or charges (including any stamp taxes or duties) made by any governmental or revenue authority in respect of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any. 9.5. Confidentiality. The Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to its affiliates, (ii) to legal counsel, accountants, and other professional advisors to the Lender or to a Transferee, (iii) to regulatory officials, (iv) to any Person as requested pursuant to or as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which the Lender is a party, (vi) to the Lender's direct or indirect contractual counterparties in swap agreements or to legal counsel, accountants and other professional advisors to such counterparties, and (vii) as permitted by Section 11.4. Notwithstanding anything herein to the contrary, confidential information shall not include, and each party hereto (and each employee, representative of other agent of any party hereto) may disclose to any and all Persons, without limitation of any kind, the U.S. federal income tax treatment and U.S. federal income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are or have been provided to such party relating to such tax treatment or tax structure, and it is hereby confirmed that each party hereto has been authorized to make such disclosures since the commencement of discussions regarding the transactions contemplated hereby. 9.6. Subordination of Intercompany Indebtedness. The Borrower agrees that any and all claims of the Borrower against any Guarantor with respect to any "Intercompany Indebtedness" (as hereinafter defined), any endorser, obligor or any other guarantor of all or any part of the Obligations, or against any of its properties shall be subordinate and subject in right of payment to the prior payment, in full and in cash, of all Obligations; provided that, and not in contravention of the foregoing, so long as no Default has occurred and is continuing the Borrower may make loans to and receive payments in the ordinary course with respect to such Intercompany Indebtedness from each such Guarantor to the extent not prohibited by the terms of this Agreement and the other Loan Documents. Notwithstanding any right of the Borrower to ask, demand, sue for, take or receive any payment from any Guarantor, all rights, liens and security interests of the Borrower, whether now or hereafter arising and howsoever existing, in any assets of any Guarantor shall be and are subordinated to the rights of the Lender in those assets. The Borrower shall have no right to possession of any such asset or to foreclose upon any such asset, whether by judicial action or otherwise, unless and until all of the Obligations (other than contingent indemnity obligations) shall have been fully paid and satisfied (in cash) and all financing arrangements pursuant to any Loan Document or Hedging Agreement between the Borrower and the Lender (or any affiliate thereof) have been terminated. If all or any part of the assets of any Guarantor, or the proceeds thereof, are subject to any distribution, division or application to the creditors of such Guarantor, whether partial or complete, voluntary or involuntary, and whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding, or if the business of any -16- such Guarantor is dissolved or if substantially all of the assets of any such Guarantor are sold, then, and in any such event (such events being herein referred to as an "INSOLVENCY EVENT"), any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to any indebtedness of any Guarantor to the Borrower ("INTERCOMPANY INDEBTEDNESS") shall be paid or delivered directly to the Lender for application on any of the Obligations, due or to become due, until such Obligations (other than contingent indemnity obligations) shall have first been fully paid and satisfied (in cash). Should any payment, distribution, security or instrument or proceeds thereof be received by the Borrower upon or with respect to the Intercompany Indebtedness after an Insolvency Event prior to the satisfaction of all of the Obligations (other than contingent indemnity obligations) and the termination of all financing arrangements pursuant to any Loan Document between the Borrower and the Lender, the Borrower shall receive and hold the same in trust, as trustee, for the Lender and shall forthwith deliver the same to the Lender, for the benefit of such Persons, in precisely the form received (except for the endorsement or assignment of the Borrower where necessary), for application to any of the Obligations, due or not due, and, until so delivered, the same shall be held in trust by the Borrower as the property of the Lender. If the Borrower fails to make any such endorsement or assignment to the Lender, the Lender or any of its officers or employees are irrevocably authorized to make the same. The Borrower agrees that until the Obligations (other than the contingent indemnity obligations) have been paid in full (in cash) and satisfied and all financing arrangements pursuant to any Loan Document between the Borrower and the Lender have been terminated, the Borrower will not assign or transfer to any Person (other than the Lender) any claim the Borrower has or may have against any Guarantor. ARTICLE X -- SETOFF In addition to, and without limitation of, any rights of the Lender under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by the Lender or any affiliate of the Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to the Lender, whether or not the Obligations, or any part hereof, shall then be due. ARTICLE XI -- ASSIGNMENTS; PARTICIPATIONS 11.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (ii) any assignment by the Lender must be made in compliance with Section 11.3. Notwithstanding clause (ii) of this Section, the Lender may at any time, without the consent of the Borrower, assign all or any portion of its rights under this Agreement and any Note to any bank, other financial institution or other entity; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. Any assignee or transferee of the rights to any Loan or any Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any -17- request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the owner of the rights to any Loan (whether or not a Note has been issued in evidence thereof), shall be conclusive and binding on any subsequent holder, transferee or assignee of the rights to such Loan. 11.2. Participations. The Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities ("Participants") participating interests in any Loan owing to it, any Note held by it, the Commitment or any other interest of the Lender under the Loan Documents. In the event of any such sale by the Lender of participating interests to a Participant, the Lender's obligations under the Loan Documents shall remain unchanged, the Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, the Lender shall remain the owner of its Loans and the holder of any Note issued to it in evidence thereof for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if the Lender had not sold such participating interests, and the Borrower and the Lender shall continue to deal solely and directly with each other in connection with the Lender's rights and obligations under the Loan Documents. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Article X in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that the Lender shall retain the right of setoff provided in Article X with respect to the amount of participating interests sold to each Participant. The Lender agrees to share with each Participant, and each Participant, by exercising the right of setoff provided in Article X, agrees to share with the Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Article X as if each Participant were a Lender. 11.3. Assignments. The Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks, financial institutions or other entities ("Purchasers") all or any part of its rights and obligations under the Loan Documents. The Borrower hereby agrees to execute any amendment and/or any other document that may be necessary to effectuate such an assignment. Such assignment shall be evidenced by the Lender's standard form (to be supplied upon request). For any assignment to become effective following the 2003 Financial Delivery Date (as defined in the Parent Credit Agreement) and the release of security interests in collateral securing the indebtedness owed pursuant to the Parent Credit Agreement, the consent of the Borrower shall be required unless the Purchaser is a Lender or an affiliate thereof, provided, however, that if a Default has occurred and in continuing, the consent of the Borrower shall not be required. Such consent shall not be unreasonably withheld. Upon delivering to the Borrower a notice of assignment, together with any required consent, such assignment shall become effective on the effective date specified in such notice of assignment. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to the other Loan Documents and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower shall be required to release the Lender with respect to the percentage of the Commitment and Loans assigned to such Purchaser. Upon the consummation of any such assignment to a Purchaser, the transferor Lender, the Lender and the Borrower shall, if the Lender or the Purchaser desires, make appropriate arrangements so that new Notes or, as appropriate, replacement Notes, are issued to the Lender -18- and Purchaser, in each case in principal amounts reflecting their respective Commitments, as adjusted pursuant to such assignment. 11.4. Dissemination of Information. The Borrower authorizes the Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in the Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries provided such prospective Transferee has agreed to comply with the confidentiality provisions in Section 9.5 hereof. ARTICLE XII -- NOTICES All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Lender, at its address, facsimile number or telex number set forth on the signature pages hereof, or (y) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the other. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Lender under Article II shall not be effective until received. ARTICLE XIII -- COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower and the Lender. ARTICLE XIV -- GOVERNING LAW; JURISDICTION; JURY TRIAL WAIVER 14.1. CHOICE OF LAW; CONSENT TO JURISDICTION. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE SOUTHERN DISTRICT OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN -19- INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE LENDER OR ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN THE STATE OF NEW YORK. 14.2. WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. -20- IN WITNESS WHEREOF, the Borrower and the Lender have executed this Agreement as of the date first above written. CATALINA MARKETING JAPAN, K.K. By: /s/ Susan M. Klug ----------------------------------------- Print Name: Susan M. Klug Title: Director 200 Carillon Parkway St. Petersburg, Fl 33716 Attention: Joanne Freiberger Phone: 727-579-5000 Fax: 727-579-5675 BANK ONE, NA By: /s/ Ronald Edwards ---------------------------------------- Name: Ron Edwards Title: Director/Senior Under Writer 1 Bank One Plaza Suite 1L1-0364 Chicago, Illinois 60670 Phone: (312) 325-3220 Fax: (312) 325-3239 -21- EX-21 6 g89108exv21.txt EX-21 LIST OF SUBSIDIARIES EXHIBIT 21 CATALINA MARKETING CORPORATION SUBSIDIARIES OF REGISTRANT Catalina Marketing International, Inc., a Delaware corporation Catalina Marketing Manufacturer Services, Inc. (f/k/a Catalina Marketing Sales Corporation), a Delaware corporation Catalina Marketing Retail Sales Corporation, a Delaware corporation Catalina Electronic Clearing Services, Inc., a Delaware corporation Catalina Health Resource, Inc. (f/k/a Health Resource Publishing Company), a Delaware corporation Supermarkets Online Holdings, Inc., a Delaware corporation Supermarkets Online, Inc., a Delaware corporation Catalina Marketing Worldwide, Inc., a Delaware corporation Catalina Marketing of France, Inc., a Delaware corporation Catalina Marketing France, S.A.S., a French corporation Catalina Marketing of Mexico, Inc., a Delaware corporation Catalina Marketing U.K., Inc., a Delaware corporation Catalina Marketing U.K., LTD., a United Kingdom corporation Catalina Marketing Italia s.r.l., an Italian corporation Savings4Me Ltd., a United Kingdom corporation Catalina Marketing of Iberia, Inc., a Delaware corporation Catalina Marketing of Belgium, Inc., a Delaware corporation Catalina Marketing Belgium SCA, a Belgian limited partnership Catalina-Pacific Media, LLC, a Delaware limited liability corporation Pacific Media KK, a Japanese corporation CMJ Investments, LLC, a Delaware limited liability corporation Catalina Marketing Japan KK, a Japanese corporation Catalina Marketing Research Solutions, Inc. (f/k/a Alliance Research, Inc.), a Delaware corporation Compuscan Marketing, Inc., a Pennsylvania corporation Compuscan Technologies, Inc., a Delaware corporation Catalina Marketing Loyalty Holdings, Inc., a Delaware corporation Dynamic Controls, Inc., a Delaware corporation Catalina Marketing Direct Marketing Services, Inc. (f/k/a Market Logic, Inc.), a California corporation Newco II, Inc., a Delaware corporation Healthcare Data Corporation, a Delaware corporation Market Intelligence, Inc., an Illinois corporation Newco III, Inc., a Delaware corporation Catalina Marketing Deutschland GmbH, a German corporation EX-23 7 g89108exv23.txt EX-23 PRICEWATERHOUSECOOPERS CONSENT Exhibit 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-82456, 33-77100, 33-46793, 333-07525, 333-86905, 333-103631 and 333-103632) of Catalina Marketing Corporation of our report dated May 14, 2004 relating to the financial statements, which appears in this Form 10-K. /s/PricewaterhouseCoopers LLP Tampa, Florida May 17, 2004 EX-31.1 8 g89108exv31w1.txt EX-31.1 SECTION 302 CEO CERTIFICATION EXHIBIT 31.1 OFFICER CERTIFICATION I, L. Dick Buell, certify that: 1. I have reviewed this Annual Report on Form 10-K of Catalina Marketing Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 17, 2004 By: /s/ L. Dick Buell -------------------------------------------------------- L. Dick Buell, Chief Executive Officer and Director EX-31.2 9 g89108exv31w2.txt EX-31.2 SECTION 302 CFO CERTIFICATION EXHIBIT 31.2 OFFICER CERTIFICATION I, Christopher W. Wolf, certify that: 1. I have reviewed this Annual Report on Form 10-K of Catalina Marketing Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 17, 2004 By: /s/ Christopher W. Wolf ---------------------------------------------------------------------- Christopher W. Wolf, Executive Vice President and Chief Financial Officer EX-32.1 10 g89108exv32w1.txt EX-32.1 SECTION 906 CEO CERTIFICATION EXHIBIT 32.1 Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 For this Annual Report on Form 10-K of Catalina Marketing Corporation (the "Company") for the fiscal year ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, L. Dick Buell , Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ L. Dick Buell - ------------------------------------------ L. Dick Buell Chief Executive Officer, and Director (Principal Executive Officer) May 17, 2004 EX-32.2 11 g89108exv32w2.txt EX-32.2 SECTION 906 CFO CERTIFICATION EXHIBIT 32.2 Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 For this Annual Report on Form 10-K of Catalina Marketing Corporation (the "Company") for the fiscal year ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher W. Wolf, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Christopher W. Wolf - ----------------------------------------------------- Christopher W. Wolf Executive Vice President and Chief Financial Officer (Principal Financial Officer) May 17, 2004 GRAPHIC 12 g89108g8910801.gif GRAPHIC begin 644 g89108g8910801.gif M1TE&.#EA8@(X`=4@`("`@']_?[^_O_#P\#\_/Z"@H&!@8!`0$.#@X-#0T"`@ M(#`P,._O[["PL%!04)"0D'!P<-_?WU]?7\_/SV]O;R\O+Z^OKX^/CP\/#Y^? MGT]/3Q\?'\#`P$!`0````/_______P`````````````````````````````` M```````````````````````````````````````````````````````````` M`````````````````````````````````"'Y!`$``"``+`````!B`C@!``;_ M0)!P2"P:C\BD$PNF\_HM'K-;KO?\'@Z MD3@.AG2Y?L_O^_^`@8)Q#AT'!D,+'AX`0A!T$(.2DY25EI>8F5`%=P,'=1P< M1!R1(!"BFJFJJZRMKJ]*=4(=HAT=#W>F!4(%I;"_P,'"P\1A'4(-$`<+=[1" M',?%TM/4U=:M!0U$`PN1SB#02`"VY.7FY^CIZNOL[>[O\/'R\_3U]O?X^?K[ M_/W^_P#]'6@$*(&V(@V..4#%P0$2#P8`2)Q(L:+%BQ@S:MS(L:/'CR!#BAQ) MLJ3)DRA3JES)LJ7+ERL5$/0SX($0!*,0/;`)8N=#_U37@@H=2E12AYE\!AR5 MB$O6@SH#'()PD,N(!Z!%LVK=RG7,T3\-*")(T*$`!YQ"$A0H(.O(U:YPX\J= MV^3KL+=T\^K=F]6N,+Q\`PL>#,QO,,"$$RM>/,DP,,2,(TN>W,;Q+\B4,VO> MS,4R+,R<0XL>O<3S*]"D4ZL.;=H5ZM6P8R]NW>JU[-NX\])F93NW[]]]D3[& M"KRX\:&[5_4^SKPYK.2JECN?3AT3=#8-'<@:,&XF@HEHK1*O3KZ\I>MJ$@#@ M`.#`'0`-&BP@^(!I$NGF\^N'@S[-+B$+G(5*0B`,8$!X/^VGX()[],=&!PAR M@$@#!WC0057B,:CAAFLXJ/\&`H@0<>`0'"RPP'T/A*+BBBRVZ.*+,,8HXXPT MUFCCC3CFJ...//;HXX]`!BGDD$06:>20\PD"`(9J%>%)6T4L(N645%9IY958 M9JGEEEQVZ>678(8IYIADEFGFF6BFJ>::;+;IIIO"\8$+$0C\5\0W&7*HYY[& MQ*E'`[)H4Y,0`V`5C5OC\:GHHE-X:$8!4W*BR"(*@&``+H#>ERBCG'::A*-R M(,`!E(AZ:NJI1X!*"7ZHMJJAJI.PZNJL^L$JB:RTYEJ=K8/@JNNOS/$JB*_` M%ON;L($0:^RRLB$+B++,1EM%!U=VY>P?T$JK+10="/#!M^!Z8*V?IVVZ[;E9 M=`O_;KCC$I,MNO"FZNVZ'XC+U;5^O!OOO@@TH,"\Z]J[%;Y]Z+NOM`:-4^$B M`+-[+[ERY#%$H4R2&J6Y!V>L%@34+M(!!&:!H"Z]`FM%\!:%'))6)(\X`HFF M&T#!T:)0+!&3YY9AGKOGF MG'?N.3Q5WJRY(J)_;GHZ`P5B4%IZ)[#0,U)9%1%,M-=N__OMN.>N^^Z\5V3( ME#?W;I$#'LPG_/$5R03(H"#@-#8(E?K44]!J_\UAU`Z\[8$"<5^M!P!RG$+=`P%10Q0#BQ5SA9\E(@?0P'(*R10@0(H MV:5RS$XB*TKB MG:A8KZC5;!'!\YY>N'&`@Q0FAZG`I7ETR4MB)$!%`)1((6PQ*2L9DR(+8*:4 MCH@_Q2SQAHS$IB:T.1UN4I(NWPQ%.*5&CK>ILYV3`5^(GB//3-#3./949F(L MJ4K)%.!FB]2$+=EPT-PD5#0,Y8P$:7F>@F*BHK"Y:&HRRAD2FI`5$UT#2$30,'K%D`BMPD@'YC4$O#P(T-V,UZ8("`!]*& MTX+$[29\A(!4[$B]ZNEGJ&/@A@0^((&C(M4+982I47**!HG<9`@%L(F!%`J" ME2H&JV70*KBZ*M:O4H$#RZAK(%(:!;,6P0$XH9"%(NK6P,#U#')=%UWMZH4$ ME)"C@.`K%/PZL1.1R$0H.I)F-\O9&8UCG9/L+(T6L-4X=E6TJ$VM:E?+6@K9 MD+5!2A(@*(N,JC[I(6_*K6YWRUO=8H`!W-R?O=D&1XFUN&5RGG2$D8PB7&D"F#A@:]NHA`4L\``1P8@#LRA<1 M"%"&@MEJWRALE!+CI0("JB(J6JJW&`;6'[444#0`5R`"%1AH@0#P-@-`ML)- MH.9TXY!A,WP8&"'>@WL]\+HC+%'%1"B`(CI@31A7P4`V':N[9BR-GEXD"3GF M`X(],.$EW+0(T-C>E8T,!:4RU0\U+L.-_]`!"03@S&A6993[4(`1ES@+(*+R MDKA,A?WIM3+ZC163*ZC.]'5LE_?$1$W>UF,O<*="(Z*SA9=!83PO^5[JI%0W M-0&B`U29#`5X&YX4W03'GI0/82;#F/_!K,Y`IR(A6K[S%E"]@"USV@@U=+4; M0CV&4?>!I)H8-(_WW-@ERD35=%YBGL'0GWP"-,(?HZ"L;!02;C:KU9"&4%=4/`J8$Z0DM*G1?;$9O^".PR+8T,E@6H2`]L,NC:`N;V+ M7SGT1\BY\,3@`,#).Y6;*(<^P`,Z4`$"&/S@ZU[>`P@];S2TV4++5G0L9VGO M@IIQ"$K=7BX`@"#TJL'61%/`0.Y@;!9-HM*7GD1#4IUM6)>PR(XF[Q`0("4[ M>?&\_[X&!UK<:$&T^\V60#G'6[Z-=_*GH+Y8XO:";"CRV0$/KP2Y&K(,6%7H MNM`T;`]$>F[_7X&^H3\T8X^4K,D-?U?!=4B9%$$>D8`O#T'J9T``\3:-"91C M^Q69ME##U_;0"\7<"=R8TD!+9%Z/3W8F-W]&*4Y!8&$@60%[C\//WVV)+).8 MZ""0(->[X*":=,`!_Y$[.3I^!!36^8^E$<[JF$?>"LRC$>RH\EQO> M$+Y;/GDZS-6O^_HH)_?!#_YRDO_\Z$__/CSFN=1!H:;N+Q#Q5&EX\L:)0#UN MR$..B3R7=(S__3<2RN`Q`5B`&/%G!IB`"KB`'Z%4"J8[RL,M4]((_W@E)=4W M!<\%#CK!$]*3)ZU`%A:">WR`U67WH18=2V>3'C:2(X+0759F@A6![32X>S$W5` M%F81'@542G!W!6:C98(6>T26&#OF8EQ&33#W!?TQ=$,`7DS4/!>H4I'W!@$7 M?7U`@D88%T)F(67(6$M45=)74,)1(FW!5#3(;)J0:;5G"4&8@G-A>7(8,^`% M9+DW61"P2<>D#&WX<6^X!OX"$8K8!KKVA:)!>\?G77W7B:7AAUMRB6F0A4^0 M924H"72X&H>V=?9U87TX6:E(!(,H9IEH!O]RIW>5-V)"&!MY]X-_(V.W2%Y+ M@1$'H(IHP(I*$&>05PD#4(QY*!NLUHB3,8R7@&3:6!=^"%."F'/+XWK?^`9$ M>`AU.!I3]FNJ80`8P(*8X&6=H7M*L(NBUHM@T![Q)PDK]VVF.!KI>'>C*`C5J&G7Z!SQIH];89#?@I":($$!.0OV6"#%YXQG M`(W/H`BO"`CIF)+Y\7!ED1D:.5?R>`E(B`6\0H2+0)*$J`=9!B$J1SP`N2?_ M"'2)$9.*-9.6$&NFE&>H-B4ZR8NALD3&V`<3B8><(G3K:`W!Y&13XP$1$%P? ML`&0B`G"9@6.\AW_V@--!O`\L^"0;+"%"E"1:/!22;"266D>L\B2U$!'`,1) M]`.#MA`1#N!@],*1JO"(2A@%*S"V!4 M^?./W'@JQ8B1?"!,$D%.5;)%`)`BHX($1LE5/':7?5!O4=`?&:>6HD(ND(D$ M:#<$\"$?]&$?P_16B!7"%F5H/@KC*@$$7E@H6!'XU0EGS2)\)%X4A"3 M7061Q!D'$Y>$(N-1"'8S:,$>2)";XD`0HH(,Q[!62W!CFP@!VYD%B<55"]!V MS0>;?"**^0./2)E5H>!D?IF6E!*8$B%$\6D$!HF0_'B.?X",W$)6U7A(_WZ$ MGD^Y!!DH(2`@6'X7G&'@BOC9!?.YD2AX+LRGCB9VD/UI!?IT1Z8)/*#$%*3D M!OR)(5L8(*S@C0]J!1'&/3@QCE:0@5I$[Z MI%`Z(PV@=`XPI839I#IB1^2`):BY'E$:(T3F(@^U:U_Z(]0B;S4B6U>0$"54 MH/V=LM5IUGR6\$U7':ZIWS:IUI"F"+JIX(ZJ(0:DIG7C+I8>DA1 M)ZDB75D%/J_'DS2C/8#Z+=N5HMK2FAM9-0)*92\*`$+TH8=I:0PJ98S&!-=" M'.9Y!)3%/(62J!R:!?S(AVRP,51S/Y8"J)=ZH/^J()J%Z)5@:52JZ9W7`)>^ MF@:W=XI8('>X"JM4P%]044Z5$F`#%E1=8(C-F08")C@6`A\4I)&[RA4O*)?5 MH*GTR:O2@`#4XI.Y1CRRABQCZJ8:MII*L$8[1XMKT$'9,SB3Q%$-AF*8>@VD M@ZZ9T)J&21@ELE0$>P9E69Z&R@'TYY970'6B"@6V"C?H$P5+%+#6```8,`$8 M$#M9@9TP$?D$KD M6J[8=;",@6[3F`DKF#_7\I@2*P6/][-8H*_UXTHNI``$`"X4X!Y<,:-QX;1U M.7?$RIVR1"IG:*'R&@;_V7)HD=I8O7"K*5)2*UJ:';``&/"5EKH!6G1,*E*Q ME9"S1?&"PY:P%]>-+Z>+?G@*,.*RJ_H%T%)\AXA)-5LAT;2PQ9!/3C8.MI!' M(&0+4N4!&4`OJ30?XU1.4T(.>!L*>EL>8D-<7QMD(L>R:+!$U,EBRTAAX*,E M90L&Q))W\+D%4#LX4JM3E?>?+&H+H4,.U"E$%B,V&A!<5SM#^11.H6M.!(I, MIML8DIL)$#"W!."R5("V7"LG'F!F:'9F&[!#M9LEMZNXO.:A6'"QV^,`;=L& M$/N]9%!'$N&7H@M-73I*ZUB;Q71V;\M/<2N]AS01>?L&X".R6;&S'Q`!&!"2 M_SZXNI7!3`1@OEJ4#A$+LT\`@AVPNMMJLU9SO4\@-E0FP@5"F@+`0>R+811LO@H%9(GK M!=(ALU/0N\7SNWN0O0ZLP%(03.'43])IPRIBPJH@P^+4HE1"N@9Q#EN"I^!"`$6K!=CJQ>ERQ$S`5EBSQ%W0&T2KC>[+/?'[!Q!K M`1]@`3R2`N>Q7P*DY1+$!Q@*<`@!0Q2B_B`8B\+@[LNZ9V9.9H%'H\!1%6R/\XI\%($'"T"FN/ZZGP M@<=:>`!!G,8#845;6L-`!*HQNB&63,-5PK/?\KGG,";KD!%%VB(2_'[&'%P9 ML%2?167WTXE.O%>WC,M*E[Y,O"EW')EN(\O=W%@J4KGPHPAR[,D_U$=F'"W? M1"%5NRX4`!$5PZ8XW!GI3`7@Q*^!6P1J\4SOJ\MQ!4X440Z0K+]=2BVO#"X^*S-4'$<5X,>L`,.P)D60 M>Q0;W03^TK@-(K[C6[Y8P)8O^ZQ/M3*F(`MLQU1:D[EY\YIT4K/Z.\Q=L"(4 M,4Y_2<#-[,S];`<'4%KTHL;_!P.Q%3"^:+;#O\P7(STIA`/1S'D`:2L'E5LU MEED%/MI[,^%W2@$.BVN7`VPE%WQ,VXPR6F+3 MKL+8Z;"#0ZO3PMP`,(5D-@IF2TBVSFI]!"$V0U`VJ;=ZYZ5.WU8`)$W(Q,'& MX71%5U(ZH=3"/7T&-()YBC'(EP)((%AUW#99#K`P(8QE;\.W#X**MCO:&$@0RKTWVE<`Q/7<75(Z MZO?>\!W?\CW?]!W?G8K*Q.NIZM>/3'"^6(+1O$D09'%>KL,04A%NZI3,#+C@ M#-[@_P[^X!`>X5F-N82C=,O8?Q%8@[FXRWI]VAXN/1WH3^KFCMA=XM&8#'\V M*>SZ=TV0L>4)X(XY$^A#GNLS%1N7;B0C)?)FXCP>F0]@V!`A36K0'X:CJE'X M%&G807BP%FTA$0I0<`=G<(P`JFZ&T#W.+[\'-R;=@AKF9.9RW`"LAM5DG>%Y M"/-\Y3"&;E2F/2%TW83+M`H-3;0*YE<`*17YB:6*YG3VBQU,U>3LXO48!0@P MW>'%X;>T0R+41[C9!.TF\M@H/N=O])P'A)@-ET?@7$ M@I-B^.H\'L%SI-G!D]LZ0V5V.GG MCE1HRZ#9O@@5`"X!X`&0A5=H.`IQB^E9`$4-`)0'O^^O=LY4L$03L"[6?P@6,+15D80M)M%+(:?+_3*\7#A#0X!+.BXZ94CE=+4(X+*)J'7:/ M2:^:KNV8SVRM99#H!#GVE,&YZA;RM4HMPOT$CJ)U:GE&,5\5#[`+ZDJ45H4& MFUZE?!\9MTD\G4LR.PX+F_CS=Y)3F$QE%A/S1&`W#6%I6`CX3)"(DS_RP?Q` M"V#VWQ+.;@T!G.T*C"N'#N+?5&+41[T%A8Z!L9-`>CA( MZ91:'28,_YX#!&'U?L%A\9A<-I_1:?6:?2U`.AYY!U)P>A$/`"`Z'30@%N06 M(!J6VA"1.!0\``Z9`,``NJ06BCK:!C"-'*2@$M$&'A@["D!/45-55UE;73D> M#.*T.@`:*%G_X`8+'UW/'@X.'HP&%"`DJ3:'EM4*B(4Z'#@,/?M^OS@S?(0(&.$CD(4O^0\H-*EE4` MP-3J0:8XFC\1&!!FX$Y2LV?1GD+@;BA3/DC3$OF8L>G3>0,.4*UJM=\4H0,' M%B32#-S7I`,*,%K0-VYCQX]'-GAW@.F#AY"IS.56-R'*O9]7,C[B:`HRFP^A@P#+M,IH5%@`ESK$!&]FZ:Y3MCL:X,*Q%,BP=P(&^/?G^6Z7.<8#\)0$'G"`LN"<^D4]]CYP[[_NY',,`0@H<\C`5A;0 MJZJ5N-L0E7-F.:"66T1L!4$%-VMPE0?_(WP/P`HA*T"0Q4),D8RUJ/%`@.,^ M:"B@`C@HLD@=TS@G'1/703*<%1?DC;Q$U!-`QAE3\PV+L5QS4JXB`W*@`]RV MLN"X"+0;D\RMY#!1S=T&,K+(*7D:((LYZ"PB*(R*XLA+[Q*D[``''L@SC?PZ M,9!&VD0A9;;R$BBR@#UDZ2"=EQ88TX`]+..@+`<(."X`P8ZP2,Y)!1)3S4O9 M5.#-6@3JU,@N$\EG@PP$L&"?RX)JJ\^C_NP)2BT(-;2,6C9)8E.W-ZT=4LXLJ0```V_W MTD`!VX0B:H%-_X$--JUA!RTT#605A1?`A:)+[0];LCV%W#U43="#C9]]%-'.$.`.?)12$F%<+B)^[6$3%! M0OV,`@6(&!G52ED=1-,]+IZ<V__TW+,`TXMOPTTV*<#QO_'B>X. M`^)N8,(BA$;2`S,CUXW:,=O%MO<4;<55U^BW+^]WHFJ)8EN]^JM;I#]PA\64D=7L1@`>V-@\'P.=]0HC?$]05 M00E.D((5M.`%/1"`XZP$@QWTX`=!&$(1CI"$)33A"5&80A6N\(.0^PS]VH$) M#9GC>40@V[MPF$,=[I"'/?3A#X$H)PBLAS\8F$80D9A$)2Z1B4UTXA.A&$4I M3I&*5;3B%9?X."#!4!P<0$;H0#`ZNX4O"Q+`#@:V$T`UKC&`H#J.!1!8$P2) M[A!S4Q_T2O>G`JBJ;&STXQ_]E0!N%?&.$GG_#I&(\+,0<1&0C73D(\^RL0T0 MH`*Z01Y:&`E)36Z2D^7(@ZLZ1Z$\=I*4I33E+]P6GU&>DI6M="4:4BG*5\Z2 MEK4\5B0*9DM=[I*7E\`EEGH93&&^,I;4R>0PD9E,RA63.:M4YC.AZ2]FTN:8 MT;3F-:DSS==4$YO=]&9:M(D9;GZ3G.4423@A,TYSKI.=XT#G8]393GG.$!*C)-?&DYS\!N@9[EL,1=/L/'SQEC8`NE*'?&.@X$$")!R*@%#GR M9T,QFM&V_3(IDC&'@@Y@K(MJE*0:?:@"'V$G4AE!2(!QZ4MA&E.9SI2F-;7I M37&:4YWNE*<]]>E/_X$:5*$.E:A%->I18=J-LS2`3@J`5YI>%56I3I6J5;7J M5;&:5:UNE:M=]>I7P1I6L8Z5K&4UZUG1FE:UKO5-!^!H3X[$!$.-M*1U7>A) MQ9$`"!1)<40HY/R<:5?!VA6OX*`;RT`@#6HL,K"#=6Q&"VL6NCZ6LM^,;%(F M6UG-6O.R/\GL9D&;S,[ZY+.A-6TO1]N3TIZ6M;5,+4]6VUK9MO*U-8GM;'%+ MRMJ*Y+:Y]2TD=TN1WOZ6N'\,[D2&6USE!O"X$DGN,>;WE*6]T6X%"-+&ZM>^6Z/O:I@WM%J"/_8 M^>X7N-[]20/-(3\A5)>_!0:G?]\&/P&#@(4-=O"#(1QA"4^8PA6V\(4Q[$$$ M]V2&JWF"K+`88A%O"\0C-C$5T7%B%5-Q7RMV\1,?`(47SYB)5TD+&-^+1S42 MV"?O4&-]X[*M-?)X#>)HZ!"D`D,;5;W.Y@M[8W%F8YHOL`ZA[W MM^6V!*WEP]$1`3`8WP`"U@E!`19IN+$+#ID]"'L3"+#$#)FW;&5;HCSR`(C< M^M"$?3JP$].(!IPC.80%1(%4!=&#Z,K&E:&QFBLC_RC(3^[Q)C>F+RL'08`8S(PHMSB]UDO[``2>V#]=:ALS%;`I294WH/_.`17(&":/13^\"+:!-8%,K^EBV[G%H*/U*D.8,RC?6BF2/K2(<_1 M!?MFV)A_G^8WD8`% MN_H.H?\\5T(OYB68/GX*EOR&6AW&7R)_"+K'?5I(PWS4$R%MK6<".SQL<6;? M_36?KSYC\E&$M_N&J2H_1"$`P6I+I-'8F*9-I],OA.T4XFC+X7QY?BG^/&W^ MWJ]YK@\M\(_C0&#_FB=D"L_[B*#K!G`);$X;Q.RMQBX)'B(#NX/1'.@Y_&X` M-/_A:"+!%JKM/MH/!*8CGT;0BYCM&OZ/.CK-$#;!HTPPL2@P;NZ,-E)P!9>@ M!4UCKQ)I]"!B$9Q%K_H",;A@"$SNV)S-`4Q-V/3@$0#A&O+`/B`E9>##3A"C M'^*-"ST-UN+M/O+#)4Q!KXSM#HX-#=WM;R[I+.Y$#KK@"V$M#+L0!!)`"\GP M)^B(_(D4KQD2DZB"`[P-?9G"-9"6^:,4=HL`1J1]"[C M$!,BB#4B=/BR>%\BB1,BF5U("-D!WW`,?!Y("S,0"YG,"K)%>(D`#)$`N*0!" M&$!#^_\S`S)T0]W3`@*@`N3R`@+@@`0@/"$D0C3@1P0``\AS`RZ@/ZE'0J6S M0B^4/BL@`DY4`.23/ZQQ`KC3.RO@1GU$`"Z`.354+DD4`[J%`0C@`A1T'V]S MLW+3@")S+LW(+"^@2^6R'Q'T,R!'5^;3+9.3/(/3//>B-PTH=30``\2&/:F4 M.H^#`E:S*@(`3C]``N9E+]:T3ZOB+"=@/OF4/2.D*\N2437(/0.5+CU`=Z@2 M373G`DSS,U93`%+G.@BT4UW()ZWS,^#((`,`48-3@_ST`W;30@6S+/$'2!4U M+@NH*P>U.PMU.(&S-V>455%U/3_`3Q\U=2I@.'OS1!&5/=?_]$_G%$@T0%NSDP%H5%"10T)Q=54YE4\S@(@`-`(J MH%M/-248H$_%ID4IP(62DTK9LTH]!%:'TUG+$DH3-$4A="\N`$(/]C.J-%U- M4T93YU9F4BO9!"W)4UT*]C@VH"^=(TRW1-74TB`(2E#W]TT-8%4TBP$KAE`(,TSE+U@+H]$WG M]%4WU`)<"&`?]4- MEK1+9W.+^C(Y.591[Q8[W+-9-_0_^58NNW-ZJI12EW4"8C18+^!D;35Q@S5F M)S<`-$!WCI5`0]9I!54`'%=R"W-P75(B[:IH]_%H"Y5B`9("M#8XV?("\#1( MZ@5*$75J^71W/-5$=E-WV)9`?R0YSG)N M%78OO)=4?_<#H)-3W0,XTQ4I-2!!D:,"+O8?778P8?8SG!58$Y5^V;,KTU=- MR3=44[90;_=GJR)^"71^BS=]>=-F/T1*53="DG,W!9,"9O1P^7%H*8MV]=%Q M(Q-%"[(_=/_'.!25@X&7/(%37+T%3B/@+JFV,"M`@Q35?HN7:T-7)=QR0$>X M`H;79MG768$S>\=4.O>65;756>6R@'XD7S%@6@G`6&\W6-_3BO^4>AA@/Q!8816X*K*C M@4^5BPU()4#X?4-2=NL*@_,Q`P@@D`4YD*D8("F4+2V``4S46QA`/A7930/4 M.S7@.'\S5TKW`C1@.;GR+3%5`MP2DT.S-_=#2^HDT69U$E)]%Y]UT"YQ8GS MT8*I48^_LJ$=NB%QUR#CDH)+,C;[<:+;0YA;DR,5VK'\^*%!.J1%>J2IE8]+ MZJ-).J55>J6]LJ/MD:%9.J9E>J:'TJ1)"J5I.J=U>J<_TJ4G$J9Y.JB%>J@? MTJ=G%ZB).JEETD*I6:EETJC[&*G[$9Z=NJHKLC$P#ZMFB:A^J2EFA^'=*O% M&B'[8S\`M:G'NB2[^J:_6A\/R'[2.JX!_[*LLU.KY?HDUUJC+@35AI1-/G7=-&_DX@3>WJV)(ZY,]FI1\?T17C`.WK12'=P>M1=I$N7&, M\Q%0N7%::5-W"U,^!4`#<&6\&QEL#]8XS'LPS])O&:!S4U0SSS)7P!:65_0X M)F">^_.=[5MLI'4MF9.6/_6+6=>%;/E0J>*\Q]M[4AF^F51$-=0XNQDL;5JO M&1J:!SG#]X%ZX/](PP>9HNNE;%EU=S0(4Y.80$\\0N*4*K*R@-!T>95U9#N4 M7`N3?]GT?B'56\843CVXB6M46JU;I/M4PRO@KP'3`]PWP\$52&:4*G:\7H,[ M0O:TC5](CE<4C$<8Q4%6,)LS+V%FR]V57BZ@61E7=;\4QQE8>V?X3U,"@74Y M4,&VI$>2H>>U&RG``W#U`S3``]:3&Q%Z>=<5A`MSB8>S`GZ4O;_E,W+%`QC5 MAO]47&%<.B.5`"3@1=56W<1^5;%5]S3__8#WV M=WFO`\1YL$1NZT_8TY?4USS7""K]FJ?=GP_E(BLA$,5W3V[)4QGG6E[^&1+ M5WZI>W7=L\I%I6W)ET2-?6'+N=5X7_DN5MF19M\R!M^`UG=_G,M[SEG(_PQH#\K0Q M*K7A*#KE%G8'DCV+1U%]G#Z=,WU?DR[KO963NW?Q]!J9FKW/E\9?,]-Q?'LG M:=6I,I]A/EQ%7*E)W5OR';!7%@/"=(87\RUM-#DLP+N75,=31VS6M$ZO$4*_ MU8!$;5:#R%9_0T5<@7-9+SO+,_XMRQ9..S?%]R/.6?;/ M=YK4FQPA?UA/A9X_!KA9];Z!4QPYD4-6]=Q#RG0PPW[U50)7+90^%15R?/[G MDWORQ<8T:?XOY]5'A7;N&VJO*_X;(YH?09F3"Y.9!W-#;_2]251%PQMLV_*] M,WF1(X26!7S,-7D"&MD\=44N\U,ZW90SY9/7Z057=AE7-'.8H]]O/?E3X]RI MLT/?`[*YSYB#WQO@91D(-)_AD.%A$"V$X81B'$8D'PKEPZAM0.J?^?2W9($'SN'\%9R716('U@2,$9Y@&`*"XR-CH^0D9* M3E)66EYB9FI6`J@=?H*&BHZ2EIJ>HJ:JKK*VNFIEN#(("`@R1$S0ZA)%$)5I MY>)9Z=)&$`M,S`KT&O<2"60(M"DS+^]99`BB1?\&PQDCT]KBZCHKE^>6@3N' M$B1NPL?+S]/7VR]VONKO\_?[_P,,*'`@P8(!W=U+J'`APX:/\AF,*'$BQ8H6 M+V+,:`BAPXX>/X*$!%$CR9(F3Z),J?(4QY`N7\*D-W(ES9HV;^+,2:IES)X^ M?S[TI',HT:)&CQY\!W0I4Y@SD4*-*G4J4IY-KV)=^)0JUZY>OU:TFG4L67A/ M`#8$2*MV+=NV;M_"C2MW+MVZ=N_BS:MW+]^^?O\"#BQX\-T-2LLB3ERI0(?& DCA]#CBQY,N7*EB]CSJQY,^?.GC^##BUZ-.G2ID]W+C`V"``[ ` end -----END PRIVACY-ENHANCED MESSAGE-----


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended March 31, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Delaware		33-0499007
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

200 Carillon Parkway, St. Petersburg, Florida (Address of principal executive offices)		33716-2325 (Zip Code)


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $0.01 Par Value		New York Stock Exchange


		Page
		No.

Item 1.	Business		3
Item 2.	Properties		13
Item 3.	Legal Proceedings		13
Item 4.	Submission of Matters to a Vote of Security Holders		14
PART II
Item 5.	Market for Registrant’s Common Stock and Related Stockholder Matters		15
Item 6.	Selected Financial Data		17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		42
Item 8.	Consolidated Financial Statements and Supplementary Data		44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		95
Item 9A.	Controls and Procedures		96
PART III
Item 10.	Directors and Executive Officers of the Registrant		99
Item 11.	Executive Compensation		102
Item 12.	Security Ownership of Certain Beneficial Owners and Management		106
Item 13.	Certain Relationships and Related Transactions		108
Item 14.	Principal Accountant Fees and Services		108
PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		110


		High		Low

Fiscal Year 2002:
	June 30, 2001	$	37.59	$	28.40
	September 30, 2001		34.52		26.99
	December 31, 2001		34.78		26.40
	March 31, 2002		39.01		34.74

Fiscal Year 2003:
	June 30, 2002	$	36.67	$	27.55
	September 30, 2002		32.89		25.26
	December 31, 2002		27.97		17.86
	March 31, 2003		20.53		16.25

Fiscal Year 2004:
	June 30, 2003	$	19.49	$	15.51
	September 30, 2003		17.53		12.58
	December 31, 2003		20.99		15.20
	March 31, 2004		21.11		17.12


Item 5.	*Market for Registrant’s Common Stock and Related Stockholder Matters*



		Fiscal Year Ended March 31,

		2003(3)		2002		2001		2000		1999(4)

								(Unaudited)
				(As restated)(2)		(As restated)(2)		(As restated)

		(Dollars in thousands, except per share amounts)
Income statement data:
	Revenues	$	470,709	$	442,702	$	413,103	$	348,983	$	264,783
	Income from operations		92,386		95,567		81,473		59,655		67,911
	Income from operations, excluding goodwill amortization(1)		92,386		95,567		85,437		62,494		69,151
	Net income		55,098		58,550		47,160		32,862		37,608
	Net income, excluding goodwill amortization(1)		55,098		58,550		50,969		35,610		38,848
Diluted net income:
	Per common share	$	1.00	$	1.03	$	0.81	$	0.57	$	0.66
	Addback: goodwill amortization(1)		—		—		0.07		0.04		0.02

	Adjusted net income per common share	$	1.00	$	1.03	$	0.88	$	0.61	$	0.68

	Diluted weighted average common shares outstanding		54,885		57,104		57,919		57,957		57,027
Balance sheet data:
	Cash and cash equivalents	$	1,715	$	13,656	$	5,373	$	13,479	$	13,942
	Total assets		422,421		415,902		396,424		288,609		221,047
	Long-term debt		49,926		46,035		68,330		10,814		6,033
	Total stockholders’ equity		215,995		223,263		183,045		122,894		120,933
Other data:
	U.S. Catalina Marketing stores installed at end of period		17,498		16,488		15,475		13,516		12,092
	International Catalina Marketing stores installed at end of period		4,069		3,338		2,547		2,476		1,811
	Catalina Health Resource pharmacy outlets installed at end of period		17,827		17,716		12,578		6,671		3,861
	Capital expenditures	$	42,555	$	30,813	$	54,540	$	58,217	$	39,954
	Payments for repurchases of common stock	$	71,973	$	46,529	$	15,842	$	47,603	$	18,248



		Year Ended March 31,

		2002			2001

Net income, previously reported		$	61,880		$	58,135
Restatement adjustments:
	Revenue		(3,966	)		(4,778	)
	Direct cost adjustments		(1,570	)		(1,751	)
	Accruals and prepayments		(2,185	)		776
	Previously capitalized bonus compensation		(725	)		(1,394	)
	Postretirement healthcare obligation		1,104			—
	Asset impairment and related change in amortization		640			(5,660	)
	Depreciation and amortization		876			(643	)
	Capitalized software costs		544			(1,012	)
	Other		(343	)		(161	)
	Income tax impact of adjustments		2,295			3,648

Total adjustments			(3,330	)		(10,975	)

Net income, restated		$	58,550		$	47,160



		Year Ended March 31,

		2003			2002			2001

					(As restated)			(As restated)

		(in thousands)
Revenues
	Manufacturer Services	$	258,451		$	267,058		$	265,732
	DMS		50,297			34,994			30,949
	CHR		63,016			64,793			32,708
	International		29,991			21,575			26,628
	Japan Billboard		21,077			23,852			29,467
	Other(1)		48,502			44,217			36,698
	Corporate		2,763			3,565			8,706
	Eliminations		(3,388	)		(17,352	)		(17,785	)

		$	470,709		$	442,702		$	413,103

Operating Profit (Loss)
	Manufacturer Services	$	137,119		$	132,201		$	126,928
	DMS		1,949			2,080			2,858
	CHR		(8,495	)		(3,525	)		(7,681	)
	International		(1,177	)		(3,306	)		(4,931	)
	Japan Billboard		528			2,741			2,777
	Other(1)		(7,870	)		(4,172	)		(5,825	)
	Corporate		(29,668	)		(30,452	)		(32,653	)

		$	92,386		$	95,567		$	81,473

Net Income (Loss)
	Manufacturer Services	$	81,589		$	78,012		$	69,489
	DMS		1,174			1,245			1,578
	CHR		(5,080	)		(2,103	)		(4,213	)
	International		(3,242	)		(4,838	)		(3,989	)
	Japan Billboard		117			1,140			951
	Other(1)		(4,686	)		(2,741	)		(3,157	)
	Corporate		(14,774	)		(12,165	)		(13,499	)

		$	55,098		$	58,550		$	47,160


	Year Ended March 31, 2003 compared with Year Ended March 31, 2002


	Year Ended March 31, 2002 compared to Year Ended March 31, 2001


	*Foreign Currency Translation and Its Effect on Revenues*



			Payments Due by Period

					Between		Between
			Before		April 1, 2004		April 1, 2006		After
Contractual cash obligations	Total		March 31, 2004		and March 31, 2006		and March 31, 2008		March 31, 2008

Short-term borrowings	$	18,297	$	18,297	$	—	$	—	$	—
Long-term debt(1)		50,747		547		50,148		52		—
Postretirement medical benefit costs(2)		1,136		67		171		223		675
Operating leases		24,082		5,463		8,499		6,306		3,814
Purchase obligations for in-store equipment		18,318		3,096		8,496		6,726		—

Total	$	112,580	$	27,470	$	67,314	$	13,307	$	4,489


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*


Item 8.	*Consolidated Financial Statements and Supplementary Data*


	*Revenues*


	*Cost and Expenses*


	*Interest Expense*


	*Income Tax Provision*


	Page

Report of Independent Certified Public Accountants		45
Consolidated Income Statements, Years Ended March 31, 2003, 2002 and 2001		46
Consolidated Balance Sheets at March 31, 2003 and 2002		47
Consolidated Statements of Stockholders’ Equity and Comprehensive Income, Years Ended March 31, 2003, 2002 and 2001		48
Consolidated Statements of Cash Flows, Years Ended March 31, 2003, 2002 and 2001		49
Notes to the Consolidated Financial Statements		50



				As of March 31,

				2003			2002

							(As restated)

				(In thousands, except
				share data)
ASSETS
Current Assets
	Cash and cash equivalents			$	1,715		$	13,656
	Accounts receivable, net				74,849			78,938
	Inventory				4,921			5,263
	Investments held in trust				6,330			8,716
	Deferred tax asset				14,967			12,598
	Prepaid billboard rental				5,183			7,415
	Prepaid expenses and other current assets				4,473			4,152

			Total current assets		112,438			130,738

	Property and equipment
		Store equipment			222,432			204,232
		Furniture and office equipment			101,947			83,430
		Building			22,296			22,296
		Billboards			12,230			14,137
		Leasehold improvements			9,021			7,454
		Land			4,110			4,110

					372,036			335,659
	Less: accumulated depreciation				(223,293	)		(189,515	)

			Property and equipment, net		148,743			146,144
	Goodwill				142,416			117,357
	Patents, net				14,965			16,614
	Long-term deferred tax asset				1,402			1,214
	Other assets				2,457			3,835

			Total assets	$	422,421		$	415,902


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
	Accounts payable			$	18,328		$	17,330
	Income taxes payable				7,868			6,619
	Deferred tax liability				672			755
	Accrued expenses				55,733			56,210
	Deferred revenue				36,295			34,729
	Short-term borrowings				18,297			14,845

			Total current liabilities		137,193			130,488
	Long-term deferred tax liability				15,436			13,380
	Long-term debt				49,926			46,035
	Other long-term liabilities				2,957			1,822

			Total liabilities		205,512			191,725

	Commitments and contingencies
	Minority interest				914			914
Stockholders’ Equity:
	Preferred stock, $.01 par value; 5,000,000 authorized shares; none issued and outstanding				—			—
	Common stock, $.01 par value; 150,000,000 authorized shares; 52,755,192 and 55,336,419 shares issued and outstanding at March 31, 2003 and 2002, respectively				528			553
	Paid-in capital				1,526			7,667
	Accumulated other comprehensive income (loss)				289			(634	)
	Retained earnings				213,652			215,677

			Total stockholders’ equity		215,995			223,263

			Total liabilities and stockholders’ equity	$	422,421		$	415,902


														Accumulated
								Par						Other
					Number			Value of						Comprehensive						Total
		Comprehensive			of			Common			Paid-in			Income			Retained			Stockholders’
		Income			Shares			Stock			Capital			(Loss)			Earnings			Equity


		(In thousands)
BALANCE AT MARCH 31, 2000 (as restated)						54,602		$	546		$	897		$	97		$	121,354		$	122,894
	Proceeds from issuance of common stock					1,377			13			21,932			—			—			21,945
	Increase in investment in subsidiary, net of tax					—			—			2,244			—			—			2,244
	Tax benefit from exercise of non-qualified stock options and disqualified dispositions					—			—			6,480			—			—			6,480
	Repurchase, retirement and cancellation of common shares					(497	)		(5	)		(15,837	)		—			—			(15,842	)
	Deferred compensation plan common stock units and Directors’ common stock grants					67			1			(1,099	)		—			—			(1,098	)
	Net income	$	47,160			—			—			—			—			47,160			47,160
	Foreign currency translation adjustment		(738	)		—			—			—			(738	)		—			(738	)

	Comprehensive income	$	46,422			—			—			—			—			—			—

BALANCE AT MARCH 31, 2001 (as restated)						55,549			555			14,617			(641	)		168,514			183,045
	Proceeds from issuance of common stock					1,304			13			18,417			—			—			18,430
	Increase in investment in subsidiary, net of tax					—			—			567			—			—			567
	Tax benefit from exercise of non-qualified stock options and disqualified dispositions					—			—			10,221			—			—			10,221
	Repurchase, retirement and cancellation of common shares					(1,621	)		(16	)		(35,126	)		—			(11,387	)		(46,529	)
	Deferred compensation plan common stock units and Directors’ common stock grants					104			1			(1,029	)		—			—			(1,028	)
	Net income	$	58,550			—			—			—			—			58,550			58,550
	Foreign currency translation adjustment		7			—			—			—			7			—			7

	Comprehensive income	$	58,557			—			—			—			—			—			—

BALANCE AT MARCH 31, 2002 (as restated)						55,336			553			7,667			(634	)		215,677			223,263
	Proceeds from issuance of common stock					430			5			7,358			—			—			7,363
	Decrease in investment in subsidiary, net of tax					—			—			243			—			—			243
	Tax benefit from exercise of non-qualified stock options and disqualified dispositions					—			—			1,951			—			—			1,951
	Repurchase, retirement and cancellation of common stock					(3,132	)		(31	)		(14,819	)		—			(57,123	)		(71,973	)
	Deferred compensation plan common stock units and Directors’ common stock grants					121			1			(874	)		—			—			(873	)
	Net income	$	55,098			—			—			—			—			55,098			55,098
	Foreign currency translation adjustment		923			—			—			—			923			—			923

	Comprehensive income	$	56,021			—			—			—			—			—			—

BALANCE AT MARCH 31, 2003						52,755		$	528		$	1,526		$	289		$	213,652		$	215,995


Note 1.	Description of the Business and Basis for Presentation



		Year Ended March 31

Allowance for Doubtful Accounts		2003			2002			2001

					(As restated)			(As restated)
Beginning balance		$	4,154		$	2,548		$	1,415
	Increase in provision		1,103			2,996			2,186
	Account write-offs, net of recoveries		(1,346	)		(1,390	)		(1,053	)

Ending balance		$	3,911		$	4,154		$	2,548


	Restated, but prior		Consolidation of			As Restated for
	to the adoption of		Variable Interest			the Adoption of
	FIN 46		Entity(1)			FIN 46

Total current assets	$	112,438	$	—		$	112,438
Property and equipment, net		121,823		26,920			148,743
Other assets		161,240		—			161,240

Total assets	$	395,501	$	26,920		$	422,421

Total current liabilities	$	137,193	$	—		$	137,193
Long-term debt		20,360		29,566			49,926
Other long-term liabilities		19,782		(1,389	)		18,393
Minority interest		—		914			914
Stockholders’ equity		218,166		(2,171	)		215,995

Total liabilities and stockholders’ equity	$	395,501	$	26,920		$	422,421


			March 31, 2002			March 31, 2002			March 31, 2001			March 31, 2001

			(As restated)			(As originally			(As restated)			(As originally
						reported)						reported)
Revenue			$	442,702		$	446,668		$	413,103		$	417,881
Cost and Expenses
	Direct operating expenses (exclusive of depreciation and amortization shown below)			198,392			193,121			175,944			174,237
	Selling, general and administrative			107,853			111,492			106,313			106,382
	Impairment charges			—			—			5,733			—
	Depreciation and amortization			40,890			42,032			43,640			43,243

		Total cost and expenses		347,135			346,645			331,630			323,862

Income from operations				95,567			100,023			81,473			94,019
	Interest expense			3,393			2,253			3,361			2,676
	Other income (expenses), net			(367	)		(366	)		(792	)		595

Income before income taxes and minority interest				91,807			97,404			77,320			91,938
	Provision for income taxes			33,257			35,552			31,297			34,945
	Minority interest			—			28			1,137			1,142

		Net Income	$	58,550		$	61,880		$	47,160		$	58,135

Diluted:
Net income per common share			$	1.03		$	1.08		$	0.81		$	1.00
Weighted average common shares outstanding				57,104			57,104			57,919			57,919
Basic:
Net income per common share			$	1.05		$	1.11		$	0.84		$	1.04
Weighted average common shares outstanding				55,922			55,922			55,767			55,767


		As of			As of			As of			As of
		March 31, 2002			March 31, 2002			March 31, 2001			March 31, 2001

		(As Restated)			(As Originally			(As Restated)			(As Originally
					Reported)						Reported)
ASSETS
Current Assets
Cash and cash equivalents		$	13,656		$	13,276		$	5,373		$	7,280
Accounts receivable, net			78,938			79,834			72,546			72,996
Inventory			5,263			5,302			4,189			5,222
Investments held in trust			8,716			8,716			9,923			9,053
Deferred tax asset			12,598			6,303			11,471			7,893
Prepaid billboard rental			7,415			8,353			8,819			10,239
Prepaid expenses and other current assets			4,152			5,494			5,036			5,345

	Total current assets		130,738			127,278			117,357			118,028
Property and equipment
	Store equipment		204,232			208,595			190,813			193,684
	Furniture and office equipment		83,430			82,690			71,317			75,418
	Building		22,296			—			22,296			—
	Billboards		14,137			14,137			18,094			18,094
	Leasehold improvements		7,454			5,967			6,927			5,758
	Land		4,110			—			4,110			—

			335,659			311,389			313,557			292,954
Less: accumulated depreciation			(189,515	)		(192,271	)		(156,789	)		(162,529	)

	Property and equipment, net		146,144			119,118			156,768			130,425
Goodwill			117,357			121,770			97,076			101,487
Patents, net			16,614			22,468			17,989			24,479
Long-term deferred tax asset			1,214			—			1,145			—
Other assets			3,835			13,168			6,089			13,629

	Total assets	$	415,902		$	403,802		$	396,424		$	388,048



	Year Ended March 31, 2003

	Manufacturer												Total
	Services		CHR		DMS		Int’l		PMKK		Other		Consolidated

Beginning balance	$	20,210	$	11,978	$	29,867	$	24,112	$	7,572	$	23,618	$	117,357
Goodwill acquired		—		24,154		664		—		—		200		25,018
Other		—		—		—		41		—		—		41

Ending balance	$	20,210	$	36,132	$	30,531	$	24,153	$	7,572	$	23,818	$	142,416



	Year Ended March 31, 2002 (As restated)

	Manufacturer													Total
	Services		CHR			DMS		Int’l		PMKK		Other		Consolidated

Beginning balance	$	18,193	$	13,245		$	29,159	$	21,831	$	7,572	$	7,076	$	97,076
Goodwill acquired		2,017		—			708		2,281		—		16,542		21,548
Other		—		(1,267	)		—		—		—		—		(1,267	)

Ending balance	$	20,210	$	11,978		$	29,867	$	24,112	$	7,572	$	23,618	$	117,357



	Weighted Avg		As of March 31,
	Useful Life As of
	March 31, 2003		2003			2002

	(In years)					(As restated)
Purchased patents		14.8	$	23,260		$	23,210
Accumulated amortization				(8,295	)		(6,596	)

Patents, net			$	14,965		$	16,614


Fiscal Year	Patents

2004	$	1,698
2005		1,695
2006		1,681
2007		1,641
2008		1,641


Note 6.	Impairment Charges, Disposition of Long-Lived Assets and Other Changes to Depreciation and Amortization


	Amount

2005	$	3,560
2006		46,314	(1)
2007		52

Total long-term debt	$	49,926


2004	$	5,441
2005		4,416
2006		3,780
2007		3,347
2008		2,959
Thereafter		3,814

Total minimum lease payments	$	23,757


		Number of			Weighted Average
		Shares			Exercise Prices

Options outstanding as of March 31, 2000			7,997,602		$	20.26
	Granted		3,065,038			33.13
	Exercised		(1,377,900	)		16.55
	Canceled or expired		(798,799	)		24.61

Options outstanding as of March 31, 2001			8,885,941			24.88

	Granted		1,748,335			34.96
	Exercised		(1,375,953	)		15.69
	Canceled or expired		(680,058	)		28.66

Options outstanding as of March 31, 2002			8,578,265			28.11

	Granted		1,910,872			25.43
	Exercised		(451,800	)		17.07
	Canceled or expired		(1,553,351	)		27.64

Options outstanding as of March 31, 2003			8,483,986		$	28.18

Options available for future issuance as of March 31, 2003		4,060,192



Options Outstanding								Options Exercisable

				Weighted Average
		Outstanding		Remaining				Exercisable
Range of		as of		Contractual Life		Weighted Average		as of		Weighted Average
Exercise Prices		March 31, 2003		(in years)		Exercise Price		March 31, 2003		Exercise Price

	$8.00–$16.00		117,660		1.5	$	15.29		106,260	$	15.41
	$16.01–$25.00		2,627,832		1.3		21.30		974,642		21.01
	$25.01–$33.00		4,086,929		5.6		29.94		915,131		31.45
	$33.01–$41.00		1,651,565		6.1		35.70		376,165		35.61

			8,483,986						2,372,198



			Year Ended
			March 31,

			2003			2002

Change in accumulated postretirement benefit obligation:
	Beginning of year postretirement benefit obligation		$	1,841		$	1,767
	Service cost			16			16
	Interest cost			121			121
	Actuarial loss			80			—
	Benefits paid			(66	)		(63	)

			$	1,992		$	1,841

Change in fair value of plan assets			$	—		$	—
Net amount recognized
	Obligation in excess of plan assets		$	1,992		$	1,841
	Unrecognized prior service cost			(442	)		(1,104	)
	Unrecognized actuarial net (gain) loss			(80	)		—

		Accrued benefit cost	$	1,470		$	737


	1% Increase		1% Decrease

Effect on service and interest cost for the year ended March 31, 2003	$	21	$	(17	)
Effect on accumulated postretirement benefit obligation at March 31, 2003		294		(240	)


Segment		Business Activity

Manufacturer Services		Provides point-of-sale, printed incentives to consumers for clients that produce consumer packaged goods
Direct Marketing Services		Provides direct mail services to consumers’ homes for manufacturing and retail clients
Catalina Health Resource		Provides printed, point-of-sale direct-to-patient communications for pharmaceutical manufacturers and retailers
International		Provides services similar to Manufacturer and Retail Services in the United Kingdom, France, Italy and Japan
Japan Billboard		Provides billboards and outdoor media advertising in Japan
Corporate		Provides executive and administrative oversight and centralized functions such as information technology, client services and store systems support
Other		Includes Retail Services which supports and maintains the Catalina Marketing Network® and provides marketing services to retailers and; CMRS which provides traditional marketing research services.