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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation of 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. [ ]

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

The aggregate market value of Registrant’s voting stock held by non-affiliates as of June 30, 2003, was $4,177,703,473 based on 61,068,608 such shares held on such date by non-affiliates and the average sale price for the Common Stock on such date of $68.41 as reported on the Nasdaq National Market. Solely for purposes of this computation, the Registrant has assumed that all directors and executive officers of the Registrant and New York Life Insurance Company are affiliates of the Registrant. The Registrant has no non-voting common equity.

Part III incorporates by reference portions of the definitive proxy statement for the Registrant’s 2004 Annual Meeting of Stockholders, which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2003.

Information included in or incorporated by reference in this Annual Report on Form 10-K, other filings with the Securities and Exchange Commission (the “SEC”) and our press releases or other public statements, contain or may contain forward looking statements. Please refer to a discussion of our forward looking statements and associated risks in “Item 1 – Forward Looking Statements and Associated Risks” in this Annual Report on Form 10-K.

Prescription drugs are playing an ever-greater role in healthcare and today constitute the first line of treatment for many medical conditions. As pharmaceutical research opens the potential for even more effective drugs, demand can be expected to increase. For millions of people, prescription drugs equate to the hope of improved health and quality of life. At the same time, rising prescription drug costs are gradually shaping one of the most persistent challenges of our time. Even as pharmaceutical development opens new paths to better healthcare, we confront the possibility that high costs may limit access to the needed therapies.

Prescription drug costs, the fastest growing component of health care costs in the United States, accounted for approximately 10% of U.S. health care expenditures in 2001 and are expected to increase to about 14.2% in 2010 according to U.S. Centers for Medicare & Medicaid (“CMS”) estimates. Based upon information included in our 2002 Annual Drug Trend report, described below under “Company Operations – Clinical Support”, annual per member drug spending rose 18.5% in 2002 and we estimate that per member drug spending will grow at an average annual rate of 15.7% between 2003 and 2007. In response to cost pressures being exerted on health benefit providers such as HMOs, health insurers, employers and unions, pharmacy benefit management (“PBM”) companies develop innovative strategies to help keep high-quality medications affordable.

Working behind the scenes, PBMs have played a role in helping health benefit providers address access and affordability concerns resulting from rising drug costs. PBMs manage the cost of the drug benefit provided to members by performing the following functions:

	•		evaluating drugs for price, value and efficacy in order to assist clients in selecting the most cost-effective formulary;

	•		leveraging volume to deliver discounts to clients;

	•		promoting the use of generics and low-cost brands; and

	•		offering cost-effective mail pharmacy services which result in drug-cost savings for plan sponsors and co-payment savings for members.

PBMs like us work with clients, manufacturers, pharmacists and physicians to increase efficiency in the drug distribution chain, to manage costs in the pharmacy benefit, and to improve members’ health outcomes and satisfaction.

PBMs coordinate the distribution of outpatient pharmaceuticals through a combination of benefit management services, including retail drug card programs, mail pharmacy services and formulary management programs. Since the emergence of PBMs during the late 1980s, PBMs have combined retail pharmacy claims processing and mail pharmacy services to create an integrated product offering to manage the prescription drug benefit for payers. Some PBMs have broadened their service offerings to include disease management programs, compliance programs, outcomes research, drug therapy management programs, sophisticated data analysis and specialty distribution services.

We are one of the largest PBMs in North America and we provide a full range of pharmacy benefit management services, including retail drug card programs, mail pharmacy services, drug formulary management programs and other clinical management programs for thousands of client groups that include HMOs, health insurers, third-party administrators, employers, union-sponsored benefit plans and government health programs.

			Our PBM services include:

	•		retail network pharmacy management

	•		mail pharmacy services, including specialty drugs for which we have contracted with our clients to provide to their members

	•		benefit design consultation

	•		drug utilization review

	•		formulary management programs

	•		disease management

	•		compliance and therapy management programs for our clients

	•		medical information management services

			Non-PBM services provided through our Pharma Business Solutions (“PBS”) segment include:

	•		distribution of pharmaceuticals requiring special handling or packaging where we have been selected by the pharmaceutical manufacturer as part of a limited distribution network.

	•		distribution of pharmaceuticals through Patient Assistance Programs where we receive a fee from pharmaceutical manufacturers for administrative and pharmacy services for the delivery of certain drugs free of charge to doctors for their indigent patients

	•		distribution of sample units to physicians and verification of practitioner licensure prior to sample distribution through our wholly owned subsidiary, Phoenix Marketing Group, LLC (“PMG”)

Our revenues are generated primarily from the delivery of prescription drugs through our contracted network of retail pharmacies, mail pharmacy services and specialty distribution services. In 2003, 2002 and 2001, revenues from the delivery of prescription drugs to our members represented 98.6%, 98.5% and 98.3% of our total revenues, respectively. Revenues from services, such as the administration of some clients’ retail pharmacy networks, sample distribution services and certain services provided by our specialty distribution subsidiary comprised the remainder of our revenues.

Prescription drugs are dispensed to members of the health plans we serve primarily through networks of retail pharmacies that are under non-exclusive contracts with us and through seven mail pharmacy service centers that we operated as of December 31, 2003. More than 57,000 retail pharmacies, representing more than 99% of all United States retail pharmacies, participate in one or more of our networks. In 2003, we processed 378.9 million network pharmacy claims and dispensed 32.3 million mail pharmacy prescriptions. We also dispensed 3.6 million specialty distribution prescriptions.

We were incorporated in Missouri in September 1986, and were reincorporated in Delaware in March 1992. Our principal executive offices are located at 13900 Riverport Drive, Maryland Heights, Missouri 63043. Our telephone number is (314) 770-1666 and our web site is www.express-scripts.com. Through our website, we make available access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports (when applicable), and other filings with the SEC. Such access is free of charge and is available as soon as reasonably practicable after such information is filed with the SEC. In addition, the SEC maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers filing electronically with the SEC (which includes us).

Overview. Our PBM services involve the management of outpatient prescription drug usage to foster high quality, cost-effective pharmaceutical care through the application of managed care principles and advanced information technologies. We offer our PBM services to our clients in the United States and Canada. Our PBM services include:

	•		retail network pharmacy administration

	•		mail pharmacy services, including specialty drugs for which we have contracted with our clients to provide to their members

	•		benefit plan design consultation

	•		formulary administration and compliance

	•		electronic point-of-sale claims processing

	•		drug utilization review

	•		therapy management services such as prior authorization, therapy guidelines, step therapy protocols and formulary management interventions

	•		sophisticated management information reporting and analytic services

	•		outcomes assessments

	•		drug information for consumers through our DrugDigest.org and express-scripts.com websites

We consult with our clients to assist them in selecting plan design features that balance the client’s requirements for cost control with member convenience. For example, some clients receive a smaller discount on pricing in the retail pharmacy network or mail pharmacy in exchange for receiving all or a larger share of the pharmaceutical manufacturer rebates. Other clients receive a greater discount on pricing at the retail pharmacy network or mail pharmacy in exchange for a smaller share of the pharmaceutical manufacturer rebates.

During 2003, 98.5% of our revenues were derived by our PBM operations, compared to 98.8% and 99.2% during 2002 and 2001, respectively. The number of retail pharmacy network claims processed and mail pharmacy claims dispensed increased to 378.9 million and 32.3 million, respectively, in 2003 from 273.9 million and 10.6 million claims, respectively, in 1999.

Retail Pharmacy Network Administration. We contract with retail pharmacies to provide prescription drugs to members of the pharmacy benefit plans we manage. In the United States, we negotiate with pharmacies to discount the price at which they will provide drugs to members. We manage several nationwide networks in the United States that are responsive to client preferences related to cost containment and convenience of access for members. We also manage networks of pharmacies that are customized for or under direct contract with specific clients. We manage one nationwide network in Canada.

All retail pharmacies in our pharmacy networks communicate with us online and in real time to process prescription drug claims. When a member of a plan presents his or her identification card at a network pharmacy, the network pharmacist sends the specified member and prescription information in an industry-standard format through our systems, which process the claim and respond to the pharmacy. The electronic processing of the claim includes, among other things, the following:

	•		confirming the member’s eligibility for benefits under the applicable health benefit plan and the conditions to or limitations of coverage

	•		performing a concurrent drug utilization review and alerting the pharmacist to possible drug interactions and reactions or other indications of inappropriate prescription drug usage

	•		updating the member’s prescription drug claim record

	•		if the claim is accepted, confirming to the pharmacy that it will receive payment for the drug dispensed

	•		informing the pharmacy of the co-payment amount to be collected from the member based upon the client’s plan design

Mail Pharmacy. As of December 31, 2003, we operated mail pharmacies, located in Maryland Heights, Missouri; Albuquerque, New Mexico; Bensalem, Pennsylvania; Harrisburg, Pennsylvania; Troy, New York and two in Tempe, Arizona. These pharmacies provide members with convenient access to maintenance and specialty medications and enable us to manage our clients’ drug costs through operating efficiencies and economies of scale. In addition, through our mail service pharmacies we are directly involved with the prescriber and member and, as a result, are generally able to achieve a higher level of generic substitutions and therapeutic interventions than can be achieved through the retail pharmacy networks.

Benefit Plan Design and Consultation. We offer consultation and financial modeling to assist our clients in selecting benefit plan designs that meet their needs for member satisfaction and cost control. The most common benefit design options we offer to our clients are:

• financial incentives and reimbursement limitations on the drugs covered by the plan, including drug formularies, tiered co-payments, deductibles or annual benefit maximums

• generic drug utilization incentives

• incentives or requirements to use only network pharmacies or to order certain maintenance drugs (i.e. therapies for diabetes, high blood pressure, etc.) only by mail

• reimbursement limitations on the amount of a drug that can be obtained in a specific period

The client’s choice of benefit design is entered into our electronic claims processing system, which applies the plan design parameters as claims are submitted and enables our clients and us to monitor the financial performance of the plan.

Formulary Development, Compliance and Therapy Management. Formularies are lists of drugs for which coverage is provided under the applicable plan. We have over ten years of formulary development expertise and maintain an extensive clinical pharmacy department.

Our foremost consideration in the formulary development process is the clinical appropriateness of the drug. In developing formularies, we first perform a rigorous assessment of the available evidence regarding the drug’s safety and clinical effectiveness. No drug is added to the formulary until it is approved by our National Pharmacy & Therapeutics Committee – a panel composed of seventeen independent physicians in active clinical practice, representing a variety of specialties and practice settings, typically with major academic affiliations. We fully comply with the Committee’s clinical recommendations. The Committee does not consider any information regarding the discount or rebate arrangement that we might negotiate with the manufacturer in making its clinical recommendation. This is designed to ensure that the clinical recommendation is not affected by our purchasing arrangements. After the clinical recommendation is made, the drugs are evaluated on an economic basis to determine optimal cost-effectiveness.

We administer a number of different formularies for our clients that identify preferred drugs whose use is encouraged through various benefit design features. Historically, many clients selected a plan design that included an open formulary in which all drugs were covered by the plan. Today, an increasing number of our clients are selecting formularies in which various financial or other incentives exist, such as three-tier co-payments, for the selection of formulary drugs over their non-formulary counterparts. Some clients select closed formularies, in which benefits are available only for drugs listed on the formulary. In 2003, about 54% of all claims fell into three-tier or closed categories compared to 52% for 2002 and 42% for 2001. Use of formulary drugs can be encouraged:

• by restricting the formulary through plan design features, such as tiered co-payments, which require the member to pay a higher amount for a non-formulary drug

• through prescriber education programs, in which we or the client actively seek to educate the prescribers about formulary drugs

• through our drug choice management program, which actively promotes lower cost therapeutic and generic interchanges to clinically appropriate cost-effective products

Once the formulary has been selected by the client, the client can participate in one of the rebate arrangements we offer. The level of participation in our rebate programs varies by client (see “Products and Services – Pharmacy Benefit Management Services – Overview”). In situations where we pay all or a portion of rebates to

the client, the client has a contractual right to audit our calculation of their rebate payment to ensure they have received the amount to which they are entitled.

We have two different types of rebate contracts with pharmaceutical manufacturers. The rebates paid by pharmaceutical manufacturers under both types of contracts are a function of the brand drugs dispensed to our clients’ members in our retail pharmacy networks and from our mail order pharmacies. The contracts primarily differ in the manner in which the rebates are calculated.

The first type of rebate contract is called the “preferred savings grid” (“PSG”) program. Under the PSG program, rebates are based on the characteristics of the formulary design selected by the client. The second type of rebate contract is called the “market share” program. Under the market share program we negotiate with manufacturers for rebates to be paid based upon the market share of the brand drugs sold by those manufacturers in our clients’ plans, as compared to the national market share of the drugs. In both cases manufacturers pay us administrative fees for certain services we perform in administering the formulary program.

We also provide formulary compliance services to our clients. For example, if a doctor has not prescribed the preferred drug on a client formulary, we notify the pharmacist through our claims processing system. The pharmacist may then contact the doctor to attempt to obtain the doctor’s consent to change the prescription to the preferred product. For those clients that choose to enroll in our drug choice management program, we may contact the physician’s office to provide information about the preferred drugs on the clients’ formulary and to request that the physician consider changing the prescription to the preferred drug. The doctor has the final decision-making authority in prescribing the medication and we never recommend a change to a higher cost medication. The doctor will consider the recommended substitution in light of the patient’s medical history and approve or deny the recommended substitution.

We also offer innovative clinical intervention programs to assist and manage patient quality of life, client drug trend, and physician communication/education. These programs encompass comprehensive point of service and retrospective drug utilization review, proactive patient prescription compliance education, physician profiling, academic detailing, prior authorization, disease care management, and clinical guideline dissemination to physicians.

Historically, we received funding from pharmaceutical manufacturers in support of certain formulary support programs, such as our drug choice management program and our therapy adherence program. Starting in January 2003, we began eliminating manufacturer funding for these programs and as of October 1, 2003, such funding was completely phased out. We continue to provide formulary support programs for our clients without this targeted manufacturer funding.

Information Reporting and Analysis and Disease Management Programs. Through the use of sophisticated information and reporting systems we are better able to manage the prescription drug benefit. We analyze prescription drug data to identify cost trends and budget for expected drug costs, assess the financial impact of plan design changes and assist clients in identifying costly utilization patterns through an online prescription drug decision support tool.

We offer disease management and education programs to members in managing clinical outcomes and the total health care costs associated with certain conditions such as asthma, diabetes and cardiovascular disease. These programs are based on the premise that better informed patient and physician behavior can positively influence medical outcomes and reduce overall medical costs. We identify patients who may benefit from these programs through claims data analysis or self-enrollment.

We offer a tiered approach to member education and wellness, ranging from information provided through our Internet site, to educational mailings, to our intensive one-on-one registered nurse or pharmacist counseling. The programs include providing patient profiles directly to their physicians, as well as measurements of the clinical, personal and economic outcomes of the programs.

Electronic Claims Processing System. Our electronic claims processing system enables us to implement sophisticated intervention programs to assist in managing prescription drug utilization. The system can alert the

pharmacist to generic substitution and therapeutic intervention opportunities as well as formulary compliance issues, or administer prior authorization and step-therapy protocol programs at the time a claim is submitted for processing. Our claims processing system also creates a database of drug utilization information that can be accessed both at the time the prescription is dispensed and also on a retrospective basis to analyze utilization trends and prescribing patterns for more intensive management of the drug benefit.

Consumer Health and Drug Information. In 1999, we launched www.DrugDigest.org, a consumer health information website that provides a comprehensive source of non-commercial, evidence-based drug information both for the public and for our clients’ members. The information on DrugDigest.org is supplied by licensed doctors of pharmacy from leading academic institutions, our staff physicians, medical editors who review the materials for accuracy and timeliness, and other respected health information sources. DrugDigest.org’s comprehensive portfolio of consumer-friendly drug information includes a drug interaction checker, a drug side effect comparison tool, instructional videos for drug administration, charts to compare different drugs (including generics) used to treat the same health condition and other information to assist our clients’ members and the public in making informed medication decisions. The “Senior Corner” contains helpful information for seniors. During 2003, DrugDigest.org also added pill images and audio pronunciations to the Drug Library database, allowing consumers to view images of both brand name and generic medications and to listen to the correct pronunciations of medications. Recently, DrugDigest.org received its second Merit Award from WWW Health Awards (http://www.healthawards.com), a program recognizing the best health-related websites for consumers and professionals. DrugDigest.org also was mentioned in BusinessWeek Online as a trustworthy site available to help consumers avoid harmful drug interactions.

Many of DrugDigest.org’s features have been integrated into the express-scripts.com member website, including drug monographs, drug comparisons, interaction and side effect checkers and health condition information. Direct access to DrugDigest.org’s information through express-scripts.com gives our clients’ members relevant, personalized information based on their current medications and prescription history. In addition, members have access to interactive tools, including the ability to check drug interactions and compare side effects for all of the drugs in their prescription history. In 2003, DrugDigest.org’s health condition information was incorporated into a comprehensive information packet available to members called “For Your Physician Visit,” which enables patients to select and print checklists on common health conditions such as diabetes and depression, which can be discussed with their physician. DrugDigest.org’s incorporation into the member portal helps members effectively manage their drug therapies with a more personalized version of DrugDigest.org that includes information about their enrollment benefits and drug costs.

In addition to PBM services, we also provide certain non-PBM services through our Pharma Business Solutions unit including:

	•		distribution of pharmaceuticals requiring special handling or packaging where we have been selected by the pharmaceutical manufacturer as part of a limited distribution network.

	•		distribution of pharmaceuticals through Patient Assistance Programs where we receive a fee from pharmaceutical manufacturers for administrative and pharmacy services for the delivery of certain drugs free of charge to doctors for their indigent patients

	•		distribution of sample units to physicians and verification of practitioner licensure prior to sample distribution through our wholly owned subsidiary, Phoenix Marketing Group, LLC (“PMG”)

In 2003, we filled 3.6 million specialty distribution prescriptions, compared to 3.1 million in 2002 and 1.9 million in 2001. During 2003, 1.5% of our revenues were derived from non-PBM services, compared to 1.2% and 0.8% during 2002 and 2001, respectively.

Express Scripts Specialty Distribution Services. We provide specialty distribution services, consisting of the distribution of, and creation of a database of information for, products requiring special handling or packaging, products targeted to a specific physician or patient population, and products distributed to low-income patients. Our services include eligibility, fulfillment, inventory, insurance verification/authorization and payment. Specialty distribution revenues are derived from administrative fees received from drug manufacturers and from buying and selling pharmaceuticals. We also administer sample card programs for certain manufacturers where the ingredient

costs of pharmaceuticals dispensed from retail pharmacies are included in revenues, as well as costs of revenues. SDS services are provided from our Maryland Heights, Missouri facility.

Phoenix Marketing Group. PMG is a leader in sample accountability, database management and practitioner verification services for the pharmaceutical industry. In addition, PMG operates the nation’s largest prescription drug sample fulfillment business, shipping approximately 100 million sample units in 2003 and 83 million and 95 million units in 2002 and 2001, respectively.

Information regarding our segments appears in Note 14 of the notes to our consolidated financial statements.

We maintain a large inventory of brand name and generic pharmaceuticals in our mail pharmacies. If a drug is not in our inventory, we can generally obtain it from a supplier within one business day. We purchase our pharmaceuticals either directly from manufacturers or through wholesalers. Currently, approximately 95% of our branded pharmaceutical purchases are through one wholesaler. Generic pharmaceuticals are generally purchased directly from manufacturers. We believe that alternative sources of supply for most generic and brand name pharmaceuticals are readily available.

We are a provider of PBM services to several market segments and our clients include HMOs, health insurers, third-party administrators, employers, union-sponsored benefit plans and government health programs. Our top five clients represented 17.8% of revenues in 2003. None of our clients accounted for 10% or more of our consolidated revenues in fiscal years 2003, 2002 or 2001.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law by President Bush on December 8, 2003. The Act created a new voluntary prescription drug benefit under the Medicare program by adding a new Part D to the Social Security Act. Beginning on January 1, 2006, eligible Medicare beneficiaries will be able to obtain prescription drug coverage under Part D by enrolling in a prescription drug plan (“PDP”) in their geographic region. The Act also established a Medicare managed care program called “Medicare Advantage,” which will replace the current Medicare + Choice program. Enrollees in a Medicare Advantage plan that offers prescription drug coverage will be able to obtain drug coverage through the plan and will not be eligible to enroll in a PDP.

The Act imposes various requirements on PDP sponsors and Medicare Advantage plans that offer drug coverage, including requirements relating to the prescription drug benefits offered, the disclosure of negotiated price concessions made available by drug manufacturers, pharmacy access and participation, and the development and application of formularies. Additional requirements may be contained in regulations to be issued under the Act by the Centers for Medicare & Medicaid Services (“CMS”). To the extent that Express Scripts serves as a PDP sponsor or provides services to PDP sponsors and Medicare Advantage plans, it will be required to comply with the applicable provisions of the Act and CMS regulations.

The Act also created a voluntary Medicare prescription drug discount card program. Under the program, eligible Medicare beneficiaries will be able to obtain a discount card from private card sponsors endorsed by CMS. The discount card will enable the beneficiary to purchase covered prescription drugs at network pharmacies for negotiated prices, under arrangements made by the card sponsor with pharmacies and drug manufacturers. The Medicare discount card program is required to be implemented by no later than six months after enactment of the Act and will continue in effect through December 31, 2005 (with certain provisions for a transition of beneficiaries to Part D coverage that apply after that date).

In January 2004, we and the National Association of Chain Drugstores (“NACDS”) submitted an application to CMS through Pharmacy Care Alliance, Inc. (“PCA”), a jointly controlled organization, seeking endorsement of the PCA national Medicare drug discount card program. We will provide PBM services to PCA, including the negotiation of discounts from individual retailers and pharmaceutical manufacturers, the enrollment of cardholders and the processing of claims. We have also agreed to provide services to several of our clients who have submitted their own applications. The Act and the Medicare discount card program regulations issued by CMS contain various requirements that would apply to Express Scripts’ activities in connection with the program, including requirements relating to the types of drugs covered by a discount card program, disclosure to CMS of certain information related to prices and rebates negotiated by the sponsor with pharmacies and drug manufacturers, and oversight of endorsed card programs by CMS.

On January 30, 2004, we purchased the capital stock of CuraScript Pharmacy, Inc. and CuraScript PBM Services, Inc. (collectively, “CuraScript”), for a purchase price of approximately $335 million. CuraScript is one of the nation’s largest specialty pharmacy services companies serving over 175 managed care organizations, 30 Medicaid programs and the Medicare program and operating seven specialty pharmacies throughout the United States. The acquisition will enhance Express Scripts’ ability to provide comprehensive clinical services in many disease states.

On December 19, 2002, we entered into an agreement with Managed Pharmacy Benefits, Inc. (“MPB”) under which we acquired certain assets from MPB for approximately $11.1 million in cash, plus the assumption of certain liabilities. MPB is a St. Louis-based PBM and subsidiary of Medicine Shoppe International, Inc., a franchisor of apothecary-style retail pharmacies, owned by Cardinal Health, Inc.

On April 12, 2002, we completed the acquisition of National Prescription Administrators, Inc., a privately held full-service PBM, and certain related entities (collectively “NPA”), for a purchase price of approximately $466 million, which includes the issuance of 552,000 shares of our common stock (fair value of $26.4 million upon the transaction announcement date), transaction costs and a working capital purchase price adjustment of $46.8 million. The addition of NPA brought Express Scripts a strong presence in providing service to union and government populations.

On February 25, 2002, we purchased (through PMG) substantially all of the assets utilized in the operation of Phoenix Marketing Group (Holdings), Inc., a wholly-owned subsidiary of Access Worldwide Communications, Inc. for $34.1 million in cash, including acquisition-related costs, plus the assumption of certain liabilities. PMG, one of the largest prescription drug sample fulfillment companies, works with over 50 pharmaceutical manufacturers worldwide to deliver sample medicines and clinical information to physicians’ offices.

All of our acquisitions have been accounted for using the purchase method of accounting.

General. As of December 31, 2003, we operated seven mail pharmacies and eight member service/pharmacy help desk call centers out of leased and owned facilities. Electronic pharmacy claims processing takes place at facilities owned by EDS and by IBM. At our Canadian facilities, we have sales and marketing, client services, pharmacy help desk, clinical, provider relations and certain management information systems capabilities.

Sales and Marketing. In the United States, our sales managers and directors market and sell PBM services, supported by a team of client-service representatives, clinical pharmacy managers and benefit analysis consultants. This team works with clients to make prescription drug use safer and more affordable. A dedicated sales staff cross-markets specialty pharmacy services to our PBM clients. In Canada, marketing and sales efforts are conducted by our staff based in Mississauga, Ontario.

Member Services. Although we contract with health plans, the ultimate recipients of many of our services

are the members of these health plans. We believe that client satisfaction is dependent upon member satisfaction. Members can call us toll-free, 24 hours a day, 7 days a week, to obtain information about their prescription drug plan from our trained member service representatives.

Provider Relations. Our Provider Relations group is responsible for contracting and administering our pharmacy networks. To participate in our retail pharmacy networks, pharmacies must meet certain qualifications, including the requirement that all applicable state licensing requirements are being maintained. Pharmacies can contact our pharmacy help desk toll-free, 24 hours a day, 7 days a week, for information and assistance in filling prescriptions for our clients’ members. In addition, our Provider Relations group audits pharmacies in the retail pharmacy networks to determine compliance with the terms of their contracts.

Clinical Support. We employ physicians, clinical pharmacists, registered nurses and data analysts who provide technical support for our PBM services. These staff members assist in providing clinical pharmacy services such as formulary development and management, drug information programs, clinical interventions with physicians and members, development of drug therapy guidelines and the evaluation of drugs for inclusion in clinically sound therapeutic intervention programs.

The mission of our Office of Research and Planning is to conduct timely, rigorous, and objective research to support evidence-based pharmacy benefit management. The research department evaluates the cost-effectiveness of drug therapies, evaluates pharmacy benefit designs and clinical offerings, and conducts various other studies related to clinical and financial aspects of the pharmacy benefit. For example, in June 2003 we released our 2002 Drug Trend Report, marking our seventh consecutive year of tracking drug trends. Based on a large sample of our membership base, the report examines trends in pharmaceutical utilization and cost, and the factors that underlie those trends. Results of this and other studies are shared at our annual outcomes conference as well as through various publications and other client forums.

Information Systems. Our Information Systems department supports our pharmacy claims processing systems and other management information systems that are essential to our operations. Uninterrupted point-of-sale electronic retail pharmacy claims processing is a significant operational requirement for us. All domestic claims are presently processed through systems which are maintained, managed and operated by EDS at their Auburn Hills, Michigan facility. Canadian claims are processed through systems maintained, managed and operated by IBM at their Montreal, Quebec facility. Disaster recovery services for all systems are provided through our EDS services agreement and SunGard Availability Services. We have substantial capacity for growth in our claims processing facilities.

We believe the primary competitive factors in each of our businesses are price, quality and scope of service. We believe our principal competitive advantages are our strong managed care and employer group customer base that supports the development of more sophisticated PBM services, and our commitment to provide flexible and distinctive service to our clients.

There are other PBMs in the United States, most of which are smaller than us and offer their services on a local or regional basis. We do, however, compete with a number of large, national companies, including Medco Health Solutions, Inc. (“Medco”), AdvancePCS and CaremarkRx, Inc. (“Caremark”), as well as large health insurers and certain HMOs which have their own PBM capabilities. Several of these competitors may have greater financial, marketing and technological resources than us.

Consolidation, including the pending acquisition of AdvancePCS by Caremark, has been, and may continue to be, an important factor in all aspects of the pharmaceutical industry, including the PBM segment. We believe the size of our membership base provides us with the necessary economies of scale to compete effectively in a consolidating market.

Some of our PBM services, such as disease management services, compete with those being offered by pharmaceutical manufacturers, other PBMs, large national companies, specialized disease management companies and information service providers. Our non-PBM services compete with a number of large national companies as

Many aspects of our businesses are regulated by federal and state laws and regulations. Since sanctions may be imposed for violations of these laws, compliance is a significant operational requirement. We believe we are operating our business in substantial compliance with all existing legal requirements material to the operation of our businesses. There are, however, significant uncertainties involving the application of many of these legal requirements to our business. In addition, there are numerous proposed health care laws and regulations at the federal and state levels, many of which could adversely affect our business or financial position. We are unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future relating to our business or the health care industry in general, or what effect any such legislation or regulations might have on us. We cannot provide any assurance that federal or state governments will not impose additional restrictions or adopt interpretations of existing laws that could have a material adverse affect on our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations.

Pharmacy Benefit Management Regulation Generally. Certain federal and state laws and regulations affect or may affect aspects of our PBM business. Among the laws and regulations that impact or may impact our business are the following:

Anti-Kickback Laws. Subject to certain exceptions and “safe harbors,” the federal anti-kickback statute generally prohibits, among other things, knowingly and willfully paying or offering any payment or other remuneration to induce a person to purchase, lease, order, or arrange for (or recommend purchasing, leasing, or ordering) items (including prescription drugs) or services reimbursable in whole or in part under Medicare, Medicaid or another federal health care program. The anti-kickback statute also generally prohibits soliciting or receiving payments or other remuneration for these purposes. Several states also have similar laws, some of which apply similar anti-kickback prohibitions to items or services reimbursable by HMOs, private insurers and other non-governmental payors. These state laws vary and have been infrequently interpreted by courts or regulatory agencies. Sanctions for violating these federal and state anti-kickback laws may include criminal and civil fines and exclusion from participation in the Medicare and Medicaid programs.

The federal anti-kickback statute has been interpreted broadly by courts, the Office of Inspector General (“OIG”) within the Department of Health and Human Services, and administrative bodies. Because of the federal statute’s broad scope, federal regulations establish certain “safe harbors” from liability. Safe harbors exist for certain properly reported discounts received from vendors, certain investment interests, certain payments for personal services, certain properly disclosed payments made by vendors to group purchasing organizations, and certain discount and payment arrangements with HMO risk contractors serving Medicaid and Medicare members. A practice that does not fall within a safe harbor is not necessarily unlawful, but may be subject to scrutiny and challenge. In the absence of an applicable exception or safe harbor, a violation of the statute may occur even if only one purpose of a payment arrangement is to induce patient referrals or purchases. Among the practices that have been identified by the OIG as potentially improper under the statute are certain “product conversion programs” in which benefits were given by drug manufacturers to pharmacists or physicians for changing a prescription (or recommending or requesting such a change) from one drug to another. Such laws have been cited as a partial basis, along with state consumer protection laws discussed below, for investigations and multi-state settlements relating to financial incentives provided by drug manufacturers to retail pharmacies in connection with such programs. See Item 3 – Legal Proceedings for discussion of current proceedings relating to these laws or regulations.

The OIG issued the final Compliance Program Guidance for Pharmaceutical Manufacturers (the “Guidance”) on April 28, 2003. The Guidance, which represents OIG’s general views and is not legally binding, contains guidelines for the design and operation of voluntary programs by pharmaceutical manufacturers to promote compliance with the laws relating to federal health care programs. In addition, the Guidance identifies certain risk areas for pharmaceutical manufacturers, including certain types of arrangements between manufacturers and PBMs, pharmacies, physicians and others that have the potential to implicate the anti-kickback statute. The Guidance contains a discussion of how manufacturers can structure their arrangements with PBMs, such as rebate programs and formulary support activities, to comply with the anti-kickback statute.

Stark Law. The federal physician self-referral law, known as the “Stark Law,” prohibits physicians from referring Medicare or Medicaid beneficiaries for “designated health services” (which include, among other things, outpatient prescription drugs) to an entity with which the physician or an immediate family member of the physician has a financial relationship and prohibits the entity receiving a prohibited referral from presenting a claim to Medicare or Medicaid for the designated health service furnished under the prohibited referral. Our mail service pharmacies dispense certain outpatient prescription drugs that may be directly or indirectly reimbursed by the Medicare or Medicaid programs, potentially making us subject to the Stark Law’s requirements with respect to such pharmacy operations.

Possible penalties for violation of the Stark Law include denial of payment, refund of amounts collected in violation of the statute, civil monetary penalties and Medicare and Medicaid program exclusion. The Stark Law contains certain statutory exceptions for physician referrals and physician financial relationships, and the Centers for Medicare & Medicaid Services (“CMS”) has promulgated regulations under the Stark Law which provide some guidance on interpretation of the scope of and exceptions to the Stark Law.

State Self-Referral Laws. Our mail service pharmacy operations may also be subject to statutes and regulations that prohibit payments for referral of individuals from or by physicians to health care providers with whom the physicians have a financial relationship. These state laws and their exceptions may vary from the federal Stark Law and vary significantly from state to state. Some of these state statutes and regulations apply to items and services reimbursed by private payors. Violation of these laws may result in prohibition of payment for items or services provided, loss of pharmacy or health care provider licenses, fines and criminal penalties. State self-referral laws are often vague, and, in many cases, have not been widely interpreted by courts or regulatory agencies.

False Claims Act and Related Criminal Provisions. The federal False Claims Act (the “False Claims Act”) imposes civil penalties for knowingly making or causing to be made false claims with respect to governmental programs, such as Medicare and Medicaid, for services not rendered, or for misrepresenting actual services rendered, in order to obtain higher reimbursement. Private individuals may bring qui tam or “whistle blower” suits against providers under the False Claims Act, which authorizes the payment of a portion of any recovery to the individual bringing suit. Such actions are initially required to be filed under seal pending their review by the Department of Justice. A few federal district courts have recently interpreted the False Claims Act as applying to claims for reimbursement that violate the anti-kickback statute or federal physician self-referral law under certain circumstances. The False Claims Act generally provides for the imposition of civil penalties and for treble damages, resulting in the possibility of substantial financial penalties for small billing errors that are replicated in a large number of claims, as each individual claim could be deemed to be a separate violation of the False Claims Act. Criminal provisions that are similar to the False Claims Act provide that if a corporation is convicted of presenting a claim or making a statement that it knows to be false, fictitious or fraudulent to any federal agency it may be fined. Some states also have enacted statutes similar to the False Claims Act which may include criminal penalties, substantial fines, and treble damages.

ERISA Regulation. The Employee Retirement Income Security Act of 1974 (“ERISA”) regulates certain aspects of employee pension and health benefit plans, including self-funded corporate health plans with respect to which we have agreements to provide PBM services. We believe that the conduct of our business is not generally subject to the fiduciary obligations of ERISA, and our agreements with our clients provide that we are not the fiduciary of the applicable plan. However, there can be no assurance that the U.S. Department of Labor (the “DOL”), which is the agency that enforces ERISA, would not assert that the fiduciary obligations imposed by ERISA apply to certain aspects of our operations or that courts in private ERISA litigation would not so rule.

In addition to its fiduciary provisions, ERISA imposes civil and criminal liability on service providers to health plans and certain other persons if certain forms of illegal remuneration are made or received. These provisions of ERISA are similar, but not identical, to the health care anti-kickback statutes discussed in the preceding paragraphs; in particular, ERISA lacks the statutory and regulatory “safe harbor” exceptions incorporated into many of the above-discussed statutes. Like the health care anti-kickback laws, the corresponding provisions of ERISA are broadly written and their application to particular cases is often uncertain. See Item 3 – Legal Proceedings for discussion of current proceedings relating to these laws or regulations.

Effective January 2004, the DOL issued claims procedure regulations (“Claims Rules”) that create standards applicable to our clients that are regulated under ERISA for initial and appeal level decisions, time frames for decision making, and enhanced disclosure rights for claimants. We have implemented, and will implement in the future, changes to our operational processes, as necessary to accommodate our clients’ compliance needs.

FDA Regulation. The U.S. Food and Drug Administration (the “FDA”) generally has authority to regulate drug promotional materials that are disseminated “by or on behalf of” a drug manufacturer. In January 1998, the FDA issued a Notice and Draft Guidance regarding its intent to regulate certain drug promotion and switching activities of PBMs. The FDA withdrew the Draft Guidance in the fall of 1998, stating that it would reconsider the basis for such Guidance. The FDA has not addressed the issue since the withdrawal of the Guidance. The FDA also enforces federal laws restricting the importation of prescription drugs into the United States from Canada and other countries.

Proposed Changes in Canadian Healthcare System. In Canada, the provincial health plans provide universal coverage for basic health care services, but prescription drug coverage under the government plans is provided only for the elderly and the indigent. In late 1997, a proposal was made by a federal government health care task force to include coverage for prescription drugs under the provincial health insurance plans, which was endorsed by the federal government’s Health Minister. This report was advisory in nature, and not binding upon the federal or provincial governments.

In 2002, the Standing Senate Committee on Social Affairs, Science and Technology (the “Senate Committee”), headed by Liberal Senator Michael Kirby and Roy Romanow’s Royal Commission on the Future of Healthcare in Canada (the “Royal Commission”) reviewed Canada’s public health system in order to make recommendations on how to make the healthcare system more efficient and sustainable for Canadians. Reports issued by both the Senate Committee and the Royal Commission included recommendations concerning the role of the Canadian government in protecting individuals from prescription drug costs associated with catastrophic illnesses. Since the reports of both bodies were limited to catastrophic drug coverage and did not recommend a universal pharmacare program, we believe that this initiative is unlikely to have a material effect on our Canadian operations.

Comprehensive PBM Regulation. Legislation regulating PBM activities in a comprehensive manner is being considered in a number of states. In addition, certain organizations, such as the National Association of Insurance Commissioners (“NAIC,” an organization of state insurance regulators), and the National Committee on Quality Assurance (“NCQA,” an accreditation organization) as well as certain state pharmacy boards are considering proposals to regulate PBMs and/or PBM activities, such as formulary development and utilization management. While the actions of the NAIC would not have the force of law, they may influence states to adopt model legislation that such organizations promulgate. In addition, standards established by NCQA could materially impact us directly as a PBM, and indirectly through the impact on our managed care and health insurance clients.

Consumer Protection Laws. Most states have consumer protection laws that previously have been the basis for investigations and multi-state settlements relating to financial incentives provided by drug manufacturers to retail pharmacies in connection with drug switching programs. See “Item 3 – Legal Proceedings” for discussion of current proceedings relating to these laws or regulations.

Network Access Legislation. A majority of states now have some form of legislation affecting our ability to limit access to a pharmacy provider network or removal of a network provider. Such legislation may require us or our clients to admit any retail pharmacy willing to meet the plan’s price and other terms for network participation (“any willing provider” legislation); or may provide that a provider may not be removed from a network except in compliance with certain procedures (“due process” legislation). We have not been materially affected by these statutes.

Legislation Affecting Plan Design. Some states have enacted legislation that prohibits managed care plan sponsors from implementing certain restrictive benefit plan design features, and many states have introduced legislation to regulate various aspects of managed care plans, including provisions relating to the pharmacy benefit. For example, some states, under so-called “freedom of choice” legislation, provide that members of the plan may not be required to use network providers, but must instead be provided with benefits even if they choose to use non-

network providers. Other states have enacted legislation purporting to prohibit health plans from offering members financial incentives for use of mail service pharmacies. Legislation has been introduced in some states to prohibit or restrict therapeutic intervention, or to require coverage of all FDA approved drugs. Other states mandate coverage of certain benefits or conditions, and require health plan coverage of specific drugs if deemed medically necessary by the prescribing physician. Such legislation does not generally apply to us directly, but it may apply to certain of our clients, such as HMOs and health insurers. If such legislation were to become widely adopted and broad in scope, it could have the effect of limiting the economic benefits achievable through pharmacy benefit management. This development could have a material adverse effect on our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations.

Licensure Laws. Many states have licensure or registration laws governing certain types of managed care organizations, including PPOs, TPAs, and companies that provide utilization review services. The scope of these laws differs from state to state, and the application of such laws to the activities of pharmacy benefit managers often is unclear. We have registered under such laws in those states in which we have concluded, after discussion with the appropriate state agency, that such registration is required. Because of increased regulatory requirements on some of our managed care clients affecting prior authorization of drugs before coverage is approved, we have obtained utilization review licenses in selected states through our new subsidiary, ESI Utilization Management Co. In addition, accreditation agencies’ requirements for managed care organizations and Medicare + Choice regulations may affect the services we provide to such organizations.

Legislation and Regulation Affecting Drug Prices. Some states have adopted so-called “most favored nation” legislation providing that a pharmacy participating in the state Medicaid program must give the state the best price that the pharmacy makes available to any third party plan. Such legislation may adversely affect our ability to negotiate discounts in the future from network pharmacies. Other states have enacted “unitary pricing” legislation, which mandates that all wholesale purchasers of drugs within the state be given access to the same discounts and incentives. Such legislation has been introduced in the past but not enacted in Missouri, Arizona, Pennsylvania, New York, and New Mexico, all states where we operate mail service pharmacies. Such legislation, if enacted in a state where one of our mail service pharmacies is located, could adversely affect our ability to negotiate discounts on our purchase of prescription drugs to be dispensed by our mail service pharmacies.

In addition, various federal and state Medicaid agencies and other enforcement officials are investigating the effects of pharmaceutical industry pricing practices such as how average wholesale price (“AWP”) is calculated and how pharmaceutical manufacturers report their “best price” on a drug under the federal Medicaid rebate program. AWP is a standard pricing measure (calculated by a third-party such as First Data Bank) used throughout the industry, as well as by us, as a basis for calculating drug prices under our contracts with health plans and pharmacies and rebates with pharmaceutical manufacturers. Changes to the AWP standard have been suggested that could alter the calculation of drug prices for federal programs. We are unable to predict whether any such changes will be adopted, and if so, if such changes would have a material adverse impact on our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations.

Further, the federal Medicaid rebate program requires participating drug manufacturers to provide rebates on all drugs purchased by state Medicaid programs. Manufacturers of brand name products must provide a rebate equivalent to the greater of (a) 15.1% of the “average manufacturer price” (“AMP”) paid by wholesalers for products distributed to the retail pharmacy class of trade and (b) the difference between AMP and the “best price” available to essentially any customer other than the Medicaid program, with certain exceptions. We negotiate rebates with drug manufacturers and, in certain circumstances, sell services to drug manufacturers. Investigations have been commenced by certain governmental entities which question whether “best prices” were properly calculated, reported and paid by the manufacturers to the Medicaid programs. We are not responsible for such calculations, reports or payments. There can be no assurance, however, that our ability to negotiate rebates with, or sell services to, drug manufacturers will not be materially adversely affected by such investigations in the future.

Regulation of Financial Risk Plans. Fee-for-service prescription drug plans generally are not subject to financial regulation by the states. However, if a PBM offers to provide prescription drug coverage on a capitated basis or otherwise accepts material financial risk in providing the benefit, laws in various states may regulate the PBM. Such laws may require that the party at risk establish reserves or otherwise demonstrate financial responsibility. Laws that may apply in such cases include insurance laws, HMO laws or limited prepaid health

State Fiduciary Legislation. Statutes have been introduced in several states which purport to declare that a PBM is a fiduciary with respect to its clients. The fiduciary obligations that such statutes would impose would be similar, but not identical, to the scope of fiduciary obligations under ERISA. To date only Maine has enacted such a statute. Our trade association, Pharmaceutical Care Management Association (“PCMA”) has filed suit in Federal District Court in Maine alleging, among other things, that the statute is preempted by ERISA with respect to welfare plans that are subject to ERISA. The court has not yet ruled in this case. Widespread enactment of such statutes could have a material adverse effect upon our financial condition, results of operations and cash flows.

Regulation of Disease Management Services. Our disease management programs are affected by many of the same types of state laws and regulations as our other activities. In addition, all states regulate the practice of medicine and the practice of nursing. We do not believe our disease management activities constitute either the practice of medicine or the practice of nursing. However, there can be no assurance that a regulatory agency in one or more states may not assert a contrary position, and we are not aware of any controlling legal precedent for services of this kind.

ERISA Preemption. Many of the state laws described above may be preempted in whole or in part by ERISA, with respect to self-funded plans which provides for comprehensive federal regulation of employee benefit plans. However, the scope of ERISA preemption is uncertain and is subject to conflicting court rulings, and we provide services to certain clients, such as governmental entities, that are not subject to ERISA. Other state laws may be invalid in whole or in part as an unconstitutional attempt by a state to regulate interstate commerce, but the outcome of challenges to these laws on this basis is uncertain. Accordingly, compliance with state laws and regulations remains a significant operational requirement for us.

Mail Pharmacy Regulation. Our mail service pharmacies are located in Arizona, Missouri, New Mexico, New York, New Jersey and Pennsylvania, and we are licensed to do business as a pharmacy in each such state. Most of the states into which we deliver pharmaceuticals have laws that require out-of-state mail service pharmacies to register with, or be licensed by, the board of pharmacy or similar regulatory body in the state. These states generally permit the mail service pharmacy to follow the laws of the state in which the mail service pharmacy is located, although certain states require that we also employ a pharmacist licensed in that state. We believe we have registered each of our pharmacies in every state in which such registration is required.

Other statutes and regulations affect our mail service operations including the federal and state anti-kickback laws, federal Stark Law and state physician self-referral laws described above. Federal and state statutes and regulations govern the labeling, packaging, advertising and adulteration of prescription drugs and the dispensing of controlled substances. The Federal Trade Commission requires mail order sellers of goods generally to engage in truthful advertising, to stock a reasonable supply of the product to be sold, to fill mail orders within thirty days, and to provide clients with refunds when appropriate. The United States Postal Service has statutory authority to restrict the delivery of drugs and medicines through the mail to a degree that could have an adverse effect on our mail service operations.

HIPAA and Other Privacy Legislation. Most of our activities involve the receipt or use of confidential medical information concerning individual members. In addition, we use aggregated and anonymized data for research and analysis purposes and in some cases provide access to such data to pharmaceutical manufacturers. Various federal and state laws, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) (discussed below), currently regulate and restrict the use and disclosure of confidential medical information and new legislation is proposed from time to time in various states. To date, no such laws have been adopted that adversely impact our ability to provide our services, but there can be no assurance that federal or state governments will not enact legislation, impose restrictions or adopt interpretations of existing laws that could have a material adverse effect on our operations.

“business associate” under HIPAA in some instances with respect to our health plan clients and a “covered entity” under HIPAA when service is provided through our mail service pharmacies. Other HIPAA requirements relate to electronic transaction standards and code sets and the security of protected health information when it is maintained or transmitted electronically. HHS issued final regulations establishing certain electronic transaction standards and code sets in August 2000, with some modifications published in February 2003. The compliance deadline for these regulations was October 16, 2002 (or, for certain small health care plans and entities that submitted an appropriate plan for compliance to the Secretary of HHS, October 16, 2003). Final security regulations under HIPAA were published on February 20, 2003, and for most entities, the compliance date for these regulations is April 21, 2005.

Non-PBM Regulatory Environment. Our non-PBM activities operate in a regulatory environment that is quite similar to that of our PBM activities. In particular, one of our subsidiaries, Phoenix Marketing Group, LLC, conducts certain activities, including the distribution of drug samples, that are subject to the requirements of the federal Prescription Drug Marketing Act and many of the other federal and state laws and regulations discussed above.

Future Regulation. We are unable to predict accurately what additional federal or state legislation or regulatory initiatives may be enacted in the future relating to our businesses or the health care industry in general, or what effect any such legislation or regulations might have on us. There can be no assurance that federal or state governments will not impose additional restrictions or adopt interpretations of existing laws that could have a material adverse effect on our business or financial position.

We, and our subsidiaries, have registered the service marks “Express Scripts”, “Trend Central”, “PERx”, “ExpressTherapeutics”, “PERxCare”, “RxWorkbench”, “PTE”, “DrugDigest”, “M.U.S.I.C.”, “ValueRx”, “Value Health, Inc.” and “Diversified”, among others, with the United States Patent and Trademark Office. Our rights to these marks will continue so long as we comply with the usage, renewal filing and other legal requirements relating to the renewal of service marks. We are in the process of applying for registration of several other trademarks and service marks. If we are unable to obtain any additional registrations, we believe there would be no material adverse effect on our business.

Our PBM operations, including the dispensing of pharmaceutical products by our mail service pharmacies, and the services rendered in connection with our disease management and our non-PBM operations, may subject us to litigation and liability for damages. Commercial insurance coverage has become more difficult to obtain and premiums have increased substantially in the last year. Accordingly, our retained liability has increased, and we have established certain self-insurance reserves to cover potential claims. There can be no assurance that we will be able to maintain our professional and general liability insurance coverage in the future or that such insurance coverage, together with our self-insurance reserves, will be adequate to cover future claims. A claim, or claims, in excess of our insurance coverage could have a material adverse effect upon our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations.

As of January 1, 2004, we employed a total of 8,408 employees in the U.S. and 167 employees in Canada. Approximately 1,300 of the U.S. employees are members of collective bargaining units. Specifically, we employ members of the Service Employees International Union at our Bensalem, Pennsylvania facility, members of the United Auto Workers Union at our Farmington Hills, Michigan facility, members of the American Federation of State, County and Municipal Employees at our Harrisburg, Pennsylvania and East Hanover, New Jersey facilities and members of the United Food and Commercial Workers Union at our Albuquerque, New Mexico facility. We believe our relationships with our employees and the unions that represent them are good.

Mr. Toan was elected Chairman of the Board of Directors in November 2000, Chief Executive Officer in March 1992, a director in October 1990 and served as President between October 1990 and April 2002.

Mr. Paz was elected President in October 2003. Mr. Paz joined us and was elected Senior Vice President and Chief Financial Officer in January 1998.

Mr. Lowenberg was elected our Chief Operating Officer in September 1999, and served as our Senior Vice President and Director of Site Operations from October 1994 until September 1999.

Mr. Boudreau was elected Senior Vice President, General Counsel and Secretary in October 1994. He has served as General Counsel since June 1994.

Mr. Casteel was elected Senior Vice President – Supply Chain Management in September 2002. Prior to joining us, Mr. Casteel worked for WorldCom, Inc., a telecommunications company, serving as Vice President, Law and Public Policy, between January 2001 and September 2002, and as Regional Executive, Public Policy, between January 1996 and January 2001.

Mr. Ignaczak was elected Senior Vice President – Sales and Account Management in December 2002. Mr. Ignaczak joined us in April 1998 and served as the Vice President and General Manager of our National Employer Division between April 1998 and December 2002.

Mr. Meffe joined the Company as a result of our January 2004 acquisition of CuraScript, a specialty pharmacy business and PBM company. Mr. Meffe was elected Senior Vice President – Specialty Pharmacy Services in February 2004. Mr. Meffe served as President and Chief Operating Officer of CuraScript since August 2000. Prior to being elected President and CEO of CuraScript, Mr. Meffe served as president of Coram Prescription Services, a division of Coram Healthcare Corporation, between October 1997 and August 2000.

Mr. Porter joined us and was elected Senior Vice President – Client Services in July 2002. Prior to joining us, Mr. Porter worked for CIGNA HealthCare, a managed healthcare company, as Vice President – Employer Services between March 2001 and June 2002 and as Vice President – Transformation between October 1999 and February 2001. Between July 1998 and September 1999, Mr. Porter served as Vice President – Uniprise Operations

Ms. Rey-Giraud was elected Senior Vice President of Product Management in December 2003 and served as Senior Vice President – Program Development between July 2002 and December 2003. Ms. Rey-Giraud served as Vice President and General Manager – eBusiness between January 2000 and July 2002 and has served on the RxHub, LLC, Board of Directors since February 2000 (See “Rx-Hub”). Ms. Rey-Giraud joined us in May 1999 as a Senior Director of Administration and Operations. Prior to joining us in May 1999, Ms. Rey-Giraud worked for Xerox Corporation where she was Senior Director – Marketing Operations for the Production Publishing Systems Division between September 1997 and May 1999.

Mr. Tenholder was elected Senior Vice President and Chief Information Systems Officer in December 2000 and Chief Administration Officer in December 2003. Mr. Tenholder served as Executive Vice President and Chief Operating Officer of Blue Cross and Blue Shield of Missouri, a managed healthcare company, from October 1997 to December 2000.

Mr. Weinrich was elected Vice President, Chief Accounting Officer and Controller in May 2003. Mr. Weinrich previously served as Vice President and Treasurer from April 2001 to May 2003, Assistant Treasurer from August 2000 to April 2001 and Director of SEC Reporting from April 1998 to August 2000.

	•		risks associated with our acquisitions (including our acquisition of CuraScript) which include integration risks and costs, risks of client retention and repricing of client contracts, and risks associated with the operations of acquired businesses

	•		risks associated with our ability to maintain growth rates, or to control operating or capital costs

	•		continued pressure on margins resulting from client demands for lower prices, enhanced service offerings and/or higher service levels, and the possible termination of, or unfavorable modification to, contracts with key clients or providers

	•		competition in the PBM industry, and our ability to consummate contract negotiations with prospective clients, as well as competition from new competitors offering services that may in whole or in part replace services that we now provide to our customers

	•		adverse results in regulatory matters, the adoption of new legislation or regulations (including increased costs associated with compliance with new laws and regulations, such as privacy regulations under the Health Insurance Portability and Accountability Act (“HIPAA”)), more aggressive enforcement of existing legislation or regulations, or a change in the interpretation of existing legislation or regulations

	•		increased compliance risks relating to our contracts with the DoD TRICARE Plan and various state governments and agencies

	•		risks arising from investigations of certain PBM practices and pharmaceutical pricing, marketing and distribution practices currently being conducted by the U.S. Attorney offices in Philadelphia and Boston and other regulatory agencies, including the Department of Labor (“DOL”)

	•		the possible loss, or adverse modification of the terms, of relationships with pharmaceutical manufacturers, or changes in pricing, discount or other practices of pharmaceutical manufacturers

	•		adverse results in litigation, including a number of pending class action cases that challenge certain of our business practices

	•		risks associated with the use and protection of the intellectual property we use in our business

	•		risks associated with our leverage and debt service obligations, including the effect of certain covenants in our borrowing agreements

	•		risks associated with our ability to continue to develop new products, services and delivery channels

	•		general developments in the health care industry, including the impact of increases in health care costs, changes in drug utilization and cost patterns and introductions of new drugs

	•		uncertainties regarding the implementation and the ultimate terms of proposed government initiatives, including the Medicare prescription drug benefit

	•		increase in credit risk relative to our clients due to adverse economic trends

	•		risks associated with our inability to attract and retain qualified personnel

	•		other risks described from time to time in our filings with the SEC

Failure to Maintain Growth Rates, or to Control Operating or Capital Costs, Could Adversely Affect Our Business

We have experienced rapid growth over the past several years. Our ability to maintain our growth rate is dependent upon our ability to attract new clients, achieve growth in the membership base of our existing clients as well as cross-sell additional services to our existing clients. If we are unable to continue our client and membership growth, and manage our operating and capital costs, our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations could be materially adversely affected.

Client Demands for Enhanced Service Levels or Possible Loss or Unfavorable Modification of Contracts with Clients or Providers, Could Pressure Margins

As our clients face the continued rapid growth in prescription drug costs, they may demand additional services and enhanced service levels to help mitigate the increase in spending. We operate in a very competitive PBM environment, and we may not be able to increase our fees to compensate for these increased services, which could put pressure on our margins.

We currently provide PBM services to thousands of client groups. Our contracts with clients generally do not have terms longer than three years and, in some cases, are terminable by the client on relatively short notice. Our larger clients generally seek bids from other PBM providers in advance of the expiration of their contracts. If several of these large clients elect not to extend their relationship with us, and we are not successful in generating sales to replace the lost business, our future business and operating results could be materially adversely affected. In addition, we believe the managed care industry is undergoing substantial consolidation, and another party that is not our client could acquire some of our managed care clients. In such case, the likelihood such client would renew its PBM contract with us could be reduced.

More than 57,000 retail pharmacies, which represent more than 99% of all United States retail pharmacies, participate in one or more of our networks. However, the top ten retail pharmacy chains represent approximately 44.5% of the total number of stores in our largest network, and these pharmacy chains represent even higher concentrations in certain areas of the United States. Our contracts with retail pharmacies, which are non-exclusive, are generally terminable on relatively short notice. If one or more of the top pharmacy chains elects to terminate its relationship with us, our members’ access to retail pharmacies and our business could be materially adversely affected. In addition, many large pharmacy chains either own PBMs today, or could attempt to acquire a PBM in the future. Ownership of PBMs by retail pharmacy chains could have material adverse effects on our relationships with such pharmacy chains and on our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations.

The PBM business is very competitive. Our competitors include large and well-established companies that may have greater financial, marketing and technological resources than we do. Consolidation in the PBM industry, including the pending merger of Caremark and AdvancePCS, may lead to increased competition among a smaller number of large PBM companies. Competition may also come from other sources in the future. We cannot predict what effect, if any, these new competitors may have on the marketplace or on our business.

Over the last several years competition in the marketplace has caused many PBMs, including us, to reduce the prices charged to clients for core services and share a larger portion of the formulary fees and related revenues received from pharmaceutical manufacturers with clients. This combination of lower pricing and increased revenue sharing, as well as increased demand for enhanced service offerings and higher service levels, have put pressure on operating margins. We expect to continue marketing our services to larger clients, who typically have greater bargaining power than smaller clients. This might create continuing pressure on our margins. We can give no assurance that new services provided to these clients will fully compensate for these reduced margins.

Changes in State and Federal Regulations Could Restrict Our Ability to Conduct Our Business

Numerous state and federal laws and regulations affect our business and operations. The categories include, but are not necessarily limited to:

	•		health care fraud and abuse laws and regulations, which prohibit certain types of payments and referrals as well as false claims made in connection with health benefit programs

	•		ERISA and related regulations, which regulate many health care plans

	•		state legislation regulating PBMs or imposing fiduciary status on PBMs

	•		consumer protection and unfair trade practice laws and regulations

	•		network pharmacy access laws, including “any willing provider” and “due process” legislation, that affect aspects of our pharmacy network contracts

	•		legislation imposing benefit plan design restrictions, which limit how our clients can design their drug benefit plans

	•		various licensure laws, such as managed care and third party administrator licensure laws

	•		drug pricing legislation, including “most favored nation” pricing and “unitary pricing” legislation

	•		pharmacy laws and regulations

	•		privacy and confidentiality laws and regulations, including those under HIPAA

	•		the Medicare prescription drug coverage law

	•		other Medicare and Medicaid reimbursement regulations

	•		potential regulation of the PBM industry by the U.S. Food and Drug Administration

	•		pending legislation regarding importation of drug products into the United States

Many of these and other regulatory matters are discussed in more detail under “Business – Government Regulation” above.

We believe we are operating our business in substantial compliance with all existing legal requirements material to the operation of our business. There are, however, significant uncertainties regarding the application of many of these legal requirements to our business, and a number of state and federal law enforcement agencies and regulatory agencies have initiated investigations that involve certain aspects of our business or our competitors’ businesses. Accordingly, we cannot provide any assurance that one or more of these agencies will not interpret them differently, or, if there is an enforcement action brought against us, that our interpretation would prevail. In addition, there are numerous proposed healthcare laws and regulations at the federal and state levels, many of which could materially affect our ability to conduct our business or adversely affect our consolidated results of operations. We are unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future relating to our business or the healthcare industry in general, or what effect any such legislation or regulations might have on us.

In December 2000, the Department of Health and Human Services (“HHS”) issued final privacy regulations, pursuant to HIPAA, which, among other things, imposes restrictions on the use and disclosure of individually identifiable health information by certain entities. The compliance date for the final privacy regulations was April 14, 2003. We believe we are in compliance, in all material respects, with the regulations to the extent they apply to us. We are required to comply with certain aspects of these regulations. For example, we are a “business associate” under HIPAA in some instances with respect to our health plan clients and a “covered entity” under HIPAA when service is provided through our mail service pharmacies. Other HIPAA requirements relate to electronic transaction standards and code sets and the security of protected health information when it is maintained or transmitted electronically. HHS issued final regulations establishing certain electronic transaction standards and code sets in August 2000, with some modifications published in February 2003. The compliance deadline for these regulations was October 16, 2002 (or, for certain small health care plans and entities that submitted an appropriate plan for compliance to the Secretary of HHS, October 16, 2003). Final security regulations under HIPAA were published on February 20, 2003, and for most entities, the compliance date for these regulations is April 21, 2005.

Loss of Relationships with Pharmaceutical Manufacturers and Changes in the Regulation of Discounts and Formulary Fees Provided to Us by Pharmaceutical Manufacturers Could Decrease Our Profits

	•		discounts at the time we purchase the drugs to be dispensed from our mail pharmacies

	•		rebates based upon sales of drugs from our mail pharmacies and through pharmacies in our retail networks

	•		administrative fees for managing rebate programs, including the development and maintenance of formularies which include the particular manufacturer’s products

If several of these contractual relationships are terminated or materially altered by the pharmaceutical manufacturers, our operating results could be materially adversely affected. In addition, formulary fee programs have been the subject of debate in federal and state legislatures and various other public and governmental forums. Changes in existing laws or regulations or in interpretations of existing laws or regulations or the adoption of new laws or regulations relating to any of these programs may materially adversely affect our business.

Pending and Future Litigation Could Subject Us to Significant Monetary Damages and/or Require Us to Change Our Business Practices

We are subject to risks relating to litigation and other proceedings in connection with our PBM operations, including the dispensing of pharmaceutical products by our mail service pharmacies, and the services rendered in connection with our disease management and our non-PBM operations. A list of a number of the more significant proceedings pending against us is included under “Item 3 – Legal Proceedings”. These proceedings generally seek unspecified monetary damages and injunctive relief on behalf of a class of plaintiffs that are either our clients or individual members of health plans. While we believe that these suits are without merit and intend to contest them vigorously, we can give no assurance that an adverse outcome in one or more of these suits would not have a material adverse effect on our financial condition, or would not require us to make material changes to our business practices. We are presently responding to several subpoenas and requests for information from governmental agencies. See “Item 3 – Legal Proceedings.” We cannot predict with certainty what the result of any such inquiry

might be. In addition to potential monetary liability arising from these suits and proceedings, we are incurring costs in the defense of the suits and in providing documents to government agencies. Certain of the costs are covered by our insurance, but certain other costs are not insured. While such costs have not been material to our consolidated results of operations to date, we can give no assurance that such costs will not become material in the future.

Our Leverage and Debt Service Obligations Could Impede Our Operations and Flexibility

	•		we will have to use a portion of our cash flow from operations for debt service rather than for our operations

	•		we may from time to time incur additional indebtedness under our revolving credit facility, which is subject to a variable interest rate, making us vulnerable to increases in interest rates

	•		we could be less able to take advantage of significant business opportunities, such as acquisition opportunities, and react to changes in market or industry conditions

	•		we could be more vulnerable to general adverse economic and industry conditions

	•		we may be disadvantaged compared to competitors with less leverage

Failure to Develop New Products, Services and Delivery Channels May Adversely Affect Our Business

channels, such as the Internet, to communicate and interact with our clients, members and business partners. If our competitors are more successful than us in employing this technology, our ability to attract new clients, retain existing clients and operate efficiently may suffer.

Efforts to Reduce Health Care Costs and Alter Health Care Financing Practices Could Adversely Affect Our Business

Certain proposals have been made in the United States to control health care costs, including prescription drug costs, in response to increases in prescription drug utilization rates and drug prices. These proposals include “single – payer” government funded health care, and price controls on prescription drugs. If these or similar efforts are successful or if prescription drug utilization rates were to decrease significantly, whether due to a reversal in the growing role of prescription drugs in medical treatment or otherwise, our business and consolidated results of operations could be materially adversely affected.

We have designed our business model to compete within the current structure of the U.S. health care system. Changing political, economic and regulatory influences may affect health care financing and reimbursement practices. If the current health care financing and reimbursement system changes significantly, our business could be materially adversely affected. Congress periodically considers proposals to reform the U.S. health care system. These proposals may increase government involvement in health care and regulation of PBM services, or otherwise change the way our clients do business. Health plan sponsors may react to these proposals and the uncertainty surrounding them by reducing or delaying purchases of cost control mechanisms and related services that we provide. We cannot predict what effect, if any, these proposals may have on our business. Other legislative or market-driven changes in the health care system that we cannot anticipate could also materially adversely affect our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations.

The Act imposes various requirements on PDP sponsors and Medicare Advantage plans that offer drug coverage, including requirements relating to the prescription drug benefits offered, the disclosure of negotiated price concessions made available by drug manufacturers, pharmacy access and participation, and the development and application of formularies. Additional requirements may be contained in regulations to be issued under the Act by CMS. To the extent that Express Scripts serves as a PDP sponsor or provides services to PDP sponsors and Medicare Advantage plans, it will be required to comply with the applicable provisions of the Act and CMS regulations.

cardholders and the processing of claims. We have also agreed to provide services to several of our clients who have submitted their own applications. The Act and the Medicare discount card program regulations issued by CMS contain various requirements that would apply to Express Scripts’ activities in connection with the program, including requirements relating to the types of drugs covered by a discount card program, disclosure to CMS of certain information related to prices and rebates negotiated by the sponsor with pharmacies and drug manufacturers, and oversight of endorsed card programs by CMS. There are many uncertainties about the financial and regulatory risks of participating in the Medicare prescription drug program, and we can give no assurance that these risks will not be material to our business in future periods.

In January 2004, we acquired CuraScript for approximately $335 million. We are currently engaged in integrating this business with our other operations. There are risks associated with integrating and operating newly acquired businesses. We can give no assurance that we will successfully operate this new business after closing.

We recorded revenues of almost $13.3 billion during 2003 and we bill substantial amounts to many of our clients. A deterioration of credit risks of any of our larger clients could impact our ability to collect revenue or provide future services, which could negatively impact the results of our operations. While we are focused on managing working capital, we can give no assurances that the deterioration of the credit risks relative to our clients would not have an adverse impact on our consolidated results of operations, consolidated financial position and/or consolidated cash flow from operations.

We operate our United States and Canadian PBM and non-PBM businesses out of leased and owned facilities throughout the United States and Canada.

(1) Lease agreements, under which we utilize this facility representing approximately 9,000 square feet, will be renegotiated or will expire during 2004.

Our Maryland Heights, Missouri facility houses our corporate offices. We believe our facilities generally have been well maintained and are in good operating condition. At January 1, 2004, our existing facilities comprise approximately 1,837,000 square feet in the aggregate.

On January 30, 2004, we completed the acquisition of CuraScript. As a result of that acquisition, we acquired specialty mail order pharmacies in Orlando, Florida; Hayward, California; Houston, Texas; Omaha, Nebraska; Baltimore, Maryland; Brewster, New York and Pittsburgh, Pennsylvania.

We own and lease computer systems at the processing centers. In late 1999, we entered into a five-year agreement with EDS to outsource our information systems operations. EDS has responsibility for operating and maintaining the computer systems. Our software for claims processing and drug utilization review and other products has been developed internally by us or purchased under perpetual, nonexclusive license agreements with third parties. Our computer systems at each site are extensively integrated and share common files through local and wide area networks. Uninterruptible power supply and diesel generators allow our computers, telephone systems and mail pharmacy at each major site to continue to function during a power outage. To protect against loss of data and extended downtime, we store software and redundant files at both on-site and off-site facilities on a regular basis and have contingency operation plans in place. We cannot, however, provide any assurance that our contingency or disaster recovery plans would adequately address all relevant issues.

	•		Minshew v. Express Scripts (Cause No. Civ.4:02-CV-1503, United States District Court for the Eastern District of Missouri). On December 12, 2001, this putative class action lawsuit was filed in the United States District Court for the District of Arizona. The case was subsequently transferred to the Federal District Court for the Eastern District of Missouri. The plaintiff asserts that certain of our business practices, including those relating to our contracts with pharmaceutical manufacturers for retrospective discounts on pharmaceuticals and those related to our retail pharmacy network contracts, violate fiduciary duties that we allegedly owe to certain of our clients under the Federal Employee Retirement Income Security Act (ERISA). The putative class consists of health benefit plans that are self-funded by an employer client. The complaint seeks money damages and injunctive relief on behalf of this class of health plans. Discovery is proceeding in this case.

	•		International Association of Firefighters, Local No. 22, et al. v. National Prescription Administrators and Express Scripts, Inc. (Cause No. L03216-02, Superior Court of New Jersey, Law Division, Camden County). On or about August 16, 2002, we were served with this lawsuit alleging that our subsidiary, NPA, had breached agreements with two benefit plans to whom NPA had provided services under an umbrella agreement with a labor coalition client. We were also named as a defendant under a theory of de facto merger. The plaintiffs purport to bring the action on behalf of a class of similarly situated plans. The lawsuit alleges that NPA had not paid the plans the rebates to which they were entitled under the agreement. Claims for unspecified money damages are asserted under the New Jersey Consumer Fraud Act (‘the CFA”), and for breach of contract and unjust enrichment. We have filed answers denying liability. Plaintiff filed a motion to certify a class of all members of the labor coalition. We have not yet filed responses to this motion.

	•		City of Paterson, et al. v. Benecard, et. al. (Cause No. L-005908-02, Superior Court of New Jersey, Law Division, Camden County). On or about September 13, 2002, plaintiffs filed this action against Benecard Prescription Services and our subsidiary, NPA, alleging violations of the CFA. The allegations by the plaintiffs assert that various business practices of the defendants violated the statute. Neither we nor NPA owns any interest in Benecard, which is an independent entity. Plaintiff has added ESI as a defendant and added claims for common law fraud, negligent misrepresentation, and breach of contract. Plaintiffs purport to represent a class of similarly situated plaintiffs and seek unspecified monetary damages. Both NPA and Express Scripts have filed answers denying liability. On February 11, 2004, the court ruled that the CFA does not apply to PBM service contracts. This ruling did not address the legal sufficiency of the added claims.

	•		Deborah R. Bauer v. Express Scripts, Inc. (Civil Action File No. 2002CV60672, Superior Court of Fulton County, Georgia). Plaintiff filed suit on October 29, 2002, claiming that we misclassified the prescription drug tamoxifen citrate as a brand drug. Plaintiff claims that tamoxifen citrate is a generic drug for purposes of determining the proper co-payment under her health plan. She seeks to prosecute her claim on behalf of a nationwide class of tamoxifen citrate users who are members of health benefit plans using our services. Plaintiff has filed a motion for class certification, which we have opposed.

	•		Jerry Beeman, et al. v. Caremark, et al. (Cause No. 021327 VAP, United States District Court for the Central District of California). On December 12, 2002, we were served with a complaint against us and several other pharmacy benefit management companies. The complaint, filed by several California pharmacies as a putative class action, alleges rights to sue as a private attorney general under California law. The complaint alleges that we, and the other defendants, failed to comply with statutory obligations under California Civil Code Section 2527 to provide our California clients with the results of a bi-annual survey of retail drug prices. The complaint alleges a putative class of all pharmacies within California who provided services to participants of plans contracting with us or the other defendants. The complaint claims that plaintiffs are each entitled to a $10,000 fine as well as damages, including attorney fees and injunctive relief. Plaintiffs also allege claims based on unfair business practices and unjust enrichment. We have filed an answer denying liability.

	•		Lynch v. National Prescription Administrators, et al. (Cause No. 03 CV 1303, United States District Court for the Southern District of New York). This action was filed on February 26, 2003. The plaintiff, a trustee of the Health and Welfare Fund and the Retiree Health and Welfare Fund of the Patrolmen’s Benevolent Association of the City of New York, alleges that certain business practices of NPA and the Company violate duties said to be owed to the class members, including duties under ERISA, state common law, and state consumer protection statutes. The putative class consists of all current and former self-funded ERISA and non-ERISA employee benefit plans for which NPA or the Company served as PBM. The suit seeks unspecified monetary damages and declaratory and injunctive relief. We have filed a motion to transfer this case to the Eastern District of Missouri and that motion is pending.

	•		American Federation of State, County & Municipal Employees (AFSCME) v. AdvancePCS, et al. (Cause No. BC292227, Superior Court of the State of California for the County of Los Angeles). This action was filed on March 17, 2003. The case purports to be a class action on behalf of AFSCME, its California member unions having non-ERISA health plans, and all California public employees who participate in non-ERISA health plans. The complaint alleges that certain business practices engaged in by us and other PBM defendants violated California’s Unfair Competition Law. The suit seeks unspecified monetary damages and injunctive relief. This case was coordinated with the Irwin case in this court, as described below.

	•		Irwin v. AdvancePCS, et al. (Cause No. RG030886393, Superior Court of the State of California for Alameda County). This action was filed on March 26, 2003. This case is brought by plaintiff alleging his right to sue as a private attorney general under California law. This case purports to be a class action against us and other PBM defendants on behalf of self-funded, non-ERISA health plans; and individuals with no prescription drug benefits that have purchased drugs at retail rates. The complaint alleges that certain business practices engaged in by us and by other PBM defendants violated California’s Unfair Competition Law. The suit seeks unspecified monetary damages and injunctive relief. This case has been coordinated with the AFSCME case in Los Angeles County Superior Court.

	•		North Jackson Pharmacy, Inc., et al. v. Express Scripts (Civil Action No. CV-03-B-2696-NE, United States District Court for the Northern District of Alabama). This action was filed on October 1, 2003. This case purports to be a class action against us on behalf of independent pharmacies within the United States. The complaint alleges that certain of our business practices violate the Sherman Antitrust Act, 15 U.S.C §1, et. seq. The suit seeks unspecified monetary damages (including treble damages) and injunctive relief. We have filed a motion to dismiss the case.

	•		Mixon v. Express Scripts, Inc. (Civil Action No. 4:03CV1519, United States District Court for the Eastern District of Missouri). This case was filed on October 23, 2003. It purports to be class action on behalf of participants or beneficiaries of any ERISA plan which required the participant or beneficiary to pay a percentage co-payment on prescription drugs during the period from October 1, 1997 to the present. The case alleges that certain of our business practices, including those relating to our contracts with pharmaceutical manufacturers for retrospective discounts on pharmaceuticals and those related to our retail pharmacy network contracts, violated alleged fiduciary duties under ERISA. The plaintiff seeks an accounting and unspecified damages. We have filed a motion to dismiss this case on standing grounds.

	•		Wagner et al. v. Express Scripts (Cause No. 122235/03 Supreme Court of the State of New York, County of New York). This action was filed on December 31, 2003. This case purports to be a class action filed on behalf of all individuals who receive health benefits through the New York Health Insurance Program. The complaint alleges that certain business practices constitute a breach of fiduciary duty and violate the New York State statute regulating deceptive trade practices. The complaint seeks injunctive relief and unspecified monetary damages. We have filed a notice to remove this case to federal district court.

We believe that each of these cases is without merit and will contest them vigorously.

On April 22, 2002, we received an administrative subpoena duces tecum issued by the U.S. Attorney’s Office in Boston, Massachusetts. On April 26, 2002, a substantially identical subpoena was issued to our wholly-owned subsidiary, DPS. The subpoenas stated that they are issued in connection with an investigation of various health care offenses and other federal crimes. The U.S. Attorney’s Office informed our counsel that neither we nor DPS was a target of the investigation. The subpoenas requested information pertaining to our and DPS’ relationship with TAP Pharmaceuticals, and specifically with respect to TAP’s two principal drugs, Lupron and Prevacid. On February 13, 2003, we received an additional administrative subpoena duces tecum from the U.S. Attorney’s Office in Boston, Massachusetts. This additional subpoena requests information relating to our formulary development process and our business relationships with certain group buying entities and pharmaceutical manufacturers, among other matters. We are cooperating with the investigation.

In addition, in the ordinary course of our business there have arisen various legal proceedings, investigations or claims now pending against our subsidiaries and us. The effect of these actions on future financial results is not subject to reasonable estimation because considerable uncertainty exists about the outcomes. Where insurance coverage is not available for such claims, or in our judgment, is not cost-effective, we maintain self-insurance reserves to reduce our exposure to future legal costs, settlements and judgments related to uninsured claims. Our self-insured reserves are based upon estimates of the aggregate liability for the costs of uninsured claims incurred and the retained portion of insured claims using certain actuarial assumptions followed in the insurance industry and our historical experience. It is not possible to predict with certainty the outcome of these claims, and we can give no assurance that any losses in excess of our insurance and any self-insurance reserves will not be material.

Since 1993, retail pharmacies have filed over 100 separate lawsuits against drug manufacturers, wholesalers and certain PBMs, challenging brand name drug pricing practices under various state and federal antitrust laws. The plaintiffs alleged, among other things, that the manufacturers had offered, and certain PBMs had knowingly accepted, discounts and rebates on purchases of brand name prescription drugs that violated the federal Robinson-Patman Act. Some plaintiffs also filed claims against the drug manufacturers and drug wholesalers alleging a conspiracy not to discount pharmaceutical drugs in violation of Section 1 of the Sherman Act, and these claims were certified as a class action. Some of the drug manufacturers settled both the Sherman Act and the Robinson Patman claims against them. The claims against the drug manufacturer and wholesaler defendants in the class action who did not settle were dismissed and the dismissal was affirmed by the Court of Appeals for the Seventh Circuit. Plaintiffs who opted out of the class action will still have the opportunity to try their Sherman Act claims in separate lawsuits. The class action did not involve the Robinson-Patman claims, so many of those matters are still pending. We are not a party to any of these proceedings. To date, the settlements have not had a material adverse effect on our business.

No matters were submitted to a vote of security holders during the fourth quarter of 2003.

Item 5 — Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

Market Information. Our Common Stock is traded on the Nasdaq National Market (“Nasdaq”) under the symbol “ESRX”. The high and low prices, as reported by the Nasdaq, are set forth below for the periods indicated.

In May 2001 our stockholders approved our Amended and Restated Certificate of Incorporation, which consolidated and renamed our classes of common stock. Prior to the amendment we had 181,000,000 authorized shares of common stock consisting of 150,000,000 shares of Class A Common Stock and 31,000,000 shares of Class B Common Stock, and no shares of the Class B Common Stock were outstanding. Pursuant to the Amended and Restated Certificate of Incorporation, the Class B Common Stock was eliminated and each share of Class A Common Stock was renamed as “Common Stock.” As a result, we now have 181,000,000 shares of Common Stock authorized.

Holders. As of December 31, 2003, there were 409 stockholders of record of our Common Stock. We estimate there are approximately 53,797 beneficial owners of our Common Stock.

Dividends. The Board of Directors has not declared any cash dividends on our common stock since the initial public offering. The Board of Directors does not currently intend to declare any cash dividends in the foreseeable future. The terms of our existing credit facility and the indenture under which our public debt was issued contain certain restrictions on our ability to declare or pay cash dividends.

The following selected financial data should be read in conjunction with the Consolidated Financial Statements, including the related notes, and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

We have provided below a reconciliation of EBITDA to net income and to net cash provided by operating activities as we believe they are the most directly comparable measures calculated under Generally Accepted Accounting Principles:

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

As one of the largest full-service pharmacy benefit management (“PBM”) companies, we provide health care management and administration services on behalf of our clients, which include health maintenance organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans and government health programs. Our integrated PBM services include network claims processing, mail pharmacy services, specialty mail pharmacy claim fulfillment, benefit design consultation, drug utilization review, formulary management, disease management, and drug data analysis services. We also provide non-PBM services, through our Pharma Business Solutions unit, which include distribution of specialty pharmaceuticals requiring special handling or packaging where we have been selected by the pharmaceutical manufacturer as part of a limited distribution network; distribution of pharmaceuticals through Patient Assistance Programs where we receive a fee from pharmaceutical manufacturers for administrative and pharmacy services for the delivery of certain drugs free of charge to doctors for their indigent patients, verifying practitioner licensure and distribution of drug samples through our Phoenix Marketing Group subsidiary (“PMG”); and prior to June 12, 2001, infusion therapy services through our wholly-owned subsidiary IVTx, Inc., operating as Express Scripts Infusion Services.

We report two segments, PBM and non-PBM. We derive revenues primarily from the sale of PBM services in the United States and Canada. Revenue generated by our segments can be classified as tangible product revenue or service revenue. We earn tangible product revenue from the sale of prescription drugs by retail pharmacies in our retail pharmacy networks and from dispensing prescription drugs from our mail pharmacies. Service revenue includes administrative fees associated with the administration of retail pharmacy networks contracted by certain clients, market research programs, informed decision counseling services, certain SDS services, and sample fulfillment and sample accountability services by PMG. Tangible product revenue generated through both our PBM and non-PBM segments represented 98.6% of revenues for the year ended December 31, 2003 as compared to 98.5% and 98.4%, respectively, for the years ended December 31, 2002 and 2001.

Our business has grown through strategic acquisitions over the last few years. On January 30, 2004, we acquired the capital stock of CuraScript Pharmacy, Inc. and CuraScript PBM Services, Inc. (collectively, “CuraScript”), for $335 million in cash. We acquired certain assets and liabilities of National Prescription Administrators, Inc. and certain related entities (“NPA”) on April 12, 2002 for approximately $466 million in cash and Express Scripts stock. We also acquired certain assets and liabilities of Phoenix Marketing Group in February 2002 and of Managed Pharmacy Benefits, Inc. (“MPB”), a PBM subsidiary of Medicine Shoppe International, Inc. (“MSI”), in December 2002. Consequently, our operating results include those of MPB from December 19, 2002, NPA from April 12, 2002, and PMG from February 25, 2002. In addition to growth through acquisitions, we have been successful in adding significant new clients in recent years, including the contracts we were awarded by the Department of Defense (“DoD”) TRICARE Management Activity in 2003 to provide retail pharmacy services under the TRICARE Retail Pharmacy program (starting in June 2004) and in 2002 to provide mail pharmacy services under the TRICARE Mail Order Pharmacy program.

Over the last few years, our clients’ demand for increased management of the PBM benefit has translated into greater generic and mail pharmacy utilization, improved formulary compliance with lower-cost brands, higher member copayments and the increased use of clinical programs, including step therapy. We expect that our financial performance in the future will continue to benefit from these trends, as well as the expected growth in the management of specialty injectable drugs, increased productivity, capital structure improvements and higher membership. These benefits will more than offset pricing pressure. We expect 2004 to include a net increase in new business as a result of 2003 sales efforts. However, claims and revenue growth from net new business will not begin until after the first quarter of 2004.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates and assumptions are based upon a combination of historical information and various other assumptions believed to be reasonable under the particular circumstances. Actual results may differ from our estimates. Certain of the accounting policies that most impact our consolidated financial statements and that require our management to make difficult, subjective or complex judgments are described below. This should be read in conjunction with Note 1, “Summary of Significant Accounting Policies” and with the other notes to the consolidated financial statements.

REBATE ACCOUNTING

ACCOUNTING POLICY
We administer a rebate program based on actual market share performance in which rebates and the associated receivable from pharmaceutical manufacturers are estimated quarterly based on our estimate of the number of rebatable prescriptions and the rebate per prescription. The portion of rebates payable to clients is estimated quarterly based on historical allocation percentages and our estimate of rebates receivable from pharmaceutical manufacturers. With respect to our market share rebate program, estimates are adjusted to actual when amounts are received from manufacturers and the portion payable to clients is paid.

FACTORS AFFECTING ESTIMATE
The factors that could impact our estimates of rebates, rebates receivable and rebates payable are as follows:

• Differences between the actual and the estimated number of rebatable prescriptions;

• Differences between estimated aggregate allocation percentages and actual rebate allocation percentages calculated on a client-by-client basis;

• Differences between actual and estimated market share of a manufacturer’s brand drug for our clients as compared to the national market share;

• Drug patent expirations; and

• Changes in drug utilization patterns.

Historically, adjustments to our original estimates have been immaterial

UNBILLED REVENUE AND RECEIVABLES

ACCOUNTING POLICY
We bill our clients based upon the billing schedules established in client contracts. At the end of a period, any unbilled revenues related to the sale of prescription drugs that have been adjudicated with retail pharmacies are estimated based on the amount we will pay to the pharmacies and historical gross margin.

FACTORS AFFECTING ESTIMATE
Unbilled amounts are estimated based on historical margin. Historically, adjustments to our original estimates have been immaterial. Significant differences between actual and estimated margin could impact subsequent adjustments.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

ACCOUNTING POLICY
We provide an allowance for doubtful accounts equal to estimated uncollectible receivables. This estimate is based on the current status of each customer’s receivable balance.

FACTORS AFFECTING ESTIMATE
We record allowances for doubtful accounts based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and historical experience. Our estimate could be impacted by changes in economic and market conditions as well as changes to our customer’s financial conditions.

ACCOUNTING POLICY
We accrue self-insurance reserves based upon estimates of the aggregate liability of the costs of uninsured claims which are primarily legal claims, including the cost to defend. The reserves are estimated using certain actuarial assumptions followed in the insurance industry and our historical experience.

FACTORS AFFECTING ESTIMATE
Self-insurance reserves are based on management’s estimates of the costs to defend legal claims. We do not have significant experience with certain of these types of cases. As such, differences between actual costs and management’s estimates could be significant. In addition, actuaries do not have a significant history with the PBM industry. Changes to assumptions used in the development of these reserves can affect net income in a given period. In addition, changes in the legal environment and number and nature of claims could impact our estimate.

In addition, we consider the following information about our accounting policies important for an understanding of our results of operations:

•		Revenues from dispensing prescriptions from our mail pharmacies are recorded when prescriptions are shipped. These revenues include the co-payment received from members of the health plans we serve.

•		Revenues from the sale of prescription drugs by retail pharmacies are recognized when the claim is processed. We do not include member co-payments to retail pharmacies in revenue or cost of revenue.

•		When we independently have a contractual obligation to pay our network pharmacy providers for benefits provided to our clients’ member, we act as a principal in the arrangement and we include the total payments we have contracted to receive from these clients as revenue and the total payments we make to the network pharmacy providers as cost of revenue.

•		When we merely administer a client’s network pharmacy contracts, to which we are not a party and under which we do not assume credit risk, we earn an administrative fee for collecting payments from the client and remitting the corresponding amount to the pharmacies in the client’s network. In these transactions, drug ingredient cost is not included in our revenues or in our cost of revenues.

•		We administer two rebate programs through which we receive rebates and administrative fees from pharmaceutical manufacturers.

•		Gross rebates and administrative fees earned for the administration of our rebate programs, performed in conjunction with claim processing services provided to clients, are recorded as a reduction of cost of revenue and the portion of the rebate payable to customers is treated as a reduction of revenue.

•		When we earn rebates and administrative fees in conjunction with formulary management services, but do not process the underlying claims, we record rebates received from manufacturers, net of the portion payable to customers, in revenue.

•		We distribute pharmaceuticals through Patient Assistance Programs and earn a fee from the manufacturer for administrative and pharmacy services for the delivery of certain drugs free of charge to doctors for their indigent patients

•		We earn a fee for the distribution of consigned pharmaceuticals requiring special handling or packaging where we have been selected by the pharmaceutical manufacturer as part of a limited distribution network

•		Product revenues earned by SDS include revenues earned through administering sample card programs for certain manufacturers. We include ingredient cost of those drug samples dispensed from retail pharmacies in our SDS revenues and the associated costs for these samples card programs in cost of revenues.

•		Service revenues earned by PMG subsidiary consist of administrative fees for the verification of practitioner licensure and the distribution of consigned drug samples to doctors based on orders received from pharmaceutical sales representatives.

The $613.4 million increase in network pharmacy revenues and the 6.8% network pharmacy claim increase in 2003 over 2002 was partially attributable to the full year inclusion of NPA in our 2003 results. The increase from NPA represented 63.6% of the increase in network pharmacy revenues and 44.4% of the increase in claims volume. Network pharmacy revenues in 2003 were also impacted by the following factors:

	•		Higher network claim volume due to organic growth represented 51.8% of the increase in revenues.

	•		Increases from NPA and higher claims volume was partially offset by net decreases in ingredient cost which reduced network pharmacy revenues by approximately 15.6%. Drug price inflation was more than offset by higher generics, a higher percentage of clients utilizing their retail pharmacy networks, and higher member copayments. Generic claims represented 48.1% of total network claims processed during 2003 as compared to 45.1% during 2002.

Network revenue per claim was also negatively impacted by an increase in the number of claims processed for clients utilizing retail pharmacy networks contracted by the client as opposed to retail pharmacy networks contracted by us. As previously discussed under “ — Critical Accounting Policies,” when clients utilize their own retail pharmacy networks, we do not record ingredient cost charged to clients in revenue and the corresponding ingredient cost paid to network pharmacies is excluded from cost of revenue. Domestic, network pharmacy claims processed for clients utilizing their own retail pharmacy networks increased to 3.1% for 2003, from 1.7% for 2002. Had these clients utilized our pharmacy networks, network revenues in 2003 and 2002 would have increased by approximately $446.3 million and $97.9 million, respectively.

Network pharmacy revenue increased $2,446.0 million or 40.9% in 2002 over 2001 and network pharmacy claims processed increased 20.7% to 354.9 million, primarily due to the acquisition of NPA in April 2002. NPA represented 51.4% of the increase in network pharmacy revenue and 51.1% of the increase in network pharmacy claims. Additionally, network pharmacy revenue increased in 2002 over 2001 as a result of the following factors:

	•		Increases in network pharmacy claims, mainly due to an increase in the rate of utilization of prescription drugs by members, resulted in 24.7% of the total increase in network pharmacy claims revenue.

	•		Net increases in ingredient costs represented 24.0% of the total increase in network pharmacy revenues. The increase in ingredient costs is net of the impact of a higher mix of generic drugs which represented 45.1% of the total network claims processed during 2002 as compared to 41.7% during 2001.

	•		In 2002, we saw a higher mix of clients utilizing our retail pharmacy networks, partially due to the early 2002 loss of a large client utilizing its own retail pharmacy network. Had all clients utilized Express Scripts’ pharmacy networks, network revenues in 2002 and 2001 would have increased by approximately $97.9 million and $533.0 million, respectively.

The $375.7 million increase in mail pharmacy revenues in 2003 over 2002 is attributable to the following factors:

	•		Higher mail order claim volume represented 153.9% of the increase in mail order revenue. The increase in mail order volume is primarily due to the implementation of our contract with the DoD TRICARE Management Activity Program in March 2003

	•		The full year inclusion of NPA in our 2003 results increase mail order revenues by 33.0%

	•		These increases were partially offset by net reductions in mail order ingredient costs which reduced mail order revenues by 86.9%.

The primary reason for the net decrease in mail order ingredient cost decrease is the impact of processing claims under the DoD TRICARE Management Activity mail program. Under our contract with the DoD, we earn a fee per prescription filled by our mail order facility. Revenues and cost of revenues from the DoD contract do not include ingredient cost as inventory is replenished by the DoD through agreements with its suppliers. As a result, these claims have a dilutive effect on the average revenue per mail pharmacy claim. In addition, our generic fill rate increased to 37.2% in 2003 as compared to 35.2% for 2002. Our mail order generic fill rate is lower than the retail generic fill rate as fewer generic substitutes are available among maintenance medications (i.e. therapies for diabetes, high blood pressure, etc.) commonly dispensed from mail order pharmacies compared to acute medications that are dispensed primarily by pharmacies in our retail networks.

Mail pharmacy revenues increased $1,169.7 million, or 47.9%, and mail pharmacy prescriptions filled increased 6.7 million, or 32.5%, in 2002 over 2001. The following factors impacted revenues in 2002:

	•		Higher mail order claim volume represents 41.7% of the increase in mail order revenue. The increase in mail order volume is due to an increased rate of utilization of prescription drugs by members.

	•		The acquisition of NPA in April 2002 resulted in 33.2% of the increase in mail pharmacy revenues and 38.6% of the increase in mail order claims volume.

	•		Net increases in ingredient costs, mainly due to drug price inflation, represented 25.1% of the increase in mail order revenue. This increase is net of the impact of a higher mix of generic claims in 2002 as compared to 2001. Our mail order generic fill rate increased to 35.2% for 2002 as compared to 33.2% in 2001.

PBM service revenues include amounts received from clients for therapy management services such as prior authorization and step therapy protocols and administrative fees earned for processing claims for clients utilizing their own retail pharmacy networks. PBM service revenues also include amounts received from pharmaceutical manufacturers in support of certain clinical programs. These payments are not part of our rebate programs. Starting in January 2003, we began eliminating manufacturer funding for these programs and as of October 1, 2003, such funding was completely phased out. The decrease in manufacturer funding for these programs reduced 2003 revenues and gross profit by approximately $30.6 million. We will continue to provide formulary support programs without this targeted manufacturer funding. The decrease in service revenue in 2003 as compared to 2002 resulting from the phase out of these programs was partially offset by a $9.9 million increase in service revenues earned by our Canadian PBM.

PBM cost of revenues increased $939.5 million, or 8.3%, in 2003 over 2002 as a result of the following:

	•		Higher claim volumes represented approximately 54.3% of the increase in cost of revenues. Higher volumes are a result of the implementation of our contract with the DoD in March 2003 and increased utilization of prescriptions drugs by members.

	•		The full year inclusion of NPA in 2003 represented 52.8% of the increase in PBM cost of revenues.

	•		Higher processing costs represented approximately 6.1% of the increase in cost of revenues. Processing costs increased partially due to the operation of two mail order pharmacies in Tempe, Arizona. In order to service the DoD TRICARE contract we constructed a new facility, but we have not yet closed the older Tempe facility.

	•		These increases were partially offset by net reductions in ingredient cost which reduced PBM cost of revenues 13.2%.

In 2002, PBM cost of revenues increased $3,397.1 million, or 42.8%, over 2001 mainly due to the acquisition of NPA in April 2002, representing approximately 45.9% of the total increase. PBM cost of revenues in 2002 was also impacted by the following factors:

	•		Increases in claim volume represented approximately 24.4% of the increase in PBM cost of revenues.

	•		Higher ingredient costs represented approximately 26.8% of the increase in cost of revenues. The increase from inflation is net of reductions resulting in an increase in our integrated generic fill rate.

	•		Higher processing costs represented approximately 2.0% of the increase in processing costs.

Cost of revenues in 2002 was also impacted by a contract renegotiation with a large client, resulting in the elimination of a contract pricing reserve. The elimination of the reserve is a non-recurring, non-cash decrease in cost of revenues of approximately $15.0 million.

Our PBM gross profit increased $36.3 million, or 4.7%, in 2003 over 2002 and $210.2 million, or 36.9%, in 2002 over 2001. The increases in 2003 and 2002 are primarily due to higher network and mail order volumes and the impact of our acquisition of NPA in our 2002. These increases were partially offset by the impact of increases in our costs in excess of increases in prices charged to our clients.

During 2002, we adopted EITF No. 02-16, “Accounting by a Reseller for Cash Consideration Received from a Vendor,” (see further discussion under “ — Other Matters”) earlier than required. EITF 02-16 requires consideration received from a vendor to be characterized as a reduction of cost of revenues. Therefore, our 2002 and 2001 revenues have been reduced by $916.9 million and $740.8 million, respectively, to conform to the presentation for 2003. Cost of revenues have been reduced by the same amounts. These amounts represent gross rebates and administrative fees received from pharmaceutical manufacturers for collecting, processing and reporting drug utilization data, for monitoring formulary compliance, and for calculating and distributing rebates to those of our clients for whom our PBM services includes the claim processing function. The portion that we pay to our clients, a majority of this amount, has been and will continue to be classified as a reduction of revenues. Our consolidated gross profit for 2002 and 2001 was not impacted as a result of this adoption.

Selling, general and administrative expense (“SG&A”) for our PBM segment decreased $36.6 million, or 8.3%, in 2003 as compared to 2002 primarily as a result of the following factors:

	•		Depreciation and amortization expense decreased by approximately $24.5 million. During 2002 we shortened the useful lives of certain assets associated with our legacy information systems, which resulted in approximately $23.5 million of additional depreciation and amortization expense.

	•		Bad debt expense decreased by $20.4 million. In 2002, we increased our allowance for doubtful accounts for several specific customers experiencing financial difficulties. In 2003, we reversed $4.4 million of the reserve established during 2002 for a large client in bankruptcy when we received payment on this client’s obligations and determined that such reserve was no longer necessary.

	•		Contribution expense decreased by $13.0 million. In 2002, we established a charitable foundation and recorded contributions of $13.8 million.

Decreases in selling, general and administrative expenses described above were partially offset by increases of almost $14.0 million required to expand operational and administrative functions supporting our management of the pharmacy benefit. In addition, we incurred legal expenses of approximately $10.5 million in 2003 as compared to approximately $4.6 million in 2002. The increase in legal expenses is principally a result of the number of pending legal matters (See Item 3 “ — Legal Proceedings”) which include class action lawsuits, investigations and other claims pending against us or our subsidiaries. SG&A for 2003 was also impacted by costs incurred to facilitate start-up of our operations supporting the DoD TRICARE Management Activity mail pharmacy service. These start-up costs, totaling $4.8 million during the first quarter, mainly consist of salary expense.

In 2002, SG&A for our PBM segment increased $89.6 million, or 25.6%, over 2001, mainly due to increases of approximately $52.8 million required to expand operational and administrative functions supporting our management of the pharmacy benefit. Increases also resulted from higher depreciation and amortization expense (an increase of $23.5 million, as discussed above), from the acquisition and integration of NPA in 2002 (an increase of approximately $22.8 million) and from charitable contributions of $13.8 million. These increases were partially offset by the adoption of Financial Accounting Standards Board Statement No. (“FAS”) 142, “Goodwill and Other Intangible Assets,” which eliminates goodwill amortization. A total of $35.7 million of goodwill was amortized in 2001.

PBM operating income increased $73.0 million, or 21.4%, in 2003 over 2002 and $120.5 million, or 54.8%, in 2002 over 2001.

Non-PBM product revenues increased $31.0 million, or 55.5%, in 2003 over 2002 and $33.8 million, or 153.4%, in 2002 over 2001. These increases are primarily due to higher volumes for SDS, including the sample card programs we administer for certain manufacturers, where we include the ingredient cost of pharmaceuticals dispensed from retail pharmacies in our SDS revenues. The increase in SDS product revenues was partially offset by the discontinuance, during 2003, of two patient assistance programs (“PAP”) where we received fees for the delivery of certain drugs to doctors for their indigent patients. This loss was offset by higher service revenues. In 2002, the increase in non-PBM product revenues resulting from higher SDS volumes (approximately $48.7 million) was partially offset by the discontinuance of our acute home infusion services revenue-generating activities on June 12, 2001, resulting in a $14.9 million decrease in Non-PBM product revenues. Non-PBM service revenues increased $17.2 million, or 18.6%, in 2003 over 2002 and $41.5 million, or 81.6%, in 2002 over 2001. The increase in 2003 is primarily due to additional volume in SDS, including new PAP programs, initiated during 2003, where eligibility and other services are being provided. The increase in non-PBM service revenues in 2002 over 2001 is mainly due to the acquisition of PMG on February 25, 2002.

Non-PBM cost of revenues and gross profit increased 39.8% and 15.1%, respectively, in 2003 as compared to 2002 and 124.2% and 66.2%, respectively, in 2002 as compared to 2001, reflecting the increased volume in SDS and the addition of PMG in 2002. The percentage increase in non-PBM cost of revenues grew faster than the percentage increase in revenues due to the additional volume in the sample card program (discussed above) where we include the ingredient costs of pharmaceuticals dispensed from retail pharmacies in our SDS revenues and cost of revenues. The percentage increase in the non-PBM cost of revenues was partially offset by PMG, which does not purchase samples from the manufacturers, but records an administrative fee for verification of practitioner licensure and distribution of samples to those practitioners based on orders received from pharmaceutical sales representatives. As with revenues, the 2002 increases in cost of revenues and gross profit were partially offset by the discontinuance of our acute home infusion services business in mid-2001.

Non-PBM SG&A increased $2.1 million, or 17.5%, in 2003 over 2002, and $3.4 million, or 38.3%, in 2002 over 2001. The increase in 2003 is due to the increases in non-PBM infrastructure required to support the growth of our non-PBM business. The acquisition of PMG in 2002 resulted in the increase in SG&A in 2002 over 2001. The increase in 2002 from PMG is partially offset by a reduction in SG&A from the discontinuance of our acute home infusion services business in mid-2001.

Non-PBM operating income increased $4.4 million, or 14.1%, in 2003 over 2002 and $14.0 million, or 80.5%, in 2002 over 2001.

In February 2001, we entered into an agreement with AdvancePCS and Medco Health Solutions, Inc.

(formerly, Merck-Medco, L.L.C; “Medco”) to form RxHub, LLC (“RxHub”), an electronic exchange enabling physicians who use electronic prescribing technology to link to pharmacies, PBMs and health plans. We own one-third of the equity of RxHub (as do each of the other two founders) and have committed to invest up to $20 million over five years with approximately $14.2 million invested through December 31, 2003. We have recorded our investment in RxHub under the equity method of accounting, which requires our percentage interest in RxHub’s results to be recorded in our Consolidated Statement of Operations. Our percentage of RxHub’s loss for 2003, 2002 and 2001 is $5.8 million ($3.6 million net of tax), $4.5 million ($2.8 million net of tax) and $1.8 million ($1.1 million net of tax), respectively, and has been recorded in other (expense) income, net in our Consolidated Statement of Operations.

Net interest expense decreased $1.1 million, or 3.0%, in 2003 as compared to 2002 as the impact of reduced debt balances resulting from the repurchase of our Senior Notes on the open market and the prepayment of Term B loans during 2003 (see “—Liquidity and Capital Resources”) were partially offset by premium payments and deferred financing fee write-offs. In 2003, we recorded in interest expense a premium of $3.9 million paid to repurchase $35.4 million of our Senior Notes on the open market. We also recorded the write-off of $1.3 million of deferred financing fees as an increase in interest expense in compliance with FAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” The $11.5 million, or 41.4%, increase in net interest expense for 2002 over 2001 is primarily due to the addition of $325 million of Term B loans and the $100 million draw down on our revolving credit facility (outstanding for a portion of the year) during 2002 primarily to fund the NPA acquisition. Interest expense was positively impacted by 2002 prepayments of $105 million of Term A loans.

Our effective tax rate remained constant at 38.2% for 2003 and 2002. The decrease in our effective tax rate from 39.9% in 2001 to 38.2% in 2002 is primarily due to the adoption of FAS 142, which eliminated the amortization of goodwill, a portion of which is non-deductible.

Net income increased $46.8 million, or 23.1%, for the year ended December 31, 2003 over 2002 and Net income increased $78.1 million, or 62.7%, for the year ended December 31, 2002 over 2001. During 2003, we recorded a cumulative effect of change in accounting principle of $1.0 million, net of tax, related to our implementation of FAS 143, “Asset Retirement Obligations,” (see “—Other Matters”).

Basic and diluted earnings per share increased 23.5% and 23.9%, respectively for the twelve months ended December 31, 2003 over 2002 and 62.5% and 63.5%, respectively for the twelve months ended December 31, 2002 over 2001. Excluding goodwill amortization in 2001, our net income increased $51.8 million or 34.3% in 2002 over 2001 while basic and diluted earnings per share increased 34.0% and 34.9% in 2002 over 2001, respectively.

We account for employee stock options in accordance with Accounting Principles Board No. 25, “Accounting for Stock Issued to Employees.” We account for options using the intrinsic value method and have not recognized compensation expense for options granted. Had we used the fair value method and recognized compensation expense based on the fair value of options determined on the grant date, our net income and earnings per share for the twelve months ended December 31, 2003, 2002 and 2001 would have been $237.7 million, or $3.00 per diluted share, $191.5 million, or $2.39 per diluted share, and $114.9 million, or $1.44 per diluted share, respectively.

During 2003, net cash provided by operations increased $31.9 million to $457.9 million from $426.0 million in 2002. This increase reflects increased earnings of $46.8 million and net changes in our working capital components, including an increase of $75.3 million resulting from improved inventory management, an increase of

$67.1 million through management of payments to vendors and a decrease of $87.0 million from timing of billings and collections. These increases were partially offset by decreases in depreciation and amortization and bad debt expense (see PBM SG&A discussion under “—Results of Operations”). Net cash provided by operations in 2002 increased $145.0 million to $426.0 million from $281.0 million in 2001. The increase in 2002 over 2001 is primarily due to changes in our results of operations and management of working capital. In addition, net cash provided by operations in 2001 was negatively impacted by the termination of a large contract in late 2000, which resulted in the payment of remaining liabilities during the first and second quarters of 2001.

As a percent of accounts receivable, our allowance for doubtful accounts was 2.7% and 3.5% at December 31, 2003 and 2002, respectively. The allowance at December 31, 2002 was higher, as a percentage of accounts receivable, specifically for certain customers experiencing financial difficulties due to economic conditions. In 2003, we reversed $4.4 million of the reserve established during 2002 for a large client then in bankruptcy when we received payment on this client’s obligations and determined that such reserve was no longer necessary.

Our capital expenditures in 2003 decreased $8.2 million, or 13.4%, as compared to 2002 and in 2002 increased $4.0 million, or 7.0%, over 2001. Higher capital expenditures in 2002 as compared to 2003 and 2001 are partially due to the construction of a new Tempe mail order facility in order to manage growth. We spent $5.7 million in 2003 and $11.9 million in 2002 related to this project. We expect to continue to invest in technology that we believe will provide efficiencies in operations, facilitate growth and enhance the service we provide to our clients. We expect future anticipated capital expenditures will be funded primarily from operating cash flow or, to the extent necessary, with borrowings under our revolving credit facility, discussed below.

During 2003, we utilized internally generated cash to repurchase 2.4 million shares of our Common Stock for $143.0 million. As of December 31, 2003, we have repurchased a total of 8.1 million shares of our common stock under the stock repurchase program that we announced on October 25, 1996 and as of December 31, 2003, approximately 5.9 million shares have been reissued in connection with employee compensation plans. Under the repurchase program, management is authorized to repurchase up to 10 million shares of our common stock. There is no limit on the duration of the program. Future common stock repurchases, if any, will be made in such amounts and at such times as we deem appropriate based upon prevailing market and business conditions, subject to restrictions on stock repurchases contained in our bank credit facility and the Indenture under which our Senior Notes were issued.

On January 30, 2004, we purchased the capital stock of CuraScript for approximately $335.0 million in cash plus the assumption of certain liabilities. CuraScript is one of the nation’s largest specialty pharmacy services companies serving over 175 managed care organizations, 30 Medicaid programs and the Medicare program and operating seven specialty pharmacies throughout the United States. The transaction will be accounted for under the provisions of FAS 141, “Business Combinations.” The $335 million purchase price was financed with $210.0 million of our cash and the remainder by adding $125.0 million in Term C loans through an amendment of our Bank Credit Facility.

On December 19, 2002, we entered into an agreement with MPB under which we acquired certain assets from MPB for approximately $11.1 million in cash plus the assumption of certain liabilities. The transaction was accounted for under the provisions of FAS 141. The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of the acquisition. A portion of the excess of purchase price over tangible net assets acquired has been allocated to intangible assets other than goodwill in the amount of $2.5 million. This asset is included in other intangible assets on the balance sheet and is being amortized using the straight-line method over the estimated useful life of 20 years. In addition, the excess of the purchase price over tangible net assets and identified intangible assets acquired has been allocated to goodwill in the amount of $15.0 million, which is not being amortized. The transaction was structured as a purchase of assets, making amortization expense of intangible assets, including goodwill, tax deductible.

On April 12, 2002, we completed the acquisition of National Prescription Administrators and certain affiliated entities (collectively “NPA”), a privately held full-service PBM, for a purchase price of approximately $466.0 million, which included the issuance of 552,000 shares of our common stock (fair value of $26.4 million upon the transaction announcement date), transaction costs and a working capital purchase price adjustment of $46.8 million received during the third and fourth quarters of 2002. The transaction was accounted for under the provisions of FAS 141. The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of the acquisition. A portion of the excess of the purchase price over tangible net assets acquired has been allocated to intangible assets consisting of customer contracts in the amount of $76.3 million and non-competition agreements in the amount of $2.9 million, which are being amortized using the straight-line method over the estimated useful lives of 20 years and five years, respectively. These assets are classified as other intangible assets. In addition, the excess of the purchase price over tangible net assets and identified intangible assets acquired has been allocated to goodwill in the amount of $438.5 million which is not being amortized. During the second quarter of 2003 we finalized the allocation of the purchase price to tangible and intangible net assets resulting in a $39.7 million increase in goodwill. The increase in goodwill reflects adjustments to true-up opening balance sheet receivables and liabilities, and to adjust fixed assets to fair market value. The acquisition of NPA was funded with the proceeds of a new $325.0 million Term B loan facility, $78 million of cash on hand, the issuance of 552,000 shares of our common stock (fair value of $26.4 million upon the transaction announcement date), and $25.0 million in borrowings under our revolving credit facility. We have filed an Internal Revenue Code Section 338(h)(10) election, making amortization expense of intangible assets, including goodwill, tax deductible.

On February 25, 2002, we purchased substantially all of the assets utilized in the operation of Phoenix Marketing Group (Holdings), Inc. (“Phoenix”), a wholly-owned subsidiary of Access Worldwide Communications, Inc., for $34.1 million in cash, including acquisition-related costs, plus the assumption of certain liabilities. The acquisition has been accounted for under the provisions of FAS 141. The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of the acquisition. A portion of the excess of purchase price over tangible net assets acquired has been allocated to intangible assets, consisting of customer contracts in the amount of $4.0 million and non-competition agreements in the amount of $0.2 million, which are being amortized using the straight-line method over the estimated useful lives of eight years and four years, respectively, and a trade name in the amount of $1.7 million, which is not being amortized. These assets are included in other intangible assets. In addition, the excess of purchase price over tangible net assets and identified intangible assets acquired was allocated to goodwill in the amount of $22.1 million, which is not being amortized. The transaction was structured as a purchase of assets, making amortization expense of intangible assets, including goodwill, tax deductible.

On March 1, 2001, our Canadian subsidiary, ESI Canada, Inc., completed its acquisition of Centre d’autorisation et de paiement des services de sante, Inc. (“CAPSS”), a leading Quebec-based PBM, for approximately CAN$26.8 million (approximately US$17.5 million), which includes a purchase price adjustment for closing working capital. The transaction, which was accounted for under the purchase method of accounting, was funded with our operating cash flow. The results of operations of CAPSS have been included in our consolidated financial statements and PBM segment since March 1, 2001. The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of the acquisition. The excess of the purchase price over tangible net assets acquired was allocated to intangible assets consisting of customer contracts in the amount of US$5.1 million (at the March 1, 2001 exchange rate), which are being amortized using the straight-line method over the estimated useful life of 20 years and are included in other intangible assets, and goodwill in the amount of US$11.7 million (at the March 1, 2001 exchange rate), which effective January 1, 2002 is no longer being amortized.

Goodwill is evaluated for impairment annually or when events or circumstances occur indicating that goodwill might be impaired. In addition, we evaluate whether events or circumstances have occurred that indicate the remaining estimated useful lives of other intangible assets may warrant revision or that the remaining balance of an asset may not be recoverable. The measurement of possible impairment is based on the ability to recover the balance of assets from expected future operating cash flows on an undiscounted basis. Impairment losses, if any, would be determined based on the present value of the cash flows using discount rates that reflect the inherent risk of the underlying business. No such impairment existed at December 31, 2003 or 2002.

We regularly review potential acquisitions and affiliation opportunities. We believe available cash resources, bank financing or the issuance of additional common stock could be used to finance future acquisitions or affiliations. There can be no assurance we will make new acquisitions or establish new affiliations in the future.

During 2003, we utilized internally generated cash to prepay $75.0 million of the Term B loan facility under our prior credit agreement. During 2002, we prepaid the remaining $105.0 million of our Term A loans and amended our existing credit facility to add a $325.0 million Term B loan to fund the acquisition of NPA. As a result

of the Term B debt prepayments in 2003 and the Term A debt prepayments during 2002, we recorded pre-tax charges of $1.3 million and $1.7 million, respectively, in interest expense from the write-off of deferred financing fees. At December 31, 2003, our credit facility with a commercial bank syndicate consisted of $250.0 million of Term B loans and a $150.0 million revolving credit facility (of which no debt was outstanding at December 31, 2003). This credit facility contained covenants that limited the indebtedness we could incur, the common shares we could repurchase, dividends we could pay and the amount of annual capital expenditures. The covenants also established a minimum interest coverage ratio, a maximum leverage ratio, and a minimum fixed charge coverage ratio. At December 31, 2003, we were in compliance with all covenants associated with our credit facility.

In January 2004, we added a $125.0 million Term C Loan to partially fund the acquisition of CuraScript and in February 2004 we borrowed $50.0 million on the revolving credit facility under our then existing credit agreement. In 2004, we negotiated a syndicated $800 million credit facility. The new agreement became effective February 13, 2004 and includes $400.0 million of term loans ($200.0 million, five-year, Term A loans and $200.0 million, six-year, Term B loans) and a $400.0 million five-year revolving credit facility. The proceeds from the $800.0 million credit facility were used to prepay borrowings on the revolver, Term B and Term C loans outstanding under our previous credit facility (see discussion above). The newly established $400.0 million revolving credit facility is also available for general corporate purposes, including the potential early redemption of our Senior Notes which are callable beginning in June 2004. As a result of the renegotiation of our previous credit facility in February 2004, we recorded, in interest expense, charges of $3.4 million from the write-off of deferred financing fees.

The new credit facility requires quarterly principal payments on the Term A loans in the amount of $5.0 million beginning in June 2004, increasing to $7.5 million in June 2006, to $10 million in June 2007 and to $22.5 million in June 2008, with the final $22.5 million principal payment due in February 2009. The new credit facility also requires quarterly principal payments on the Term B loans in the amount of $0.5 million beginning in June 2004 and increasing to $47.5 million in June 2009 with the final $47.5 million principal payment due in February 2010. The interest rate on the Term A loans and on any amounts outstanding under the new $400.0 million revolving credit facility, is based on the London Interbank Offered Rates (“LIBOR”) or alternate base rate options, plus a margin which will depend on our credit rating and our ratio of debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”). At February 13, 2004, the applicable LIBOR margin on the Term A loans and amounts outstanding under the revolving credit facility was 1.5%. The interest rate on the Term B loans is based on the LIBOR or alternate base rate options, plus a margin of 1.5% or 0.25% per annum, respectively. In addition, we are required to pay commitment fees on the unused portion of the revolving loan. The commitment fee will range from 0.2% to 0.5% of the unused portion of the revolving loan depending on our investment grade status and our consolidated leverage ratio. At February 13, 2004, our commitment fee is 0.3% per annum and as of February 20, 2004, the weighted average interest rate on our new credit facility (including applicable margins) is 2.64%.

The new credit facility contains covenants that limit the indebtedness we may incur, the common shares we may repurchase and dividends we may pay. The covenants also establish a maximum debt to EBITDA ratio and minimum ratio of EBITDA to interest expense. The capital stock of most of our existing and subsequently acquired domestic subsidiaries has been pledged as collateral for the credit facility.

To alleviate interest rate volatility, we entered into an interest rate swap arrangement in 1999, which is discussed in “—Market Risk” below.

In June 1999, we issued $250.0 million of 9.625% Senior Notes due 2009, of which approximately $45.5 million in principal has been repurchased on the open market through December 31, 2003. The Senior Notes, which require interest to be paid semi-annually on June 15 and December 15, are callable at 104.8% beginning in June 2004. The call payment premium decreases to 103.2% in June 2005, to 101.6% in June 2006, and beginning in June 2007 are callable at 100.0%. The Senior Notes are unconditionally jointly and severally guaranteed by most of our wholly-owned domestic subsidiaries. The Senior Note indenture contains covenants that limit the indebtedness we may incur, the common shares we may repurchase, dividends we may pay, certain investing activity, and the amount of annual capital expenditures. The covenants also establish a minimum interest coverage ratio. At

December 31, 2003, we were in compliance with all covenants associated with the Senior Note indenture.

The following table sets forth our schedule of current maturities of our long-term debt, excluding the deferred interest rate swap gain of $0.2 million as of December 31, 2003, and future minimum lease payments due under noncancellable operating leases (in thousands):

As a result of our financing activities subsequent to December 31, 2003, including the addition of a Term C loan to partially finance the CuraScript acquisition, borrowing on our revolving credit facility and the refinancing of our bank credit facility (see “—Bank Credit Facility”), maturities on our long-term debt have changed. As of February 13, 2004, the effective date of our bank credit facility refinancing, we are required to make long-term debt principal payments totaling $16.5 million in 2004, $22.0 million in 2005, $29.5 million in 2006, $39.5 million in 2007, $79.5 million in 2008 and $517.8 million after 2008.

As previously reported, we received a comment letter from the SEC with respect to our Annual Report on Form 10-K for 2001 and 2002 and subsequent reports on Form 10-Q. Most issues raised by the SEC relate to segment reporting and disclosure and reclassification matters, and would not affect our consolidated results of operations, which include gross profit and net income, or the consolidated balance sheet and consolidated statement of cash flows. The segment reporting issue considers whether the PBM business should be comprised of two separate segments or a single segment representing an integrated product. In our segment reporting under FAS 131, “Disclosures about Segments of an Enterprise and Related Information,” we currently report our integrated PBM business as a single business segment. An additional issue raised in the SEC comment letter is whether we should include in revenue co-payments paid by clients’ members to retail network pharmacies with respect to prescriptions filled in the retail stores included in our networks. We do not include such co-payments in revenue or cost of revenue. We estimate that the inclusion of retail co-payments in revenue and cost of revenue would result in an increase in reported revenue and cost of revenue of approximately 23 percent to 29 percent (excluding member co-payments on plans wherein we do not include ingredient costs in revenue). Beginning in 2004, we will include on the face of our Consolidated Statement of Operations the estimated amount of network co-payments excluded from revenues and cost of revenues. We are in discussions with the SEC about all of the issues raised in the comment letter.

In January 2003, we adopted FAS 143, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and requires the accrual of the fair value (discounted to a net present value) of any legal or contractual obligations associated with the retirement of tangible, long-lived assets in the period in which the liabilities are incurred and capitalization of the fair value as part of the book value of the related long-lived asset. In subsequent periods, we are required to adjust asset retirement obligations based on changes in estimated fair value, and record the corresponding increases in asset book values. The liabilities are accreted over the life of the obligation and the related assets are depreciated over their useful lives. As required by FAS 143, we recorded an asset retirement obligation ($3.1 million at January 1, 2003) primarily related to equipment and leasehold improvements installed in leased, mail-order facilities in which we have a contractual obligation to remove the improvements and equipment upon surrender of the property to the landlord. For certain of our leased facilities, we are required to remove equipment and convert the facilities back to office space. We also recorded a net increase in fixed assets (net of accumulated depreciation) of $1.4 million and a $1.7 million ($1.0 million, net of tax) loss from the cumulative effect of change in accounting principle. The $1.4 million asset will be depreciated, on a straight-line basis, over the remaining term of the leases, which range from seven months to ten years.

In April 2002, FAS 145 was issued. In rescinding FAS 4, “Reporting Gains and Losses from Extinguishment of Debt,” and FAS 64 “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,” FAS 145 eliminates the required classification of gains and losses from extinguishment of debt as extraordinary. We adopted this provision of FAS 145 in January 2003. During 2003, we prepaid $75.0 million of our Term B notes and purchased $35.4 million of our Senior Notes on the open market. As a result of the Term B prepayments and Senior Note repurchase, we wrote-off $1.3 million (pre-tax) of deferred financing fees and incurred a pre-tax charge of $3.9 million, representing a premium on the Senior Notes. The write-off of deferred financing fees and the Senior Note premium have been recorded as increases in interest expense. Losses on debt prepayments from the write-off of deferred financing fees of $1.7 million ($1.0 million, net of taxes) and $0.6 million ($0.4 million, net of taxes) for 2002 and 2001, respectively, have been reclassified to conform to the presentation required by FAS 145. Implementation of FAS 145 did not have an impact on our consolidated financial position, consolidated results of operations or our consolidated cash flows.

In 2002, we adopted FAS 141 and FAS 142. FAS 141 requires all business combinations be accounted for using the purchase method of accounting. FAS 141 also defines acquired intangible assets and requires a reassessment of a company’s preexisting acquired intangible assets and goodwill be evaluated and adjusted to conform with that definition. FAS 142 requires goodwill no longer be amortized. Instead, all goodwill (including goodwill associated with acquisitions consummated prior to the adoption of FAS 142) is to be evaluated for impairment annually or when events or circumstances occur indicating goodwill might be impaired. All goodwill impairment losses are to be presented as a separate line item in the operating section of the consolidated results of operations (unless the impairment loss is associated with a discontinued operation or the initial adoption of FAS 142, which would be recorded as a change in accounting principle). We perform our annual impairment tests during the fourth quarter of the calendar year. None of the impairment tests performed to date have indicated any impairment.

In July 2002, FAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which deals with issues on the accounting for costs associated with a disposal activity, was issued. FAS 146 nullifies the guidance in EITF 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” by prohibiting liability recognition based on a commitment to an exit/disposal plan. Under FAS 146, exit/disposal costs will be expensed as incurred. We adopted the provisions of FAS 146 effective January 2003. Adoption has not had an impact on our consolidated financial position, consolidated results of operations or our consolidated cash flows.

administrative fees as components of revenue. The transition provisions of EITF 02-16 require implementation of this pronouncement for new arrangements, including modifications of existing arrangements, entered into after December 31, 2002. Early application is permitted as of the beginning of periods for which financial statements have not been issued and prior period reclassification is allowed to the extent there is no impact on net income. The application of the provisions of EITF 02-16 do not change our consolidated net income, consolidated gross profit, consolidated financial position or our consolidated cash flows. We early-adopted the provisions of EITF 02-16 during fiscal 2002. As a result of the adoption, our revenues for the twelve months ended December 31, 2002 and 2001 have been reduced by $916.9 million and $740.8 million, respectively, to conform to the presentation for 2003. These amounts represent the gross rebates and administrative fees received from manufacturers. Cost of revenues have been reduced by the same amount. Our clients’ portion of such rebates and administrative fees, a majority of these amounts, has been and will continue to be recorded as a reduction of revenue. Our consolidated gross profit for 2002 and 2001 was not impacted as a result of this adoption.

Changes in prices charged by manufacturers and wholesalers for pharmaceuticals affect our revenues and cost of revenues. Most of our contracts provide that we bill clients based on a generally recognized price index for pharmaceuticals, and accordingly we have been able to recover price increases from our clients under the terms of our agreements.

Effective January 1, 2001, we adopted FAS 133 as amended, “Accounting for Derivative Instruments and Hedging Activities.” FAS 133 requires all derivative financial instruments, such as interest rate swaps, to be recognized as either assets or liabilities in the Consolidated Balance Sheet and measured at fair value. The adoption of FAS 133 did not have a material effect on our financial statements, but did reduce other comprehensive income during 2001 by $3.6 million, net of taxes, in the accompanying Consolidated Statement of Changes in Stockholder’s Equity due to a cumulative effect of change in accounting principle of $0.6 million, net of taxes, and additional deferred losses recorded during 2001 of $3.0 million.

We use an interest rate swap agreement to manage the impact of interest rate fluctuations on future variable interest payments under our bank credit facility. As of December 31, 2003, our interest rate swap agreement fixes the variable interest rate payments on $60.0 million of debt under our credit facility. Under our swap agreement, we agree to receive a variable rate of interest on the notional principal amount of $60.0 million based upon a three month LIBOR rate in exchange for the payment of a fixed rate of 6.25% per annum. The notional principal amount will decrease to $20.0 million in April 2004 and the swap will mature in April 2005.

Our interest rate swap agreement is a cash flow hedge which requires us to pay a fixed-rate of interest, and which hedges against changes in the amount of future cash flows associated with variable interest obligations. Accordingly, the fair value of our swap agreement, $2.5 million and $5.8 million at December 31, 2003 and 2002, respectively, is reported on the Consolidated Balance Sheet in other liabilities. The related deferred loss on our swap agreements, $1.5 million and $3.6 million, net of taxes, at December 31, 2003 and 2002, respectively, is recorded in shareholders’ equity as a component of other comprehensive income. This deferred loss is then recognized as an adjustment to interest expense over the same period in which the related interest payments being hedged are recorded in income. The loss associated with the ineffective portion of this agreement is immediately recognized in income. For the years ended December 31, 2003 and 2002, the loss on the ineffective portion of our swap agreement was not material to the consolidated financial statements.

A sensitivity analysis is used to determine the impact interest rate changes will have on the fair value of the interest rate swap, measuring the change in the net present value arising from the change in the interest rate. The fair value of the swap is then determined by calculating the present value of all cash flows expected to arise thereunder, with future interest rate levels implied from prevailing mid-market yields for money-market instruments, interest rate futures and/or prevailing mid-market swap rates. Anticipated cash flows are then discounted on the assumption of a continuously compounding zero-coupon yield curve. A 10 basis point decline in interest rates at December 31,

Response to this item is included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk” above.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) (1) present fairly, in all material respects, the financial position of Express Scripts, Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule 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 discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for asset retirement costs as of January 1, 2003 and for goodwill and other intangible assets as of January 1, 2002.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 20, 2004

Organization and operations. We are one of the largest full-service pharmacy benefit management (“PBM”) companies in North America, providing health care management and administration services on behalf of clients that include health maintenance organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans and government health programs. Our integrated PBM services include network claims processing, mail pharmacy services, specialty prescription fulfillment, benefit design consultation, drug utilization review, formulary management, disease management and drug data analysis services. We also provide non-PBM services through our Pharma Business Solutions (“PBS”) unit. Non-PBM services include distribution services through our Express Scripts Specialty Distribution Services subsidiary (“SDS”), drug sample fulfillment and sample accountability services through our Phoenix Marketing Group, Inc. (“PMG”) subsidiary, and prior to June 12, 2001, infusion therapy services through our wholly-owned subsidiary, IVTx, Inc., operating as Express Scripts Infusion Services.

Basis of presentation. The consolidated financial statements include our accounts and those of all our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in affiliated companies, 20% to 50% owned, are carried at equity. Certain amounts in prior years have been reclassified to conform with the 2003 classifications (see - “New accounting guidance”). The preparation of the consolidated financial statements conforms to generally accepted accounting principles in the U.S., and requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates and assumptions.

Earnings per share and weighted average shares outstanding included in Notes to Consolidated Financial Statements have been restated to reflect the two-for-one stock split effective June 22, 2001.

Cash and cash equivalents. Cash and cash equivalents include cash on hand and investments with original maturities of three months or less. We have banking relationships resulting in certain cash disbursement accounts being maintained by banks not holding our cash concentration accounts. As a result, cash disbursement accounts carrying negative balances of $201.2 million and $134.8 million have been reclassified to claims and rebates payable at December 31, 2003 and 2002, respectively.

Accounts receivable. Based on our revenue recognition policies discussed below, certain claims at the end of a period are unbilled. Revenue and unbilled receivables for those claims are estimated each period based on the amount to be paid to network pharmacies and historical gross margin. Estimates are adjusted to actual at the time of billing. In addition, revenue and unbilled receivables for rebates based on market share performance are calculated quarterly based on an estimate of rebatable prescriptions and the rebate per prescription. These estimates are adjusted to actual when the number of rebatable prescriptions and the rebate per prescription have been determined and the billing to the manufacturers has been completed. Historically, adjustments to our original estimates have been immaterial. As of December 31, 2003 and 2002, unbilled receivables were $603.5 million and $547.7 million, respectively. Unbilled receivables are billed to clients typically within 30 days based on the contractual billing schedule agreed upon with the client.

We provide an allowance for doubtful accounts equal to estimated uncollectible receivables. This estimate is based on the current status of each customer’s receivable balance as well as current economic and market conditions. As of December 31, 2003 and 2002, we have an allowance for doubtful accounts of $28.6 million and $35.8 million, respectively.

Inventories. Inventories consist of prescription drugs and medical supplies that are stated at the lower of first-in first-out cost or market.

Property and equipment. Property and equipment is carried at cost and is depreciated using the straight-line method over estimated useful lives of seven years for furniture and five years for equipment and purchased computer software. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the useful life of the asset, if shorter. Expenditures for repairs, maintenance and renewals are charged to income as

incurred. Expenditures that improve an asset or extend its estimated useful life are capitalized. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. Research and development expenditures relating to the development of software for internal purposes, are charged to expense until technological feasibility is established. Thereafter, the remaining software production costs up to the date placed into production are capitalized and included as Property and Equipment. Amortization of the capitalized amounts commences on the date placed into production, and is computed on a product-by-product basis using the straight-line method over the remaining estimated economic life of the product but not more than five years. Reductions, if any, in the carrying value of capitalized software costs to net realizable value are expensed.

Marketable securities. All investments not included as cash and cash equivalents are accounted for under Financial Accounting Standards Board Statement No. (“FAS”) 115, “Accounting for Certain Investments in Debt and Equity Securities.” Management determines the appropriate classification of our marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. All marketable securities at December 31, 2003 and 2002 were recorded in other assets on our Consolidated Balance Sheet.

Securities bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are reported at fair value, which is based upon quoted market prices, with unrealized holding gains and losses included in earnings. We held trading securities, consisting primarily of mutual funds, of $12.9 million and $9.7 million at December 31, 2003 and 2002, respectively. We maintain our trading securities to offset changes in certain liabilities related to our deferred compensation plan discussed in Note 11. Net gains recognized on the trading portfolio were $2.1 million, $2.3 million and $0.4 million in 2003, 2002 and 2001, respectively.

Available–for–sale securities are reported at fair value, which is based upon quoted market prices, with unrealized gains and losses, net of tax, reported as a component of other comprehensive income in stockholders’ equity until realized. Unrealized losses are recognized as expense when a decline in fair value is determined to be other than temporary. At December 31, 2003 and 2002, we have an investment in PlanetRx which is the only available-for-sale security we hold. During 2000, we recorded a non-cash impairment charge to fully write-off the value of our investment in PlanetRx.

Goodwill. During 2002, we adopted FAS 142, “Goodwill and Other Intangible Assets.” In compliance with FAS 142, we stopped amortizing goodwill effective January 1, 2002. Instead, all goodwill (including goodwill associated with acquisitions consummated prior to the adoption of FAS 142) is evaluated for impairment annually or when events or circumstances occur indicating that goodwill might be impaired. In accordance with the implementation provisions of FAS 142, we perform our annual impairment testing during the fourth quarter of each year. No impairment test performed to date has indicated any impairment.

Other intangible assets. Other intangible assets include, but are not limited to, customer contracts, non-compete agreements, deferred financing fees, trade names and certain advance discounts paid to clients under contractual agreements. Other intangible assets, excluding customer contracts are recorded at cost. Customer contracts are valued based on discounted cash flows over the expected life of the intangible asset. Excluding trade names which have an indefinite life, other intangible assets are amortized on a straight-line basis over periods from two to 20 years (see Note 6). The amount reported is net of accumulated amortization of $106.2 million, and $96.6 million at December 31, 2003 and 2002, respectively. Amortization expense for customer contracts and non-compete agreements included in selling, general and administrative expenses was $13.7 million, $12.5 million and $9.1 million for the years ended December 31, 2003, 2002 and 2001, respectively. Amortization expense for deferred financing fees included in interest expense was $1.8 million, $2.2 million and $2.0 million for the years ended December 31, 2003, 2002 and 2001, respectively. Amortization expense for advance discounts paid to customers is recorded against revenue and was $8.2 million, $4.8 million and $2.0 million for 2003, 2002 and 2001, respectively.

Impairment of long lived assets. We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long lived assets, including intangible assets, may warrant revision or that the remaining balance of an asset may not be recoverable. The measurement of possible impairment is based on the ability to recover the balance of assets from expected future operating cash flows on an undiscounted basis. Impairment losses, if any, would be determined based on the present value of the cash flows using discount rates that reflect the inherent risk of the underlying business. No such impairment existed as of December 31, 2003 and 2002.

Self-insurance reserves. We maintain insurance coverage for claims that arise in the normal course of business. Where insurance coverage is not available, or, in our judgment, is not cost-effective, we maintain self-

insurance reserves to reduce our exposure to future legal costs, settlements and judgments. Self-insured losses are accrued based upon estimates of the aggregate liability for the costs of uninsured claims incurred using certain actuarial assumptions followed in the insurance industry and our historical experience. It is not possible to predict with certainty the outcome of these claims, and we can give no assurances that any losses, in excess of our insurance and any self-insurance reserves, will not be material.

Fair value of financial instruments. The carrying value of cash and cash equivalents, accounts receivable, claims and rebates payable, and accounts payable approximated fair values due to the short-term maturities of these instruments. The fair value, which approximates the carrying value, of our bank credit facility was estimated using either quoted market prices or the current rates offered to us for debt with similar maturity. The fair value of the interest rate swaps (an obligation of $2.5 million and $5.8 million at December 31, 2003 and 2002, respectively) was based on quoted market prices, which reflect the present values of the difference between estimated future fixed rate payments and future variable rate receipts. The fair value of our senior note facility ($220.8 million and $267.6 million at December 31, 2003 and 2002, respectively) was estimated based on quoted market prices.

Revenue recognition. Revenues from our pharmacy benefit management (“PBM”) segment are earned by dispensing prescriptions from our mail pharmacies, processing claims for prescriptions filled by retail pharmacies in our networks, and by providing services to drug manufacturers, including administration of discount programs.

Revenues from dispensing prescriptions from our mail pharmacies, which include the co-payment received from members of the health plans we serve, are recorded when prescriptions are shipped. At the time of shipment, our earnings process is complete: the obligation of our customer to pay for the drugs is fixed, and, due to the nature of the product, the member may not return the drugs nor receive a refund.

Revenues related to the sale of prescription drugs by retail pharmacies in our networks consist of the amount the client has contracted to pay us (which excludes the co-payment) for the dispensing of such drugs together with any associated administrative fees. These revenues are recognized when the claim is processed. When we independently have a contractual obligation to pay our network pharmacy providers for benefits provided to our clients’ members, we act as a principal in the arrangement and we include the total payments we have contracted to receive from these clients as revenue, and payments we make to the network pharmacy providers as cost of revenue in compliance with Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Gross Revenue as a Principal vs. Net as an Agent.” When a prescription is presented by a member to a retail pharmacy within our network, we are solely responsible for confirming member eligibility, performing drug utilization review, reviewing for drug-to-drug interactions, performing clinical intervention, which may involve a call to the member’s physician, communicating plan provisions to the pharmacy, directing payment to the pharmacy and billing the client for the amount they are contractually obligated to pay us for the prescription dispensed, as specified within our client contracts. We also provide benefit design and formulary consultation services to clients. We have separately negotiated contractual relationships with our clients and with network pharmacies, and under our contracts with pharmacies we assume the credit risk of our clients’ ability to pay for drugs dispensed by these pharmacies to clients’ members. Our clients are not obligated to pay the pharmacies as we are primarily obligated to pay retail pharmacies in our network the contractually agreed upon amount for the prescription dispensed, as specified within our provider contracts. In addition, under most of our client contracts, we realize a positive or negative margin represented by the difference between the negotiated ingredient costs we will receive from our clients and the separately negotiated ingredient costs we will pay to our network pharmacies. These factors indicate we are a principal as defined by EITF 99-19 and, as such, we record ingredient cost billed to clients in revenue and the corresponding ingredient cost paid to network pharmacies in cost of revenues.

In retail pharmacy transactions, amounts paid to pharmacies and amounts charged to clients are always exclusive of the applicable co-payment. Under our pharmacy agreements, the pharmacy is solely obligated to collect the co-payment from the member based on the amount we advise them to collect. As such, we do not include member co-payments to retail pharmacies in our revenue or in our cost of revenue.

If we merely administer a client’s network pharmacy contracts, to which we are not a party and under which we do not assume credit risk, we record only our administrative fees as revenue. For these clients, we earn an administrative fee for collecting payments from the client and remitting the corresponding amount to the pharmacies in the client’s network. In these transactions we act as a conduit for the client. Because we are not the principal in these transactions, drug ingredient cost is not included in our revenues or in our cost of revenues.

We bill our clients based upon the billing schedules established in client contracts. At the end of a period, any unbilled revenues related to the sale of prescription drugs that have been adjudicated with retail pharmacies are estimated

based on the amount we will pay to the pharmacies and historical gross margin. Those amounts due from our clients are recorded as revenue as they are contractually due to us for past transactions. Adjustments are made to these estimated revenues to reflect actual billings at the time clients are billed; historically, these adjustments have not been material.

Certain implementation and other fees paid to clients upon the initiation of a contractual agreement are considered an integral part of overall contract pricing and are recorded as a reduction of revenue. Where they are refundable upon early termination of the contract, these payments are capitalized and amortized as a reduction of revenue on a straight-line basis over the life of the contract.

Revenues from our non-PBM segment are derived from the distribution of pharmaceuticals requiring special handling or packaging where we have been selected by the pharmaceutical manufacturer as part of a limited distribution network, the distribution of pharmaceuticals through Patient Assistance Programs where we receive a fee from the pharmaceutical manufacturer for administrative and pharmacy services for the delivery of certain drugs free of charge to doctors for their indigent patients, sample fulfillment and sample accountability services. Revenues earned by our specialty distribution subsidiary (“SDS”) include administrative fees received from pharmaceutical manufacturers for dispensing or distributing consigned pharmaceuticals requiring special handling or packaging. We also administer sample card programs for certain manufacturers and include the ingredient costs of those drug samples dispensed from retail pharmacies in our SDS revenues, and the associated costs for these sample card programs in cost of revenues. Because manufacturers are independently obligated to pay us and we have an independent contractual obligation to pay our network pharmacy providers for free samples dispensed to patients under sample card programs, we include the total payments from these manufacturers (including ingredient costs) as revenue, and payments to the network pharmacy provider as cost of revenue. These transactions require us to assume credit risk.

Our Phoenix Marketing Group subsidiary (“PMG”) records an administrative fee for verifying practitioner licensure and then distributing consigned drug samples to doctors based on orders received from pharmaceutical sales representatives.

Rebate accounting. We administer two rebate programs through which we receive rebates and administrative fees from pharmaceutical manufacturers. Rebates earned for the administration of these programs, performed in conjunction with claim processing and mail pharmacy services provided to clients, are recorded as a reduction of cost of revenue and the portion of the rebate payable to customers is treated as a reduction of revenue. When we earn rebates and administrative fees in conjunction with formulary management services, but do not process the underlying claims, we record rebates received from manufacturers, net of the portion payable to customers, in revenue. We record rebates and administrative fees receivable from the manufacturer and payable to clients when the prescriptions covered under contractual agreements with the manufacturers are dispensed; these amounts are not dependent upon future pharmaceutical sales.

With respect to rebates based on actual market share performance, we estimate rebates and the associated receivable from pharmaceutical manufacturers quarterly based on our estimate of the number of rebatable prescriptions and the rebate per prescription. The portion of rebates payable to clients is estimated quarterly based on historical sharing percentages and our estimate of rebates receivable from pharmaceutical manufacturers. These estimates are adjusted to actual when amounts are received from manufacturers and the portion payable to clients is paid.

With respect to rebates that are not based on market share performance, no estimation is required because the manufacturer billing amounts and the client portion are determinable when the drug is dispensed. We pay all or a contractually agreed upon portion of such rebates to our clients.

Cost of revenues. Cost of revenues includes product costs, network pharmacy claims payments and other direct costs associated with dispensing prescriptions, including shipping and handling.

Income taxes. Deferred tax assets and liabilities are recognized based on temporary differences between financial statement basis and tax basis of assets and liabilities using presently enacted tax rates.

Earnings per share. Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share but adds the number of additional common shares that would have been outstanding for the period if the potential dilutive common shares had been issued. The following is the reconciliation between the number of weighted average shares used in the basic and diluted earnings per share calculation for all periods (amounts in thousands):

The above shares are all calculated under the “treasury stock” method in accordance with FAS 128, “Earnings Per Share.”

Foreign currency translation. The financial statements of ESI Canada, our Canadian operations, are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. The functional currency for ESI Canada is the local currency and cumulative translation adjustments (a credit balance of $5.2 million and a debit balance of $0.8 million at December 31, 2003 and 2002, respectively) are recorded within the other comprehensive income component of stockholders’ equity.

Employee stock-based compensation. We account for employee stock options in accordance with Accounting Principles Board No. (“APB”) 25, “Accounting for Stock Issued to Employees.” Under APB 25, we apply the intrinsic value method of accounting and, therefore, have not recognized compensation expense for options granted, because we grant options at a price equal to market value at the time of grant. During 1996, FAS 123, “Accounting for Stock-Based Compensation” became effective for us. FAS 123 prescribes the recognition of compensation expense based on the fair value of options determined on the grant date. However, FAS 123 grants an exception that allows companies currently applying APB 25 to continue using that method. We have, therefore, elected to continue applying the intrinsic value method under APB 25. The following table shows stock-based compensation expense included in net income and pro forma stock-based compensation expense, net income and earnings per share had we elected to record compensation expense based on the fair value of options at the grant date for the years ended December 31, 2003, 2002 and 2001 (see also Note 12):

Comprehensive income. In addition to net income, our components of comprehensive income (net of taxes) are foreign currency translation adjustments, cumulative effect of changes in accounting for derivative financial instruments, realized and unrealized losses on derivative financial instruments designated as cash flow hedges, and unrealized losses on available–for–sale securities. We have displayed comprehensive income within the Statement of Changes in Stockholders’ Equity.

Segment reporting. The segment information is derived from the management approach which designates the internal organization that is used by our chief operating decision-maker for making operating decisions and assessing performance as the source of our reportable segments (see Note 14).

New accounting guidance. In January 2003, we adopted FAS 143, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs and requires the accrual of the fair value (discounted to a net present value) of any legal or contractual obligations associated with the retirement of tangible, long-lived assets in the period in which the liabilities are incurred and capitalization of the fair value as part of the book value of the related long-lived asset. In subsequent periods, we are required to adjust asset retirement obligations based on changes in estimated fair value, and record the corresponding increases in asset book values. The liabilities are accreted over the life of the obligation and the related assets are depreciated over their useful lives. As required by FAS 143, we recorded an asset retirement obligation ($3.1 million at January 1, 2003) primarily related to equipment and leasehold improvements installed in leased, mail-order facilities in which we have a contractual obligation to remove the improvements and equipment upon surrender of the property to the landlord. For certain of our leased facilities, we are required to remove equipment and convert the facilities back to office space. We also recorded a net increase in fixed assets (net of accumulated depreciation) of $1.4 million and a $1.7 million ($1.0 million, net of tax) loss from the cumulative effect of change in accounting principle. The $1.4 million asset will be depreciated, on a straight-line basis, over the remaining term of the leases, which range from seven months to ten years.

In April 2002, FAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” was issued. In rescinding FAS 4, “Reporting Gains and Losses from Extinguishment of Debt,” and FAS 64 “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,” FAS 145 eliminates the required classification of gains and losses from extinguishment of debt as extraordinary. We adopted this provision of FAS 145 in January 2003. During 2003, we repurchased $35.4 million of our outstanding Senior Notes and prepaid $75.0 million of our Term B notes. As a result, we wrote-off deferred financing fees of $1.3 million and incurred a charge of $3.9 million representing a premium on the purchase of the Senior Notes in 2003. The write-off of deferred financing fees and the premium on the repurchase of the Senior Notes have been recorded as increases in interest expense. Losses on debt prepayments for periods prior to January 2003 have been reclassified to conform to the presentation required by FAS 145. Implementation of FAS 145 did not have an impact on our consolidated financial position, consolidated results of operations or our consolidated cash flows.

In September 2002, EITF 02-16, “Accounting by a Reseller for Cash Consideration Received from a Vendor” was issued. Under this pronouncement, consideration received from a vendor is presumed to be a reduction of the prices of the vendor’s products and should, therefore, be characterized as a reduction of cost of sales. EITF 02-16 applies to rebates and to administrative fees received from pharmaceutical manufacturers for collecting, processing and reporting drug utilization data, for monitoring formulary compliance and for calculating and distributing rebates to those of our clients for whom our PBM services includes the claim processing function. Prior to our adoption of EITF 02-16, we recorded rebates, net of the amount paid to our clients, and manufacturer administrative fees as components of revenue. The transition provisions of EITF 02-16 require implementation of this pronouncement for new arrangements, including modifications of existing arrangements, entered into after December 31, 2002. Early application is permitted as of the beginning of periods for which financial statements have not been issued and prior period reclassification is allowed to the extent there is no impact on net income. The application of the provisions of EITF 02-16 does not change our consolidated net income, consolidated gross profit, consolidated financial position or our consolidated cash flows. Therefore, we adopted the provisions of EITF 02-16 during fiscal 2002, earlier than required. As a result of the adoption, our revenues for 2002 and 2001 have been

reduced by $916.9 million, and $740.8 million, respectively, to conform to the presentation for 2003. This amount represents the gross rebates and administrative fees received from manufacturers. Cost of revenues, for 2002 and 2001, has been reduced by the same amount. Our clients’ portion of such rebates and administrative fees, a majority of this amount, has been and will continue to be recorded as a reduction of revenue. Consolidated net income and consolidated gross profit for 2002 and 2001 was not impacted as a result of the adoption of EITF 02-16.

Acquisitions. On December 19, 2002, we entered into an agreement with MPB under which we acquired certain assets from MPB for approximately $11.1 million in cash plus the assumption of certain liabilities. MPB is a St. Louis-based pharmacy benefit manager and subsidiary of Medicine Shoppe International, Inc., a franchisor of apothecary-style retail pharmacies, owned by Cardinal Health, Inc. The transaction was accounted for under the provisions of FAS 141. The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of the acquisition. A portion of the excess of purchase price over tangible net assets acquired has been allocated to intangible assets other than goodwill in the amount of $2.5 million. This asset is included in other intangible assets on the balance sheet and is being amortized using the straight-line method over the estimated useful life of 20 years. In addition, the excess of the purchase price over tangible net assets and identified intangible assets acquired has been allocated to goodwill in the amount of $15.0 million, which is not being amortized. The transaction was structured as a purchase of assets, making amortization expense of intangible assets, including goodwill, tax deductible.

On April 12, 2002, we completed the acquisition of National Prescription Administrators and certain affiliated entities (collectively “NPA”), a privately held full-service PBM, for a purchase price of approximately $466 million, which includes the issuance of 552,000 shares of our common stock (fair value of $26.4 million upon the transaction announcement date), transaction costs and a working capital purchase price adjustment of $46.8 million received during the third and fourth quarters of 2002. The transaction was accounted for under the provisions of FAS 141. The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of the acquisition. A portion of the excess of the purchase price over tangible net assets acquired has been allocated to intangible assets consisting of customer contracts in the amount of $76.3 million and non-competition agreements in the amount of $2.9 million, which are being amortized using the straight-line method over the estimated useful lives of 20 years and five years, respectively. These assets are classified as other intangible assets. In addition, the excess of the purchase price over tangible net assets and identified intangible assets acquired has been allocated to goodwill in the amount of $438.5 million which is not being amortized. During the second quarter of 2003 we finalized the allocation of the purchase price to tangible and intangible net assets resulting in a $39.7 million increase in goodwill. The increase in goodwill reflects adjustments to true-up opening balance sheet receivables and liabilities, and to adjust fixed assets to fair market value. The acquisition of NPA was funded with the proceeds of a new $325 million Term B loan facility, $78 million of cash on hand, the issuance of 552,000 shares of our common stock (fair value of $26.4 million upon the transaction announcement date), and $25 million in borrowings under our revolving credit facility. We have filed an Internal Revenue Code Section 338(h)(10) election, making amortization expense of intangible assets, including goodwill, tax deductible.

The following unaudited pro forma information presents a summary of our combined results of operations and those of NPA and Phoenix as if the acquisitions had occurred at the beginning of the periods presented, along with certain pro forma adjustments to give effect to amortization of other intangible assets, interest expense on acquisition debt and other adjustments. The following pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date, nor is it necessarily an indication of trends in future results (in thousands, except per share data):

On March 1, 2001, our Canadian subsidiary, ESI Canada, Inc., completed its acquisition of Centre d’autorisation et de paiement des services de sante, Inc. (“CAPSS”), a leading Quebec-based PBM, for approximately CAN$26.8 million (approximately US$17.5 million), which includes a purchase price adjustment for closing working capital. The transaction, which has been accounted for under the purchase method of accounting, was funded with our operating cash flow. The results of operations of CAPSS have been included in the consolidated financial statements and PBM segment since March 1, 2001. The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of the acquisition. The excess of purchase price over tangible net assets acquired has been allocated to intangible assets consisting of customer contracts in the amount of US$5.1 million (at the March 1, 2001 exchange rate), which are being amortized using the straight-line methods over the estimated useful life of 20 years and are included in other intangible assets, and goodwill in the amount of US$11.7 million (at the March 1, 2001 exchange rate), which, effective January 1, 2002, is no longer being amortized. Pro forma information, as if CAPSS had been acquired as of the beginning of the year, is not being presented as the inclusion of CAPSS financial data would not have a material impact to our consolidated financial statements.

We are one of the founders of RxHub, an electronic exchange enabling physicians who use electronic prescribing technology to link to pharmacies, pharmacy benefit management (“PBM”) companies and health plans. The company operates as conduit of information among all parties engaging in electronic prescribing. We own one-third of the equity of RxHub (as do each of the other two founders) and have committed to invest up to $20 million over the first five years of the joint venture with approximately $14.2 million invested through December 31, 2003. We have recorded our investment in RxHub under the equity method of accounting, which requires our percentage interest in RxHub’s results to be recorded in our Consolidated Statement of Operations. Our percentage of RxHub’s loss for 2003, 2002 and 2001 is $5.8 million ($3.6 million net of tax), $4.5 million ($2.8 million net of tax) and $1.8 million ($1.1 million net of tax), respectively, and has been recorded in other income (expense), net, in our Consolidated Statement of Operations. The cumulative undistributed loss of RxHub through December 31, 2003 is $12.2 million. Our investment in RxHub (approximately $2.0 million and $3.1 million at December 31, 2003 and 2002, respectively) is recorded in other assets on our Consolidated Balance Sheet.

In March 2002, we renegotiated certain terms of our relationship with Manufacturer’s Life Insurance Company “Manulife” and entered into an amended agreement which, among other things, extended the term of the agreement through March 2009. During 2001, Manulife earned 101,000 shares of our common stock to be issued in 2002. In lieu of the issuance of the 101,000 shares, we made a cash payment to Manulife. Therefore, the advance discount recorded in other intangible assets as of December 31, 2001 was recorded against revenue during the first quarter of 2002. In addition, the amendment eliminated the ability for Manulife to receive shares of our common stock or the warrants contemplated in the original agreement.

Depreciation expense for 2003, 2002 and 2001 was $40.3 million, $69.5 million and $33.3 million, respectively. Internally developed software, net of accumulated depreciation, was $49.8 million and $44.7 million at December 31, 2003 and 2002, respectively. We regularly explore the use of emerging technologies to improve the operational and administrative support functions of providing the pharmacy benefit. Several projects designed to promote member, client and physician connectivity, enhance the adjudication process and improve the overall delivery of the pharmacy benefit were initiated during 2002. As a result of our review of the useful lives of assets supporting our business processes, we reduced the estimated useful lives of existing systems due to the progress in implementing new technologies. Accordingly, 2002 depreciation expense increased by approximately $29.9 million (of which $6.4 million was recorded in cost of revenues).

During November 2003, we sold our East Hanover, New Jersey property and building for $6.5 million. The building included a mail order pharmacy and office space. A portion of the office space was then leased back from the purchaser for a five year term with a renewal option for an additional five years. The resulting lease is being accounted for as an operating lease. The agreement included a provision for additional proceeds upon the receipt of a no further action letter from the New Jersey Department of Environmental Protection. The amount of additional proceeds (which could be up to $1.25 million) is dependent upon the degree of remediation efforts required to receive such letter. Any additional proceeds will be recorded as a deferred gain and amortized over the five year lease term.

Under certain of our operating leases for facilities in which we operate mail order pharmacies, we are required to remove improvements and equipment upon surrender of the property to the landlord and convert the facilities back to office space. On January 1, 2003, we recorded an asset retirement obligation of $3.1 million as part of our implementation of FAS 143 and during the year we recorded accretion expense of $0.2 million. At December 31, 2003 our asset retirement obligation totals $3.3 million and is included in Other Liabilities on our Consolidated Balance Sheet.

The following is a summary of our goodwill and other intangible assets (amounts in thousands).

		⁽¹⁾ During 2003, we finalized the allocation of the NPA purchase price to tangible and intangible net assets resulting in a $39.7 million increase in goodwill (See Note 2). Changes in goodwill and accumulated amortization from December 31, 2002 to December 31, 2003 are also a result of changes in foreign currency exchange rates.

		⁽²⁾ Gross carrying amount and accumulated amortization at December 31, 2003 and December 31, 2002 excludes cumulative deferred financing fee, pre-tax write-offs of $17.0 million and $15.7 million, respectively. Deferred financing fees are amortized over the term of the related debt and are written off in conjunction with debt prepayments.

The aggregate amount of amortization expense of other intangible assets was $25.0 million, $17.3 million and $11.0 million for the twelve months ended December 31, 2003, 2002 and 2001, respectively. The future aggregate amount of amortization expense of other intangible assets is $25.0 million for 2004, $22.5 million for 2005, $17.5 million for 2006, $14.8 million for 2007 and $14.2 million for 2008. The weighted average amortization period of intangible assets subject to amortization is 17 years in total, and by major intangible class is 8 to 20 years for customer contracts and six years for other intangible assets.

The following table compares our net income and per share amounts for twelve months ended December 31, 2003, December 31, 2002, to net income and per share amounts for the twelve months ended December 31, 2001, adjusted to eliminate amortization of goodwill in 2001.

At December 31, 2003, our credit facility with a commercial bank syndicate consisted of $250 million of Term B loans and a $150 million revolving credit facility (of which nothing was outstanding at December 31, 2003). The Term B loans originated from a 2002 amendment to our credit facility to add the $325 million loans to fund the acquisition of NPA. During 2003, we utilized internally generated cash to prepay $75 million of our Term B loans, resulting in a charge to interest expense of $0.7 million ($0.4 million pre-tax).

During 2002 and 2001, we utilized internally generated cash to prepay $105 million and $50 million, respectively, of our Term A loans and as a result recorded charges of $1.7 million ($1.0 million net of tax) and $0.6 million ($0.4 million net of tax), respectively, from the write-off of deferred financing fees. These write-offs are included in interest expense as a result of our adoption of FAS 145 during 2003.

Our credit facility contains covenants that limit the indebtedness we may incur, the common shares we may repurchase, dividends we may pay and the amount of annual capital expenditures. The covenants also include a minimum interest coverage ratio, a maximum leverage ratio and a minimum fixed charge coverage ratio. At December 31, 2003, we are in compliance with all covenants associated with our credit facility.

In June 1999, we issued $250 million of 9.625% Senior Notes due 2009, of which $10.1 million and $35.4 million were repurchased on the open market during 2000 and 2003, respectively. In 2003 we recorded in interest expense a premium of $3.9 million and a write-off of deferred financing fees of $0.6 million as a result of our Senior Note repurchase. The Senior Notes, which require interest to be paid semi-annually on June 15 and December 15, are callable at specified prepayment premiums beginning in June 2004. The Senior Notes are unconditionally and jointly and severally guaranteed by most of our wholly-owned domestic subsidiaries. The Senior Note indenture contains covenants that limit the indebtedness we may incur, the common shares we may repurchase, dividends we may pay, certain investing activity, and the amount of annual capital expenditures. The covenants also establish a minimum interest coverage ratio.

The following represents the schedule of current maturities for our long-term debt as of December 31, 2003, excluding the deferred gain ($249,000 at December 31, 2003) from the restructuring of an interest rate swap agreement in 2000 (amounts in thousands):

During 2000, we received $2.4 million to restructure an existing interest rate swap agreement in conjunction with a prepayment of the Term A loans. We recognized $1.5 million ($0.9 million net of tax) against

interest expense as an ordinary gain related to the prepayment of debt and the remaining $0.9 million has been deferred and is being amortized over the remaining term of the loans. Interest expense was reduced by $0.2 million during 2003, 2002 and 2001.

During 1999, we entered into an interest rate lock related to our offering of $250 million Senior Notes. Upon issuance of the Senior Notes, we received $2.1 million, which is being amortized against interest expense over the term of the Senior Notes. Interest expense was reduced by $0.2 million during 2003, 2002 and 2001.

Effective January 1, 2001, we adopted FAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by FAS 137 and 138 (“FAS 133”). FAS 133 requires all derivative financial instruments, such as interest rate swaps, to be recognized as either assets or liabilities in the statement of financial position and measured at fair value. The adoption of FAS 133 did not have a material effect on our financial statements, but did reduce other comprehensive income during 2001 by $3.6 million, net of taxes, in the accompanying Consolidated Statement of Changes in Stockholders’ Equity due to a cumulative effect of change in accounting principle of $0.6 million as of January 1, 2001, and additional deferred losses recorded during 2001 of $3.0 million.

We use an interest rate swap agreement to manage our interest rate risk on future variable interest payments. At December 31, 2003, our swap agreement fixes the variable interest rate payments on approximately $60 million of debt under our credit facility. Under our swap agreement, we agree to receive a variable rate of interest on the notional principal amount of approximately $60 million based upon a three month LIBOR rate in exchange for payment of a fixed rate of 6.25% per annum. The notional principal amount will decrease to $20 million in April 2004 until maturing in April 2005.

Our present interest rate swap agreement is a cash flow hedge which requires us to pay fixed-rates of interest, and which hedge against changes in the amount of future cash flows associated with variable interest obligations. Accordingly, the fair value of our swap agreement, $2.5 million and $5.8 million, at December 31, 2003 and 2002, respectively, is reported on the balance sheet in other liabilities. The related deferred loss on our swap agreements, $1.5 million and $3.6 million, net of taxes, at December 31, 2003 and 2002, respectively, is deferred in shareholders’ equity as a component of other comprehensive income. This deferred loss is then recognized as an adjustment to interest expense over the same period in which the related interest payments being hedged are recorded in income. The loss associated with the ineffective portion of this agreement is immediately recognized as an expense. For the years ended December 31, 2003 and 2002, the losses on the ineffective portion of our swap agreement were not material to the consolidated financial statements.

A reconciliation of the statutory federal income tax rate and the effective tax rate follows (the effect of foreign taxes on the effective tax rate for 2003, 2002 and 2001 is immaterial):

The deferred tax assets and deferred tax liabilities recorded in the consolidated balance sheet are as follows:

At December 31, 2003 and 2002, the net current deferred tax asset is $15.3 million and $25.7 million, respectively, and the net long-term deferred tax liability, included in other liabilities is $112.1 million and $80.5 million, respectively.

We have entered into noncancellable agreements to lease certain office and distribution facilities with remaining terms from one to ten years. The majority of our lease agreements include renewal options which would extend the agreements from one to five years. We have entered into noncancellable agreements to sublet two facilities with remaining terms of two and three years. Rental expense under the office and distribution facilities leases in 2003, 2002 and 2001 was $18.3 million, $16.3 million and $14.7 million, respectively. The future minimum lease payments due under noncancellable operating leases (in thousands):

For the year ended December 31, 2003, approximately 85% of our pharmaceutical purchases were through one wholesaler. We believe other alternative sources are readily available. Our top five clients represented 17.8% of revenues during 2003. None of our clients accounted for 10% or more of our consolidated revenues in fiscal years 2003, 2002 or 2001. We believe no other concentration risks exist at December 31, 2003.

In the ordinary course of business (which includes the business conducted by entities we have acquired, prior to such acquisitions), various legal proceedings, investigations or claims pending have arisen against us and our subsidiaries (ValueRx, DPS and NPA continue to be parties to proceedings that arose prior to their April 1, 1998, April 1, 1999 and April 12, 2002, respective acquisition dates). We maintain insurance coverage for some of these claims. Where insurance coverage is not available, or in our judgment, is not cost-effective, we maintain self-insurance reserves to reduce our exposure to future legal costs, settlements and judgments related to uninsured claims. Self-insured losses are accrued based upon estimates of the aggregate liability for the costs of uninsured claims incurred using certain actuarial assumptions followed in the insurance industry and our historical experience. It is not possible to predict with certainty the outcome of these claims, and we can give no assurances that any losses, in excess of our insurance and any self-insurance reserves, will not be material.

In May 2001, we announced a two-for-one stock split of our Common Stock for stockholders of record on June 8, 2001, effective June 22, 2001. The split was effected in the form of a dividend by issuance of one share of Common Stock for each share of Common Stock outstanding. The earnings per share and the weighted average number of shares outstanding for basic and diluted earnings per share for all years presented have been adjusted for the stock split.

Treasury shares are carried at first in, first out cost. As of December 31, 2003, we have repurchased a total of 8.1 million shares of our Common Stock under the stock repurchase program that we announced on October 25, 1996, of which, 2.4 million shares were repurchased during 2003. Approximately 5.9 million shares have been reissued in connection with employee compensation plans through December 31, 2003. Our Board of Directors has approved the repurchase of a total of 10.0 million shares under our stock repurchase program. There is no limit on the duration of the program. Additional purchases, if any, will be made in such amounts and at such times as we deem appropriate based upon prevailing market and business conditions, subject to restrictions on stock repurchases contained in our bank credit facility and the Indenture under which our Senior Notes were issued.

As of December 31, 2003, approximately 4,545,972 shares of our Common Stock have been reserved for employee benefit plans (see Note 12).

Preferred Share Purchase Rights. In July 2001 our Board of Directors adopted a stockholder rights plan which declared a dividend of one right for each outstanding share of our common stock. The rights plan will expire on July 25, 2011. The rights are currently represented by our common stock certificates. When the rights become exercisable, they will entitle each holder to purchase 1/1,000th of a share of our Series A Junior Participating Preferred Stock for an exercise price of $300 (subject to adjustment). The rights will become exercisable and will trade separately from the common stock only upon the tenth day after a public announcement that a person, entity or group (“Person”) has acquired 15% or more of our outstanding common stock (“Acquiring Person”) or ten days after the commencement or public announcement of a tender or exchange offer which would result in any Person becoming an Acquiring Person; provided that any Person who beneficially owned 15% or more of our common stock as of the date of the rights plan will not become an Acquiring Person so long as such Person does not become the beneficial owner of additional shares representing 2% or more of our outstanding shares of common stock. In the event that any Person becomes an Acquiring Person, the rights will be exercisable for our common stock with a market value (as determined under the rights plan) equal to twice the exercise price. In the event that, after any Person becomes an Acquiring Person, we engage in certain mergers, consolidations, or sales of assets representing 50% or more of our assets or earning power with an Acquiring Person (or Persons acting on behalf of or in concert with an Acquiring Person), the rights will be exercisable for common stock of the acquiring or surviving company with a market value (as determined under the rights plan) equal to twice the exercise price. The rights will not be exercisable by any Acquiring Person. The rights are redeemable at a price of $0.01 per right prior to any Person becoming an Acquiring Person.

Retirement savings plan. We sponsor retirement savings plans under Section 401(k) of the Internal Revenue Code for all of our full time employees. Employees may elect to enter a written salary deferral agreement under which a maximum of 15% to 25% of their salary, subject to aggregate limits required under the Internal Revenue Code, may be contributed to the plan. For substantially all employees, we match 100% of the first 4% of the employees’ compensation contributed to the Plan. For the years ended December 31, 2003, 2002 and 2001, we had contribution expense of approximately $7.8 million, $6.4 million and $5.0 million, respectively.

Employee stock purchase plan. We offer an employee stock purchase plan that qualifies under Section 423 of the Internal Revenue Code and permits all employees, excluding certain management level employees, to purchase shares of our Common Stock. Participating employees may elect to contribute up to 10% of their salary to purchase common stock at the end of each monthly participation period at a purchase price equal to 85% of the fair market value of our Common Stock as of either the beginning or the end of the participation period, whichever is lower. During 2003, 2002 and 2001, approximately 68,000, 63,000 and 34,000 shares of our Common Stock were issued under the plan, respectively. Our Common Stock reserved for future employee purchases under the plan is 251,372 at December 31, 2003.

Deferred compensation plan. We maintain a non-qualified deferred compensation plan (the “Executive Deferred Compensation Plan”) that provides benefits payable to eligible key employees at retirement, termination or death. Benefit payments are funded by a combination of contributions from participants and us. Participants may elect to defer up to 50% of their base earnings and 100% of specific bonus awards. Participants become fully vested in our contributions on the third anniversary of the end of the plan year for which the contribution is credited to their account. For 2003, our contribution was equal to 6% of each qualified participant’s total annual compensation, with 25% being allocated as a hypothetical investment in our Common Stock and the remaining being allocated to a variety of investment options. We have chosen to fund our liability for this plan through investments in trading securities, which primarily consists of mutual funds (see Note 1). We incurred approximately $3.8 million of compensation expense in 2003 and 2002 and $2.1 million of compensation expense in 2001. At December 31, 2003, 665,928 shares of our Common Stock have been reserved for future issuance under the plan.

Stock-based compensation plans. In August 2000, the Board of Directors adopted the Express Scripts, Inc. 2000 Long-Term Incentive Plan which was subsequently amended in February 2001 and again in December 2001 (as amended, the “2000 LTIP”), which provides for the grant of various equity awards with various terms to our officers, Board of Directors and key employees selected by the Compensation Committee of the Board of Directors. The 2000 LTIP, as then amended, was approved by our stockholders in May 2001. As of December 31, 2003, 3,446,216 shares of our Common Stock are available for issuance under this plan. The maximum term of options granted under the 2000 LTIP is 10 years. During 2003, we granted approximately 390,000, restricted shares of Common Stock with a weighted average fair market value of $64.57, to certain of our officers and employees. These shares are subject to various cliff-vesting periods from five to ten years with provisions allowing for accelerated vesting based upon specific performance criteria. Prior to vesting, these restricted shares are subject to

forfeiture to us without consideration upon termination of employment under certain circumstances. As of December 31, 2003, a total of 1,125,000 restricted shares of Common Stock have been issued under the 2000 LTIP of which, 899,000 shares were issued from shares held in treasury and approximately 138,000 shares have been forfeited. Unearned compensation relating to the restricted shares is recorded as a separate component of stockholders’ equity and is amortized to non-cash compensation expense over the estimated vesting periods. As of December 31, 2003, 2002 and 2001, unearned compensation was $22.1 million, $5.7 million and $11.9 million. We recorded compensation expense related to restricted stock grants for 2003, 2002 and 2001 of $7.2 million, $8.3 million and $9.4 million, respectively.

The provisions of the 2000 LTIP allow employees to use shares to cover tax withholding on stock awards. Upon vesting of restricted stock, employees have taxable income subject to statutory withholding requirements. The number of shares issued to employees may be reduced by the number of shares having a market value equal to our minimum statutory withholding for federal, state and local tax purposes.

As a result of the Board’s adoption and stockholder approval of the 2000 LTIP, no additional awards will be granted under either of our 1992 amended and restated stock option plans (discussed below) or under our 1994 amended and restated Stock Option Plan (discussed below). However, these plans are still in existence as there are outstanding grants under these plans.

In April 1992, we adopted a stock option plan that we amended and restated in 1995 and amended in 1999, which provided for the grant of nonqualified stock options and incentive stock options to our officers and key employees selected by the Compensation Committee of the Board of Directors. In June 1994, the Board of Directors adopted the Express Scripts, Inc. 1994 Stock Option Plan, also amended and restated in 1995 and amended in 1997, 1998 and 1999. Under either plan, the exercise price of the options was not less than the fair market value of the shares at the time of grant, and the options typically vested over a five-year period from the date of grant.

In April 1992, we also adopted a stock option plan that was amended and restated in 1995 and amended in 1996 and 1999 that provided for the grant of nonqualified stock options to purchase 48,000 shares to each director who is not an employee of ours or our affiliates. In addition, the second amendment to the plan gave each non-employee director who was serving in such capacity as of the date of the second amendment the option to purchase 2,500 additional shares. The second amendment options vested over three years. The plan provides that the options vest over a two-, three- or five-year period from the date of grant depending upon the circumstances of the grant.

We apply APB 25 and related interpretations in accounting for our plans. Accordingly, compensation cost has been recorded based upon the intrinsic value method of accounting for restricted stock and no compensation cost has been recognized for stock options granted. Had compensation cost for stock option grants been determined based on the fair value at the grant dates consistent with the method prescribed by FAS 123, our net income (loss) would have been reduced by $11.9 million, $11.4 million and $9.8 million for the years ended December 31, 2003, 2002 and 2001, respectively (see also Note 1).

The fair value of options granted (which is amortized to expense over the option vesting period in determining the pro forma impact), is estimated on the date of grant using the Black-Scholes multiple option-pricing model with the following weighted average assumptions:

A summary of the status of our fixed stock option plans as of December 31, 2003, 2002 and 2001, and changes during the years ending on those dates is presented below.

The following table summarizes information about fixed stock options outstanding at December 31, 2003:

Our Senior Notes are unconditionally and jointly and severally guaranteed by our wholly-owned domestic subsidiaries other than Great Plains Reinsurance Co., ValueRx of Michigan, Inc., Diversified NY IPA, Inc., and Diversified Pharmaceutical Services (Puerto Rico), Inc. The following condensed consolidating financial information has been prepared in accordance with the requirements for presentation of such information. We believe that this information, presented in lieu of complete financial statements for each of the guarantor subsidiaries, provides sufficient detail to allow investors to determine the nature of the assets held by, and the operations of, each of the consolidating groups. During 2000 and 2001, we undertook internal corporate reorganizations to eliminate various entities whose existence was deemed to be no longer necessary, including, among others, ValueRx, and to create several new entities to conduct certain activities, including Express Scripts Specialty Distribution Services (“SDS”), ESI Mail Pharmacy Service, Inc. (“ESI MPS”), Express Access Pharmacy, Inc. (“EAP”) and ESI Resources, Inc. (“ERI”). Consequently, the assets, liabilities and operations of ValueRx are included in those of the issuer, Express Scripts, Inc., and the assets, liabilities and operations of SDS, ESI MPS, EAP and ERI are included in those of the guarantors. Effective December 31, 2001, Practice Patterns Science, Inc. (“PPS”) was dissolved. The condensed consolidated non-guarantors’ financial statements for 2001 include the assets, liabilities and operations of PPS. During 2002, Phoenix Marketing Group LLC was established to acquire the assets of Phoenix. Subsequent to the acquisition on February 25, 2002, the assets, liabilities and operations of Phoenix Marketing Group, LLC have been included in those of the guarantors. In addition, subsequent to the acquisition of NPA on April 12, 2002, the assets, liabilities and operations of NPA have been included in those of the guarantors.

We report segments on the basis of services offered and have determined that we have two reportable segments: PBM services and non-PBM services. Our domestic and Canadian PBM operating segments have similar characteristics and as such have been aggregated into a single PBM reporting segment. In 2002 and 2001, the remaining operating service lines (Specialty Distribution Services, Specialty self-injectibles, Phoenix Marketing Group in 2002 and Express Scripts Infusion Services in 2001) were aggregated into a non-PBM reporting segment. Effective in December 2003, our self-injectibles business unit became part of our domestic PBM operating segment and our remaining service lines (Specialty Distribution Services and Phoenix Marketing Group) merged into a single Non-PBM operating segment. Our 2002 and 2001 data have been recast to reflect the change in our operations and reporting segments.

Operating income is the measure used by our chief operating decision maker to assess the performance of each of our operating segments. The following table presents information about our reportable segments, including a reconciliation of operating income to income before income taxes, as of and for the years ended December 31:

PBM product revenue consists of revenues from the dispensing of prescription drugs from our mail pharmacies and revenues from the sale of prescription drugs by retail pharmacies in our retail pharmacy networks. Non-PBM product revenues consist of revenues from certain specialty distribution activities. PBM service revenue includes administrative fees associated with the administration of retail pharmacy networks contracted by certain clients, market research programs and informed decision counseling services. Non-PBM service revenue includes revenues from certain specialty distribution services, and sample distribution and accountability services.

Revenues earned by our Canadian PBM totaled $22.3 million, $12.4 million and $13.9 million for the years ended December 31, 2003, 2002 and 2001, respectively. All other revenues are earned in the United States. Long-lived assets of our Canadian PBM (consisting primarily of fixed assets and goodwill) totaled $33.9 million, $26.2 million and $25.1 million as of December 31, 2003, 2002 and 2001, respectively. All other long-lived assets are domiciled in the United States.

On January 30, 2004, we purchased the capital stock of CuraScript for approximately $335 million in cash plus the assumption of certain liabilities. CuraScript is one of the nation’s largest specialty pharmacy services companies serving over 175 managed care organizations, 30 Medicaid programs and the Medicare program and operating seven specialty pharmacies throughout the United States. The transaction will be accounted for under the provisions of FAS 141, “Business Combinations.” The $335 million purchase price was financed with $210.0 million of cash on hand and the remainder by adding $125.0 million in Term C loans through an amendment of our Bank Credit Facility.

In early February 2004, we borrowed $50.0 million on the revolving credit facility under our then existing credit agreement (see Note 7) and on February 13, 2004, we refinanced our entire credit facility. We negotiated an $800 million credit facility with a bank syndicate which includes $200 million of Term A loans, $200 million of Term B loans and a $400 million revolving credit facility. The proceeds from the $800.0 million credit facility were used to prepay borrowings on the revolver, Term B and Term C loans outstanding under our previous credit facility. The newly established $400.0 million revolving credit facility is also available for general corporate purposes, including the potential early redemption of our Senior Notes which are callable beginning in June 2004. As a result of the renegotiation of our previous credit facility in February 2004, we recorded, in interest expense, charges of $3.4 million from the write-off of deferred financing fees.

Our new credit facility requires us to pay interest periodically on the London Interbank Offered Rates (“LIBOR”) or base rate options, plus a margin. The margin on the Term A loans and on amounts outstanding under the revolving credit facility is dependent on our credit rating and our ratio of debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”). The Term B loan interest is based on the LIBOR or alternative base rate options plus a margin of 1.5% or 0.25% per annum, respectively. To alleviate interest rate volatility, we have an interest rate swap arrangement (see Note 8). Under our new credit facility we are required to pay commitment fees on the unused portion of the $400 million revolving credit facility ($300 million at February 13, 2004). The commitment fee will range from 0.2% to 0.5% depending on our credit rating and our consolidated leverage ratio. Initially, the commitment fee will be 0.3% per annum. At February 20, 2004, the weighted average interest rate on the new facility was 2.64%. Our new credit facility contains covenants that limit the indebtedness we may incur, the common shares we may repurchase, dividends we may pay and the amount of annual capital expenditures. The covenants also include a minimum interest coverage ratio and a maximum leverage ratio.

The following represents the schedule of current maturities for our long-term debt, reflecting the increase in debt related to the CuraScript acquisition in January 2004 and the refinancing of our bank credit facility in February 2004 (amounts in thousands):

In January 2004, we and the National Association of Chain Drugstores (“NACDS”) announced our intention to jointly seek endorsement of a discount card program through a jointly controlled entity, Pharmacy Care Alliance (“PCA”). We will provide PBM services to PCA, including the negotiation of discounts from individual retailers and pharmaceutical manufacturers, the enrollment of cardholders and the processing of claims. We estimate that we will incur cash outflows of approximately $6.0 million, some of which will be capital expenditures, in the first and second quarters of 2004 before we begin processing claims under the program in June 2004. In addition, we have committed to lend up to $4.0 million to PCA in the form of a revolving line of credit available over the next 18 months to fund PCA’s operating expenditures. These expenditures will be funded from operating cash flows.

(1)		As a result of our adoption of FAS 143, we recorded a loss from the cumulative effect of change in accounting principle of $1.7 million ($1.0 million net of taxes) (see Note 1).

(2)		As a result of our adoption of FAS 145, losses on debt prepayments for periods prior to January 2003, previously classified as extraordinary items have been reclassified to conform to the presentation required by FAS 145 (see Note 1).

(3)		Includes the acquisition of Phoenix Marketing Group effective February 25, 2002, National Prescription Administrators and certain related entities, effective April 12, 2002, and Managed Pharmacy Benefits, Inc., effective December 20, 2002.

Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and under the Securities Exchange Act of 1934 (Exchange Act)) designed to provide reasonable assurance that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC’s rules and forms. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chairman and our President and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the Chief Executive Officer and Chairman and the President and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures are effective in providing reasonable assurance of the achievement of the objectives described above.

During the fiscal quarter ended December 31, 2003, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The information required by this item will be incorporated by reference from our definitive Proxy Statement for our 2004 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A (the “Proxy Statement”) under the heading “I. Election of Directors”; provided that the Report of the Compensation Committee on Executive Compensation, the Report of the Audit Committee and the performance graph contained in the Proxy Statement shall not be deemed to be incorporated herein; and further provided that some of the information regarding our executive officers required by Item 401 of Regulation S-K has been included in Part I of this report.

We have adopted a code of ethics that applies to our directors, officers and employees, including our principal executive officers, principal financial officer, principal accounting officer, controller, or persons performing similar functions (the “senior financial officers”). A copy of this code of business conduct and ethics will be posted on the investor relations portion of our website at www.express-scripts.com/other/investor. In the event the code of ethics is revised, or any waiver is granted under the code of ethics with respect to any director, executive officer or senior financial officer, notice of such revision or waiver will be posted on our website.

The information required by this item will be incorporated by reference from the Proxy Statement under the headings “Directors’ Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Executive Compensation.”

Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be incorporated by reference from the Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management.”

The information required by this item will be incorporated by reference from the Proxy Statement under the heading “Certain Relationships and Related Party Transactions.”

The information required by this item will be incorporated by reference from the Proxy Statement under the heading “Principal Accountant Fees”

The following report of independent accountants and our consolidated financial statements are contained in this Report

Consolidated Statement of Operations for the years ended December 31, 2003, 2002 and 2001

Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2003, 2002 and 2001

Consolidated Statement of Cash Flows for the years ended December 31, 2003, 2002 and 2001

VIII. Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2003, 2002 and 2001


	All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto.


	See Index to Exhibits on the pages below. The Company agrees to furnish to the Securities and Exchange Commission, upon request, copies of any long-term debt instruments that authorize an amount of securities constituting 10% or less of the total assets of Express Scripts, Inc. and its subsidiaries on a consolidated basis.

	(i)		On October 30, 2003, we filed a Current Report on Form 8-K, dated October 29, 2003, under Items 5, 7 and 9, regarding a press release we issued with respect to our third quarter 2003 financial performance.

	(ii)		On December 24, 2003, we filed a Current Report on Form 8-K, dated December 22, 2003, under Items 5 and 9, announcing that we had entered into a definitive agreement to acquire the capital stock of CuraScript Pharmacy, Inc. and CuraScript PBM Services, Inc.

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.

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

EXPRESS SCRIPTS, INC.
Schedule VIII — Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2003, 2002, and 2001

(1)		Represents the opening balance sheet for our February 25, 2002 acquisition of Phoenix Marketing Group and our April 12, 2002 acquisition of National Prescription Administrators and related entities.

(2)		Amount includes the reversal of a reserve recorded in 2002 for a client then in bankruptcy. In 2003, we received payment on this client’s obligations to us and determined such reserve was no longer necessary.

1		The Company agrees to furnish supplementally a copy of any omitted schedule to this agreement to the Commission upon request.

2		Filed herein.

3		Management contract or compensatory plan or arrangement.

90 EX-10.33 3 c83158exv10w33.txt LETTER AGREEMENT EXHIBIT 10.33 [EXPRESS SCRIPTS LOGO] October 2, 2003 Barbara Hill XXXXXXXXX XXXXXXXXX This letter will set forth certain agreements regarding the terms of your separation from Express Scripts. 1. In consideration of your reaffirmation of your undertakings in Article V of the Executive Employment Agreement between you and Express Scripts dated as of April 15, 2002 (the "Employment Agreement"), as amended by section 2 of this letter, and in consideration of your continuing compliance with such undertakings, Express Scripts will pay to you, in addition to the amounts otherwise due to you under the Employment Agreement upon a termination of employment by the Company without Cause, the sum of $1,634,000 payable to you in a lump sum in cash, net of any required income and employment tax withholding, as soon as practicable following your acceptance of this letter. Such payments shall be and remain subject to the terms of Section 4.2(c) of the Employment Agreement. 2. The "Noncompete Period" under the Employment Agreement shall be twenty-four (24) months from the date of termination of employment. 3. We hereby confirm that with respect to the items listed below, you are vested as follows: a) Deferred Bonus - $540,941.98 b) Restricted Stock - 9,744 shares c) Stock Options - 40,000 options 4. You agree to tender your resignation from the Board of Directors of Express Scripts, Inc., effective immediately, with your acceptance of this letter. 5. We have agreed on the text of a press announcement to be issued no later than October 2, 2003, and on a statement of reference that the Company will give in Barbara Hill October 2, 2003 Page Two response to inquiries from potential future employers. Copies of such documents are attached. 6. The effective date of termination of your employment is October 2, 2003. 7. Except as otherwise expressly provided in this letter, the terms of the Employment Agreement relating to termination of your employment shall remain in full force and effect. We wish you the best of luck in your future endeavors and thank you for your service and dedication to Express Scripts. Sincerely, /s/ Barrett A. Toan Barrett A. Toan Accepted: /s/ Barbara Hill - ---------------------- Barbara Hill EX-10.34 4 c83158exv10w34.txt CREDIT AGREEMENT EXHIBIT 10.34 CREDIT AGREEMENT dated as of February 13, 2004 among EXPRESS SCRIPTS, INC., a Delaware corporation, as Borrower, THE LENDERS LISTED HEREIN, as Lenders, CREDIT SUISSE FIRST BOSTON and CITIGROUP GLOBAL MARKETS INC., as Joint Lead Arrangers and Joint Bookrunning Managers, CREDIT SUISSE FIRST BOSTON, as Administrative Agent and Collateral Agent, CITIGROUP GLOBAL MARKETS INC., as Syndication Agent, and BANK OF AMERICA, BANK ONE, N.A. and U.S. BANK NATIONAL ASSOCIATION, as Co-Documentation Agents TABLE OF CONTENTS

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Schedule 2.1 Term Loan and Revolving Commitments Schedule 3.1B(i) Existing Letters of Credit Schedule 5.1 Subsidiaries Schedule 5.6 Litigation Schedule 7.2 Liens Exhibit I Form of Notice of Borrowing Exhibit II Form of Notice of Continuation/Conversion Exhibit III Form of Request to Issue Letter of Credit Exhibit IV-A Form of Tranche A Term Note Exhibit IV-B Form of Tranche B Term Note Exhibit V Form of Revolving Note Exhibit VI Form of Swing Line Note Exhibit VII Form of Compliance Certificate Exhibit VIII-A Form of Opinion of Thomas Boudreau, Esq., General Counsel of the Company Exhibit VIII-B Form of Opinion of Simpson Thacher & Bartlett LLP, special New York counsel for Loan Parties Exhibit VIII-C Form of Opinion of Drinker Biddle & Shanley LLP, special New Jersey and Pennsylvania counsel for Loan Parties Exhibit IX Form of Opinion of Cahill Gordon & Reindel LLP, counsel to Administrative Agent Exhibit X Form of Assignment Agreement Exhibit XI Form of Certificate Re Non-Bank Status Exhibit XII Form of Company Pledge Agreement Exhibit XIII Form of Subsidiary Guaranty Exhibit XIV Form of Subsidiary Pledge Agreement -iv- EXPRESS SCRIPTS, INC. CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of February 13, 2004 and entered into by and among EXPRESS SCRIPTS, INC., a Delaware corporation ("Company"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and collectively as "Lenders"), CREDIT SUISSE FIRST BOSTON, a bank organized under the laws of Switzerland, acting through its Cayman Islands Branch ("CSFB"), and CITIGROUP GLOBAL MARKETS INC., acting through its New York branch ("CGMI"), as joint lead arrangers and joint bookrunning managers (in such capacity, the "Joint Lead Arrangers"), CSFB, as administrative agent (in such capacity, the "Administrative Agent") and collateral agent (in such capacity, the "Collateral Agent"), CGMI, as Syndication Agent (in such capacity, the "Syndication Agent"), and BANK OF AMERICA, BANK ONE, N.A. and U.S. BANK NATIONAL ASSOCIATION, as co-documentation agents (in such capacity, the "Co-Documentation Agents"). R E C I T A L S WHEREAS, Company desires that Lenders extend credit in the form of (a) Tranche A Term Loans on the Closing Date in an aggregate principal amount of $200,000,000, (b) Tranche B Term Loans on the Closing Date in an aggregate principal amount of $200,000,000 and (c) Revolving Loans at any time and from time to time prior to the Revolving Credit Maturity Date in an aggregate principal amount at any time outstanding not in excess of $400,000,000; WHEREAS, the proceeds of the Term Loans and Revolving Loans made on the Closing Date are to be used (i) to permanently repay in full (the "Refinancing") all amounts outstanding under Company's existing Credit Agreement dated as of April 1, 1999 (as amended, supplemented or otherwise modified from time to time prior to the date hereof, the "Existing Credit Agreement"); (ii) to pay fees and expenses related to the Refinancing; and (iii) for working capital and general corporate purposes; WHEREAS, Company desires to secure all of the Obligations hereunder and under the other Loan Documents by granting to the Agents, on behalf of Lenders, a pledge of all of the capital stock of each of its Domestic Subsidiaries (as defined below), excluding the Exempt Subsidiaries (as defined below), and 65% of the stock of its foreign Subsidiaries; and WHEREAS, all of the Domestic Subsidiaries of Company, excluding the Exempt Subsidiaries, have agreed to guarantee the Obligations hereunder and under the other Loan Documents and to secure their guaranties by granting to the Agents, on behalf of Lenders, a pledge of all of the capital stock of each of their Domestic Subsidiaries and 65% of the stock of all foreign Subsidiaries, in each case, excluding the Exempt Subsidiaries. -2- NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Company, Lenders and Agents agree as follows: SECTION 1. DEFINITIONS 1.1. Certain Defined Terms The following terms used in this Agreement shall have the following meanings: "Account" means any account (as that term is defined in Section 9-102(a)(2) of the UCC) arising from the sale or lease of goods or rendering of services. "Adjusted Eurodollar Rate" means, with respect to any Eurodollar Rate Loans for any Interest Period, an interest rate per annum equal to the product of (a) the Eurodollar Rate in effect for such Interest Period and (b) Statutory Reserves. "Administrative Agent" has the meaning assigned to that term in the preamble to this Agreement. "Affected Lender" has the meaning assigned to that term in subsection 2.6C. "Affiliate", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agents" means, collectively, the Administrative Agent, the Syndication Agent, the Collateral Agent, the Joint Lead Arrangers and also any successor Agents appointed pursuant to subsection 9.5A. "Agreement" means this Credit Agreement dated as of February 13, 2004, as it may be amended, supplemented or otherwise modified from time to time. "Alternate Base Rate" means, at any time, the higher of (i) the Prime Rate or (ii) the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate. "Alternate Base Rate Loans" means Loans bearing interest at rates determined by reference to the Alternate Base Rate as provided in subsection 2.2A. -3- "Approved Fund" means, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Asset Sale" means the sale by Company or any of its Subsidiaries to any Person other than Company or any of its Wholly Owned Subsidiaries of (i) any of the stock of any of Company's Subsidiaries, (ii) substantially all of the assets of any division or line of business of Company or any of its Subsidiaries or (iii) any other assets (whether tangible or intangible) of Company or any of its Subsidiaries (other than (a) inventory sold in the ordinary course of business, (b) NPA Real Estate sold in one or more transactions the aggregate amount of the proceeds of which is equal to or less than $33.0 million and (c) any such other assets to the extent that the aggregate value of such assets sold in any single transaction or related series of transactions is equal to $1,000,000 or less); provided, that, with respect to any sale that would be otherwise deemed an Asset Sale pursuant to the foregoing, if Company shall deliver an Officers' Certificate to Administrative Agent at or prior to receipt of proceeds of such sale setting forth Company's intent to use such proceeds to replace Plant Assets that are the subject of such sale with other Plant Assets necessary or desirable for the conduct of its business, or to exchange Plant Assets for other Plant Assets used in the conduct of its business, or to purchase 100% of the stock of a company engaged in the same or a similar business within 365 days of such receipt and no Event of Default or Potential Event of Default shall have occurred and shall be continuing at such time, such sale shall not be deemed to constitute an Asset Sale, except to the extent such Plant Assets or proceeds thereof are not so used within such 365-day period, after which time such sale, to such extent, shall be deemed an Asset Sale. "Assignment Agreement" means an Assignment Agreement in substantially the form of Exhibit X annexed hereto. "Attributable Debt" in respect of a Sale and Leaseback Transaction means, as at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligations of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Borrowing" means a borrowing consisting of simultaneous Loans of the same Type and Class made, converted or continued on the same date and, in the case of Eurodollar Rate Loans, having the same Interest Period. "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or the State of Missouri, or is a day on -4- which banking institutions located in either such jurisdiction are authorized or required by law or other governmental action to close. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Certificate Re Non-Bank Status" means a certificate substantially in the form of Exhibit XI annexed hereto delivered by a Lender to Administrative Agent pursuant to subsection 2.7B(iii). "CGMI" has the meaning assignment to such term in the preamble to this Agreement. "Class," when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Tranche A Term Loans, Tranche B Term Loans or Swing Line Loans and, when used in reference to any Commitment, refers to whether such Commitment is a Revolving Commitment, Tranche A Commitment or Tranche B Commitment. "Closing Date" means the date on which the initial Loans are made. "Co-Documentation Agents" has the meaning assigned to that term in the preamble to this Agreement. "Collateral" means, collectively, the "Pledged Collateral" as defined in the Company Pledge Agreement and the Subsidiary Pledge Agreements. "Collateral Agent" shall have the meaning assigned to such term in the preamble of this Agreement. "Commitments" means the commitments of Lenders to make Loans as set forth in subsection 2.1A. "Company" has the meaning assigned to that term in the preamble to this Agreement. "Company Pledge Agreement" means the Company Pledge Agreement executed and delivered by Company and the Agents on the Closing Date, substantially in the form of Exhibit XII annexed hereto, as such Company Pledge Agreement may thereafter be amended, supplemented or otherwise modified from time to time. "Compliance Certificate" means a certificate substantially in the form of Exhibit VII annexed hereto delivered to Administrative Agent and Lenders by Company pursuant to subsection 6.1(iii). -5- "Consolidated EBITDA" means, for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) provisions for taxes based on income, (iv) total depreciation expense, (v) total amortization expense and (vi) other non-cash items incurred in the ordinary course of business reducing Consolidated Net Income not in excess of 10% of Consolidated Net Worth, less other non-cash items increasing Consolidated Net Income, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP, subject to subsection 1.2B. "Consolidated Interest Expense" means for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Company and its Subsidiaries on a consolidated basis in accordance with GAAP with respect to all outstanding Indebtedness of Company and its Subsidiaries, and in any event including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers acceptance financing and net costs under Interest Rate Agreements plus in the event of the consummation of a Qualified Receivables Transaction, an amount equal to the interest (or other fees in the nature of interest or discount accrued and paid or payable in cash for such period) on such Qualified Receivables Transaction, but excluding, however, any amounts referred to in subsection 2.3 actually paid to Administrative Agent and Lenders on or before the date of determination. For the purposes of determining Consolidated Interest Expense for the purpose of determining compliance with the financial covenant in subsection 7.4A, Consolidated Interest Expense shall exclude (i) any premium above par paid by Company on the 9 5/8% Notes, (ii) write-off of unamortized debt discount relating thereto and (iii) write-off of issuance costs relating to the Existing Credit Agreement. "Consolidated Leverage Ratio" means the ratio of (i) Consolidated Total Debt as of the last day of any Fiscal Quarter to (ii) Consolidated EBITDA for the four-Fiscal Quarter period ending as of such day, subject to subsection 1.2B. "Consolidated Net Income" means, for any period, the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded (i) the income (or loss) of any Person (other than a Subsidiary of Company) in which any other Person (other than Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Company or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Company or is merged into or consolidated with Company or any of its Subsidiaries or that Person's assets are acquired by Company or any of its Subsidiaries, (iii) the income of any Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, (v) cash charges in connection with the Prior Acquisitions for any period that includes Fiscal Quarters ending on -6- or prior to December 31, 2003 of up to $6.1 million and (vi) integration expenses in connection with the CuraScript Acquisition period that includes Fiscal Quarters ending on or prior to December 31, 2004 of up to an aggregate of $5.0 million. "Consolidated Net Worth" means, as at any date of determination, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficits) of Company and its Subsidiaries on a consolidated basis determined in conformity with GAAP. "Consolidated Total Debt" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, excluding, to the extent included therein, the face amount of any Letters of Credit issued under this Agreement except to the extent of any unreimbursed drawings thereunder. "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or (iii) under Hedge Agreements. Contingent Obligations shall include (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclause (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited. "Contractual Obligation", as applied to any Person, means any Security issued by that Person or any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument 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. "CSFB" has the meaning assigned to such term in the preamble to this Agreement. -7- "CuraScript" means, collectively, CuraScript Pharmacy, Inc., a Delaware corporation, and CuraScript PBM Services, Inc., a Delaware corporation. "CuraScript Acquisition" means, collectively, the acquisition by Company of all the equity interests of CuraScript, pursuant to the CuraScript Acquisition Agreement. "CuraScript Acquisition Agreement" means the Stock Purchase Agreement dated December 19, 2003 between Company and CPS Holdings, LLC, as amended, supplemented or modified from time to time in accordance with the terms hereof. "Currency Agreement" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party. "Dollars" and the sign "$" mean the lawful money of the United States. "Domestic Subsidiary" means any Subsidiary of the Company organized under the laws of any jurisdiction within the United States of America. "Eligible Assignee" means (A) (i) a commercial bank organized under the laws of the United States or any state thereof; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; (iii) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (x) such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iv) any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including insurance companies, funds and lease financing companies; and (B) any Lender and any Affiliate or Approved Fund of any Lender or an SPV; provided that no Affiliate of Company shall be an Eligible Assignee. "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was maintained or contributed to by Company or any of its Subsidiaries or for which Company or any of its Subsidiaries could have any liability by reason of its relationship with an ERISA Affiliate. "Environmental Claim" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), in each case in writing, by any governmental authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law, (ii) in connection with any Hazardous Materials, or (iii) in connection with any actual or alleged damage, injury, threat or harm to health or safety, as relating to the environment, natural resources or the environment. -8- "Environmental Laws" means any and all current or future statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, or any other binding requirements of governmental authorities relating to (i) environmental matters, (ii) any activity, event or occurrence involving Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or, as relating to the environment, the protection of human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any Facility, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C.Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), each as amended or supplemented, any analogous present or future state or local statutes or laws, and any regulations promulgated pursuant to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA Affiliate" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. "ERISA Event" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make by its due date any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan, in either case resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event -9- or condition which would constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan that results in liability to any of them therefor, or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it definitively intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) receipt from the Internal Revenue Service of a final determination or definitive notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or of the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (ix) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan, provided that such imposition is not otherwise a "reportable event." "Eurodollar Business Day" means any day (i) excluding Saturday, Sunday and any day that is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such State are authorized or required by law, or other governmental action to close and (ii) on which commercial banks are open for international business (including dealings in Dollar deposits) in London. "Eurodollar Rate" shall mean, with respect to any Borrowing of Eurodollar Rate Loans for any Interest Period, the rate per annum determined by Administrative Agent at approximately 11:00 a.m., London time, on the date which is two Eurodollar Business Days prior to the beginning of such Interest Period by reference to the British Bankers' Association Interest Settlement Rates for deposits in Dollars (as set forth by any service selected by Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying rates) for a period equal to such Interest Period, provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "Eurodollar Rate" shall be the interest rate per annum determined by Administrative Agent equal to the average of rates per annum at which deposits in Dollars are offered for such Interest Period to the Administrative Agent by three leading banks in the London interbank market in London, England at approximately 11:00 a.m., London time, on the date which is two Eurodollar Business Days prior to the beginning of such Interest Period. "Eurodollar Rate Loans" means Loans bearing interest at rates determined by reference to the Adjusted Eurodollar Rate as provided in subsection 2.2A. "Eurodollar Rate Margin" has the meaning specified in subsection 2.2A. -10- "Event of Default" means each of the events set forth in Section 8. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Exempt Subsidiaries" means, collectively, (i) Great Plains Reinsurance Company, ValueRx of Michigan, Inc., Diversified NY IPA, Inc., Diversified Pharmaceutical Services (Puerto Rico) Inc., NPA of New York IPA, Inc., Intercare Pharmacies Ltd., and each direct and indirect Canadian unlimited liability company or partnership of Company and (ii) any Subsidiary of the Company designated by the Company as a "Exempt Subsidiary" in writing to the Administrative Agent from time to time; provided, that the Company may not designate any Subsidiary as an Exempt Subsidiary if, at the time of such proposed designation and both before and immediately after giving effect thereto, the total assets of the Exempt Subsidiaries is equal to or greater than 10% of the Company's consolidated total assets on such date. "Existing Credit Agreement" has the meaning assigned to that term in the recitals to this Agreement. "Facilities" means any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Company or any of its Subsidiaries or any of their respective predecessors or Affiliates. "Federal Funds Effective Rate" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next 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 for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by Administrative Agent. "First Priority" means, with respect to any Lien purported to be created in any Collateral pursuant to any Pledge Agreement, that, other than Permitted Encumbrances and Liens permitted pursuant to subsection 7.2, (i) such Lien has priority over any other Lien on such Collateral or (ii) such Lien is the only Lien to which such Collateral is subject. "Fiscal Quarter" means a fiscal quarter of any Fiscal Year. "Fiscal Year" means the fiscal year of Company and its Subsidiaries ending on December 31 of each calendar year. "Funding and Payment Office" means (i) the office of Administrative Agent and Swing Line Lender located at Eleven Madison Avenue, New York, New York 10010 or (ii) such other office of Administrative Agent and Swing Line Lender as may from time to time hereafter -11- be designated as such in a written notice delivered by Administrative Agent and Swing Line Lender to Company and each Lender. "Funding Date" means the date of the funding of a Loan. "GAAP" means, subject to the limitations on the application thereof set forth in subsection 1.2, generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination, provided that, if Company notifies Administrative Agent that Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if Administrative Agent requests an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until the earliest of (i) the withdrawal of such notice or (ii) the amendment of such provision in accordance herewith. "Governmental Authorization" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any federal, state or local governmental authority, agency or court. "Granting Lender" has the meaning given such term in subsection 10.1E. "Hazardous Materials" means (i) any chemical, material or substance at any time defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste", "infectious waste", "toxic substances", or any other term or expression intended to define, list or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment (including harmful properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (iv) any flammable substances or explosives; (v) any radioactive materials; (vi) any friable asbestos-containing materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls; (ix) pesticides; and (x) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority pursuant to Environmental Laws. -12- "Hedge Agreement" means an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively. "Holdings" has the meaning given such term in subsection 7.5. "Holdings Guarantee" has the meaning given such term in subsection 7.5. "Indebtedness", as applied to any Person, means (i) all indebtedness for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA), which purchase price is (a) due more than six months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument, and (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Obligations under Interest Rate Agreements and Currency Agreements constitute (X) in the case of Hedge Agreements, Contingent Obligations, and (Y) in all other cases, Investments, and in neither case constitute Indebtedness. "Indemnity" has the meaning assigned to that term in subsection 10.3. "Initial Period" means the period commencing on and including the Closing Date and ending on the earlier of (i) the date on which the Lead Arranger notifies Company that the Agents have concluded their primary syndication of the Loans and the Commitments, and (ii) ninety (90) days after the Closing Date. "Interest Payment Date" means (i) with respect to any Alternate Base Rate Loan, each January 15, April 15, July 15 and October 15 of each year, commencing on April 15, 2004, and (ii) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; provided that in the case of each Interest Period of longer than three months, "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after the commencement of such Interest Period. "Interest Period" has the meaning assigned to that term in subsection 2.2B. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party. "Interest Rate Determination Date" means, with respect to any Interest Period, the second Eurodollar Business Day prior to the first day of such Interest Period. -13- "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute. "Investment" means (i) any direct or indirect purchase or other acquisition by Company or any of its Subsidiaries of, or of a beneficial interest in, any Securities of any other Person (other than a Person that immediately prior to such purchase or acquisition was a Subsidiary of Company and so long as such Person remains a Subsidiary of Company), (ii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Company or any of its Subsidiaries to any other Person (other than a Subsidiary of Company), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business, or (iii) Interest Rate Agreements or Currency Agreements not constituting Hedge Agreements. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "Investment Grade" means that Company (i) has a senior implied rating from S&P of any of the rating categories from and including AAA to and including BBB- (with a stable or positive outlook) and (ii) has a corporate credit rating from Moody's of any of the rating categories from and including Aaa1 to and including Baa3 (with a stable or positive outlook). "Issuing Lender" means, with respect to any Letter of Credit, subject to subsection 3.1, any Lender having a Revolving Loan Commitment selected by Company and reasonably acceptable to Administrative Agent, which other Lender has agreed in its sole discretion to act as issuer of the applicable Letter of Credit; with respect to any Letter of Credit, the term "Issuing Lender" shall mean the Issuing Lender with respect to such Letter of Credit. "Lender" and "Lenders" means the persons identified as "Lenders" and listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall include Swing Line Lender unless the context otherwise requires; provided that the term "Lenders", when used in the context of a particular Commitment, shall mean Lenders having that Commitment. "Letter of Credit" or "Letters of Credit" means any Letter of Credit issued or to be issued by an Issuing Lender for the account of Company pursuant to subsection 3.1. "Letter of Credit Usage" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of Credit honored by Issuing Lenders and not theretofore reimbursed by Company (including, without duplication, any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B). -14- "Lien" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "Loan" or "Loans" means one or more of the Term Loans, Revolving Loans or Swing Line Loans or any combination thereof. "Loan Documents" means this Agreement, the Notes, the Letters of Credit (and any applications for, or reimbursement agreements or other documents or certificates executed by Company in favor of an Issuing Lender relating to, the Letters of Credit), the Subsidiary Guaranties, the Holdings Guarantee, if applicable, any hedge agreements, Interest Rate Agreements and Currency Agreements to which a Lender is a counterparty and the Pledge Agreements. "Loan Party" means each of Company and any of Company's Subsidiaries from time to time executing a Loan Document, and "Loan Parties" means all such Persons, collectively. "Majority Facility Lenders" means (i) with respect to the Term Loans, Lenders having or holding more than 50% of the aggregate Term Loan Exposure of all Lenders and (ii) with respect to the Revolving Loans, Lenders having or holding more than 50% of the aggregate Revolving Loan Exposure of all Lenders. "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "Material Adverse Effect" means (i) a material adverse effect upon the business, assets, financial position, operations, or results of operations of Company and its Subsidiaries taken as a whole or (ii) the material impairment of the ability of any Loan Party to perform, or of Administrative Agent or Lenders to enforce, the Obligations. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA. "New York Life" means NYLIFE HealthCare Management, Inc., an indirect subsidiary of New York Life Insurance Co., a mutual life insurance company organized and existing under the laws of the State of New York. "9 5/8% Notes" means Company's 9 5/8% Senior Notes due June 15, 2009. -15- "Non-US Lender" has the meaning assigned to that term in subsection 2.7B(iii)(a). "Notes" means one or more of the Term Notes, Revolving Notes or Swing Line Note or any combination thereof. "Notice of Borrowing" means a notice substantially in the form of Exhibit I annexed hereto delivered by Company to Administrative Agent pursuant to subsection 2.1B with respect to a proposed borrowing. "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit II annexed hereto delivered by Company to Administrative Agent pursuant to subsection 2.2D with respect to a proposed conversion or continuation of the applicable basis for determining the interest rate with respect to the Loans specified therein. "Notice of Request to Issue Letter of Credit" means a notice substantially in the form of Exhibit III annexed hereto delivered by Company to the Issuing Lender and Administrative Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a Letter of Credit. "NPA" means National Prescription Administrators, Inc., a New Jersey corporation and certain affiliated companies thereof. "NPA Acquisition" means, collectively, the acquisition by Company of all of the equity interests of NPA and the acquisition of assets used in the business of NPA from certain other affiliates of NPA, pursuant to the NPA Acquisition Agreement. "NPA Acquisition Agreement" means the Stock and Asset Purchase Agreement dated February 5, 2002 among Company and certain affiliates of NPA, as amended, supplemented or modified from time to time in accordance with the terms thereof and hereof. "NPA Real Estate" means NPA's mail pharmacy facility located in Harrisburg, Pennsylvania. "Obligations" means all obligations, including obligations under hedge agreements, Interest Rate Agreements and Currency Agreements of every nature of each Loan Party from time to time owed to the Agents, Lenders or any of them under the Loan Documents, whether for principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to Company, whether or not a claim for post-filing or post-petition is allowed in such proceedings), reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnification or otherwise, whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder and all obligations incurred in connection -16- with collecting and enforcing the foregoing, together with all renewals, extensions, modifications or refinancings thereof. "Officers' Certificate" means, as applied to any Loan Party, a certificate executed on behalf of such Loan Party by two of the following: its chairman of the board (if an officer), chief executive officer, president, one of its vice presidents, chief financial officer, treasurer, assistant treasurer, controller or chief accounting officer. "Operating Lease" means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that Person is the lessor. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "Permitted Encumbrances" means the following types of Liens (excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA): (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3; (ii) statutory Liens of landlords, statutory Liens of banks and rights of set-off, statutory Liens of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law, in each case incurred in the ordinary course of business (a) for amounts not yet overdue or (b) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of 30 days) are being contested in good faith by appropriate proceedings, so long as (1) such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts, and (2) in the case of a Lien with respect to any portion of the Collateral, such contest proceedings conclusively operate to stay the sale of any material portion of the Collateral on account of such Lien; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any material portion of the Collateral on account thereof; -17- (iv) any attachment or judgment Lien not constituting an Event of Default under subsection 8.8; (v) leases or subleases granted to third parties not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries; (vi) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries; (vii) any (a) interest or title of a lessor or sublessor under any lease permitted by this Agreement, (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b), so long as the holder of such restriction or encumbrance agrees to recognize the rights of such lessee or sublessee under such lease; (viii) Liens arising from filing UCC financing statements relating solely to leases permitted by this Agreement; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business of Company and its Subsidiaries; (xii) licenses of patents, trademarks and other intellectual property rights granted by Company or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of Company or such Subsidiary; (xiii) Liens securing Hedge Agreements to the extent such Liens are limited to the property that is the subject of the Hedge Agreements; (xiv) Liens imposed by Environmental Laws to the extent not in violation of any of the representations, warranties or covenants in respect of Environmental Laws made by Company in this Agreement; and -18- (xv) Liens on Receivables Assets created pursuant to Permitted Receivables Transactions. "Permitted Receivables Transaction" means one or more Qualified Receivables Transactions that in the aggregate at any one time transfer rights to receive proceeds of Receivables Assets not in excess of $300,000,000. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments (whether federal, state or local, domestic or foreign, and including political subdivisions thereof) and agencies or other administrative or regulatory bodies thereof. "Phoenix Acquisition" means the acquisition by Company of the assets of the Phoenix Marketing Group subsidiary of Access Worldwide Communications, Inc., for $33.0 million in cash, plus the assumption by Company of certain indebtedness totaling approximately $2.0 million. "Plant Assets" means assets that would be included in "property, plant and equipment" reflected in the consolidated balance sheet of Company and its Subsidiaries. "Pledge Agreements" means the Company Pledge Agreement, the Subsidiary Pledge Agreements and, if applicable, the pledge agreement executed and delivered by Holdings pursuant to subsection 7.5. "Potential Event of Default" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. "Prime Rate" means the rate that CSFB announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. CSFB or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Prior Acquisition" means, collectively, the Phoenix Acquisition and the NPA Acquisition. "Pro Rata Share" means (i) with respect to all payments, computations and other matters relating to any Term Loan Commitment or any Term Loan of any Lender, the percentage obtained by dividing (x) the Term Loan Exposure of that Lender by (y) the aggregate Term Loan Exposure of all Lenders, in each case, with respect to the applicable Tranche, (ii) with respect to all payments, computations and other matters relating to the Revolving Loan Commitment or the Revolving Loans of any Lender or any Letters of Credit issued or participations therein pur- -19- chased by any Lender or any participations in any Swing Line Loans purchased by any Lender, the percentage obtained by dividing (x) the Revolving Loan Exposure of that Lender by (y) the aggregate Revolving Loan Exposure of all Lenders, and (iii) for all other purposes with respect to each Lender, the percentage obtained by dividing (x) the sum of the Term Loan Exposure of that Lender plus the Revolving Loan Exposure of that Lender by (y) the sum of the aggregate Term Loan Exposure of all Lenders plus the aggregate Revolving Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for purposes of each of clauses (i), (ii) and (iii) of the preceding sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto. "Qualified Receivables Transaction" means any transaction or series of transactions that may be entered into by Company or any Subsidiary thereof pursuant to which Company or any of its Subsidiaries may sell, convey or otherwise transfer to: (a) a Receivables Entity (in the case of a transfer by Company or any of its Subsidiaries); or (b) any other Person (in the case of a transfer by a Receivables Entity), or pursuant to which Company, any of its Subsidiaries or a Receivables Entity may grant a security interest in, Receivables Assets; provided that: (1) the Board of Directors of Company, its Subsidiary or such Receivables Entity, as the case may be, shall have determined in good faith that such Qualified Receivables Transaction is economically fair and reasonable to Company, such Subsidiary or such Receivables Entity, as the case may be; and (2) the financing terms, covenants, termination events and other provisions thereof, including any amendments or modifications thereof, shall be market terms (as determined in good faith by the Board of Directors of Company) and reasonably acceptable to the Administrative Agent as evidenced in writing and acknowledged by Company. "Receivables Assets" means any Accounts (whether now existing or arising in the future) of Company or any of its Subsidiaries and any assets related thereto which are customarily transferred, or in respect of which security interests are customarily granted, in connection with asset securitization transactions involving Accounts. "Receivables Entity" means a Wholly Owned Subsidiary of Company (or another Person formed for the purpose of engaging in a Qualified Receivables Transaction with Company or any of its Subsidiaries in which Company or any or its Subsidiaries makes an Investment and to which Company or any of its Subsidiaries transfers Accounts and related assets) which engages in no activities other than in connection with the purchase, sale or financing of Accounts -20- of Company or any of its Subsidiaries, all proceeds thereof and all rights (contractual or other), collateral and other assets relating thereto, and any business or activities incidental or related to such business. "Refinancing" has the meaning assigned to that term in the recitals to this Agreement. "Refunded Swing Line Loans" has the meaning assigned to that term in subsection 2.1A(iii). "Register" has the meaning assigned to that term in subsection 2.1D. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Reimbursement Date" has the meaning assigned to that term in subsection 3.3B. "Replaced Lender" and "Replacement Lender" have the meanings assigned to those terms in subsection 2.8. "Requisite Lenders" means Lenders having or holding more than 50% of the sum of (i) the aggregate Term Loan Exposure of all Lenders plus (ii) the aggregate Revolving Loan Exposure of all Lenders. "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Company now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Company now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Company now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness. "Revolving Lender" means a Lender having a Revolving Loan Commitment. "Revolving Loan Commitment" means the commitment of a Lender to make Revolving Loans to Company pursuant to subsection 2.1A(ii), and "Revolving Loan Commitments" means such commitments of all Lenders in the aggregate. "Revolving Loan Commitment Termination Date" means February 13, 2009. "Revolving Loan Exposure" means, with respect to any Lender as of any date of determination (i) prior to the termination of the Revolving Loan Commitments, that Lender's -21- Revolving Loan Commitment and (ii) after the termination of the Revolving Loan Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender plus (b) in the event that Lender is an Issuing Lender and without duplication from amounts counted under (a) above, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (in each case net of any participations purchased by other Lenders in such Letters of Credit or any unreimbursed drawings thereunder) plus (c) the aggregate amount of all participations purchased by that Lender in any outstanding Letters of Credit or any unreimbursed drawings under any Letters of Credit without duplication from amounts counted under (a) above plus (d) in the case of Swing Line Lender, the aggregate outstanding principal amount of all Swing Line Loans (net of any participations therein purchased by other Lenders) plus (e) the aggregate amount of all participations purchased by that Lender in any outstanding Swing Line Loans without duplication from amounts counted under (a) above. "Revolving Loans" means the Loans made by Lenders to Company pursuant to subsection 2.1A(ii). "Revolving Notes" means (i) the promissory notes of Company issued pursuant to subsection 2.1E(ii) on the Closing Date and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Revolving Loan Commitments and Revolving Loans of any Lenders, in each case substantially in the form of Exhibit V annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "Sale and Leaseback Transaction" shall have the meaning given to such term in subsection 7.7. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "Secured Obligations" shall have the meaning given such term in subsection 2.4D(i). "Securities" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. -22- "Solvent" means, with respect to any Person, that as of the date of determination (i) the then fair saleable value of the property of such Person, including without limitation any rights of subrogation and contribution, is (y) greater than the total amount of liabilities (including contingent liabilities) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SPV" has the meaning given such term in subsection 10.1E. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Rate Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subordinated Indebtedness" means Indebtedness of Company subordinated or junior in right of payment to the Obligations pursuant to a written agreement to that effect. "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Subsidiary Guarantor" means any Domestic Subsidiary of Company that executes and delivers a counterpart of the Subsidiary Guaranty on the Closing Date or from time to time thereafter pursuant to subsection 6.8, but in any event excluding the Exempt Subsidiaries. -23- "Subsidiary Guaranty" means the Subsidiary Guaranty executed and delivered by existing Domestic Subsidiaries of Company on the Closing Date (other than Exempt Subsidiaries) and to be executed and delivered by additional Domestic Subsidiaries of Company from time to time thereafter in accordance with subsection 6.8, substantially in the form of Exhibit XIII annexed hereto, as such Subsidiary Guaranty may hereafter be amended, supplemented or otherwise modified from time to time. "Subsidiary Pledge Agreement" means each Subsidiary Pledge Agreement executed and delivered by an existing Subsidiary Guarantor on the Closing Date or executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 6.8, in each case substantially in the form of Exhibit XIV annexed hereto, as such Subsidiary Pledge Agreement may be amended, supplemented or otherwise modified from time to time, and "Subsidiary Pledge Agreements" means all such Subsidiary Pledge Agreements, collectively. "Supplemental Collateral Agent" has the meaning assigned to that term in subsection 9.1B. "Swing Line Lender" means CSFB or any Person serving as a successor Agent hereunder, in its capacity as Swing Line Lender hereunder. "Swing Line Loan Commitment" means the commitment of Swing Line Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(iii). "Swing Line Loans" means the Loans made by Swing Line Lender to Company pursuant to subsection 2.1A(iii). "Swing Line Note" means (i) the promissory note of Company issued pursuant to subsection 2.1E(iii) on the Closing Date and (ii) any promissory note issued by Company to any successor Administrative Agent and Swing Line Lender pursuant to the last sentence of subsection 9.5B, in each case substantially in the form of Exhibit VI annexed hereto, as it may be amended, supplemented or otherwise modified from time to time. "Syndication Agent" has the meaning assigned to that term in the preamble to this Agreement. "Tax" or "Taxes" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "Tax on the Overall Net Income" of a Person shall be construed as a reference to a tax imposed by one of: the jurisdiction in which that Person is organized or in which that Person's principal office (and, in the case of a Lender, its lending office) is located or in which that Person (and, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to -24- arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and, in the case of a Lender, its lending office). "Term Lender" means a Lender having a Term Loan Commitment, or who has made a Term Loan, and any assignee of such Lender pursuant to subsection 10.1. "Term Loan Commitments" shall mean the Tranche A Commitments and the Tranche B Commitments. "Term Loan Exposure" means, with respect to any Lender as of any date of determination (i) prior to the funding of the Term Loans, that Lender's Term Loan Commitment and (ii) after the funding of the Term Loans, the outstanding principal amount of the Term Loan of that Lender. "Term Loans" shall mean the Tranche A Term Loans and the Tranche B Term Loans. "Term Notes" shall mean the Tranche A Term Notes and the Tranche B Term Notes. "Total Utilization of Revolving Loan Commitments" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans plus (ii) the aggregate principal amount of all outstanding Swing Line Loans plus (iii) without duplication of amounts counted under clause (i) or (ii) of this sentence, the Letter of Credit Usage. "Tranche A Commitment" means the commitment of a Lender to make a Tranche A Term Loan as set forth on Schedule 2.1(a), as the same may be (a) reduced from time to time pursuant to subsection 2.4 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to subsection 10.1. "Tranche A Lender" shall mean a Lender with a Tranche A Commitment or with outstanding Tranche A Term Loans. "Tranche A Maturity Date" shall mean February 13, 2009. "Tranche A Term Borrowing" shall mean a Borrowing comprised of Tranche A Term Loans. "Tranche A Term Loans" shall mean the term loans made by Lenders to Company pursuant to subsection 2.1(A)(i)(a). "Tranche A Term Notes" means (i) the promissory notes of Company issued pursuant to subsection 2.1E(i) on the Closing Date with respect to the Tranche A Term Loans and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) -25- in connection with assignments of the Tranche A Commitments or Tranche A Term Loans of any Lenders, in each case substantially in the form of Exhibit IV-A annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "Tranche B Commitment" means the commitment of a Lender to make a Tranche B Term Loan as set forth on Schedule 2.1(b), as the same may be (a) reduced from time to time pursuant to subsection 2.4 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to subsection 10.1. "Tranche B Lender" shall mean a Lender with a Tranche B Commitment or with outstanding Tranche B Term Loans. "Tranche B Maturity Date" shall mean February 13, 2010. "Tranche B Term Borrowing" shall mean a Borrowing comprised of Tranche B Term Loans. "Tranche B Term Loans" shall mean the term loans made by the Lenders to Company pursuant to subsection 2.1A(i)(b). "Tranche B Term Notes" means (i) the promissory notes of Company issued pursuant to subsection 2.1E(i) on the Closing Date with respect to the Tranche B Term Loans and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Tranche B Commitments or Tranche B Term Loans of any Lenders, in each case substantially in the form of Exhibit IV-B annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "Type" means, with respect to any Loan, whether such Loan is a Term Loan or a Revolving Loan. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "Wholly Owned Subsidiary" shall mean a Subsidiary of which securities (except for directors' qualifying shares) or other ownership interests representing 100% of the equity or 100% of the ordinary voting power or 100% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, directly or indirectly, by Company or one or more Wholly Owned Subsidiaries. -26- 1.2. Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement; Pro Forma Basis for Financial Covenant Calculations A. Except as otherwise expressly provided in this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to clauses (i) and (ii) of subsection 6.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in subsection 6.1(iv)). B. For the purposes of determining the Consolidated Leverage Ratio for the purpose of subsections 2.2A and 2.3A and determining compliance with the financial covenants in subsection 7.4, in each case for any four fiscal quarter period during which any acquisition by Company or one of its Subsidiaries of the capital stock or assets of another Person has occurred (including the CuraScript Acquisition), the Consolidated Leverage Ratio and such other financial covenants shall be calculated on a pro forma basis as if such acquisition had occurred as of the first day of such period. 1.3. Other Definitional Provisions and Rules of Construction Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. (i) References to "Sections," "subsections," "Schedules" and "Exhibits" shall be to Sections, subsections, Schedules and Exhibits, respectively, of this Agreement unless otherwise specifically provided. (ii) The use in any of the Loan Documents of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. (iii) Any reference herein to any Person shall be construed to include such Person's successors and permitted assigns. -27- SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS 2.1. Commitments; Making of Loans; the Register; Notes A. Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, each Term Lender hereby severally agrees to make the Term Loans described in subsection 2.1A(i), each Revolving Lender hereby severally agrees to make the Revolving Loans described in subsection 2.1A(ii), and Swing Line Lender hereby agrees to make the Loans described in subsection 2.1A(iii). (i) Term Loans. (a) Each Tranche A Lender severally agrees to lend to Company on the Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the Tranche A Commitments, to be used for the purposes identified in subsection 2.5A. (b) Each Tranche B Lender severally agrees to lend to Company on the Closing Date an amount not exceeding its Pro Rata Share of the Tranche B Commitments, to be used for the purposes identified in subsection 2.5A. The amount of each Term Lender's Tranche A Commitment is set forth opposite its name on Schedule 2.1(a) annexed hereto and the amount of each Term Lender's Tranche B Commitment is set forth opposite its name on Schedule 2.1(b) annexed hereto. Each Lender's Term Loan Commitment shall expire immediately and without further action on February 13, 2004 if the Term Loans are not made on or before that date. Company may make only one borrowing under each of the Term Loan Commitments. Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or prepaid may not be reborrowed. (ii) Revolving Loans. Each Revolving Lender severally agrees, subject to the limitations set forth below with respect to the maximum amount of Revolving Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Revolving Loan Commitments to be used for the purposes identified in subsection 2.5B. The original amount of each Revolving Lender's Revolving Loan Commitment is set forth opposite its name on Schedule 2.1(c) annexed hereto and the aggregate original amount of the Revolving Loan Commitments is $400,000,000; provided that the Revolving Loan Commitments of Revolving Lenders shall be adjusted to give effect to any assignments of the Revolving Loan Commitments pursuant to subsection 10.1B; and provided, further, that the amount of the Revolving Loan Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsections 2.4B(ii). Each Revolving Lender's Revolving Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving -28- Loan Commitments shall be paid in full no later than that date; provided that each Revolving Lender's Revolving Loan Commitment shall expire immediately and without further action on February 13, 2004 if the Term Loans are not made on or before that date. Amounts borrowed under this subsection 2.1A(ii) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, the Revolving Loans and the Revolving Loan Commitments shall be subject to the limitation that in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect. (iii) Swing Line Loans. Swing Line Lender hereby agrees, subject to the limitations set forth below with respect to the maximum amount of Swing Line Loans permitted to be outstanding from time to time, to make a portion of the Revolving Loan Commitments available to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date by making Swing Line Loans to Company in an aggregate amount not exceeding the amount of the Swing Line Loan Commitment to be used for the purposes identified in subsection 2.5B, notwithstanding the fact that such Swing Line Loans, when aggregated with Swing Line Lender's outstanding Revolving Loans and Swing Line Lender's Pro Rata Share of the Letter of Credit Usage then in effect, may exceed Swing Line Lender's Revolving Loan Commitment. The original amount of the Swing Line Loan Commitment is $50,000,000; provided that any reduction of the Revolving Loan Commitments made pursuant to subsection 2.4B(ii) which reduces the aggregate Revolving Loan Commitments to an amount less than the then current amount of the Swing Line Loan Commitment shall result in an automatic corresponding reduction of the Swing Line Loan Commitment to the amount of the Revolving Loan Commitments, as so reduced, without any further action on the part of Company, Administrative Agent or Swing Line Lender. The Swing Line Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans shall be paid in full no later than that date; provided that the Swing Line Loan Commitment shall expire immediately and without further action on February 13, 2004 if the Term Loans are not made on or before that date. Amounts borrowed under this subsection 2.1A(iii) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the limitation that in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect. With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to subsection 2.4B(i), Swing Line Lender may, at any time in its sole and -29- absolute discretion, deliver to Administrative Agent (with a copy to Company), no later than 12:00 Noon (New York City time) at least one Business Day prior to the proposed Funding Date, a notice (which shall be deemed to be a Notice of Borrowing given by Company) requesting Revolving Lenders to make Revolving Loans that are Alternate Base Rate Loans on such Funding Date in an amount equal to the amount of such Swing Line Loans (the "Refunded Swing Line Loans") outstanding on the date such notice is given which Swing Line Lender requests Revolving Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (i) the proceeds of such Revolving Loans made by Revolving Lenders other than Swing Line Lender shall be immediately delivered by Administrative Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (ii) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by Swing Line Lender, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note of Swing Line Lender but shall instead constitute part of Swing Line Lender's outstanding Revolving Loans and shall be due under the Revolving Note of Swing Line Lender. Company hereby authorizes Administrative Agent and Swing Line Lender to charge Company's accounts with Administrative Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by Revolving Lenders, including the Revolving Loan deemed to be made by Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on behalf of Company from Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Revolving Lenders in the manner contemplated by subsection 10.5. If for any reason (a) Revolving Loans are not made upon the request of Swing Line Lender as provided in the immediately preceding paragraph in an amount sufficient to repay any amounts owed to Swing Line Lender in respect of any outstanding Swing Line Loans or (b) the Revolving Loan Commitments are terminated at a time when any Swing Line Loans are outstanding, each Revolving Lender shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans in an amount equal to its Pro Rata Share (calculated, in the case of the foregoing clause (b), immediately prior to such termination of the Revolving Loan Commitments) of the unpaid amount of such Swing Line Loans together with accrued interest thereon. Upon one Business Day's notice from Swing Line Lender, each Revolving Lender shall deliver to Swing Line Lender an amount equal to its respective participation in same day funds at the Funding and Payment Office. In order to further evidence such participation (and without prejudice to the effectiveness of the participation provisions set forth above), each Revolving Lender agrees to enter into a separate participation agreement at the request of Swing Line Lender in form and substance reasonably satisfactory to Swing Line Lender. In the event any Revolving Lender fails to make available to Swing Line Lender the amount of such Revolving Lender's participation as provided in this paragraph, Swing Line Lender shall be enti- -30- tled to recover such amount on demand from such Revolving Lender together with interest thereon at the rate customarily used by Swing Line Lender for the correction of errors among banks for three Business Days and thereafter at the Alternate Base Rate. In the event Swing Line Lender receives a payment of any amount in which other Revolving Lenders have purchased participations as provided in this paragraph, Swing Line Lender shall promptly distribute to each such other Revolving Lender its Pro Rata Share of such payment. Anything contained herein to the contrary notwithstanding, each Revolving Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Revolving Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including (a) any set-off, counterclaim, recoupment, defense or other right which such Revolving Lender may have against Swing Line Lender, Company or any other Person for any reason whatsoever; (b) the occurrence or continuation of an Event of Default or a Potential Event of Default; (c) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (d) any breach of this Agreement or any other Loan Document by any party thereto; or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that such obligations of each Revolving Lender are subject to the condition that (X) Swing Line Lender believed in good faith that all conditions under Section 4 to the making of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, as the case may be, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made or (Y) the satisfaction of any such condition not satisfied had been waived in accordance with subsection 10.6 prior to or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were made. B. Borrowing Mechanics. Term Loans or Revolving Loans made on any Funding Date (other than Revolving Loans made pursuant to a request by Swing Line Lender pursuant to subsection 2.1A(iii) for the purpose of repaying any Refunded Swing Line Loans or Revolving Loans made pursuant to subsection 3.3B for the purpose of reimbursing any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it) shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount. Swing Line Loans made on any Funding Date shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount. Whenever Company desires that Lenders make Term Loans or Revolving Loans it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 Noon (New York City time) at least three Eurodollar Business Days in advance of the proposed Funding Date (in the case of a Eurodollar Rate Loan) or at least one Business Day in advance of the proposed Funding Date (in the case of an Alternate Base Rate Loan); provided that, any such notice delivered with respect to Loans requested to be made on the Closing Date may be delivered at any time prior to 12:00 Noon (New York City time) at least one Business Day in advance of the Closing Date. Whenever Company desires that Swing Line Lender make a Swing Line Loan, it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 Noon (New York City time) on the proposed Funding -31- Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount and type of Loans requested, (iii) in the case of Swing Line Loans, that such Loans shall be an Alternate Base Rate Loans, (iv) in the case of Term Loans and Revolving Loans, whether such Loans shall be Alternate Base Rate Loans or Eurodollar Rate Loans; provided, that Tranche A Term Loans and Revolving Loans made on the Closing Date shall be Alternate Base Rate Loans; provided, however, on such a Funding Date Company may request such Loans be converted to Eurodollar Rate Loans in the manner provided in subsection 2.2D; and (v) in the case of any Loans requested to be made as Eurodollar Rate Loans, the initial Interest Period requested therefor. Term Loans and Revolving Loans may be continued as or converted into Alternate Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing under this subsection 2.1B; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing to Administrative Agent on or before the applicable Funding Date. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected Loans hereunder. Company shall notify Administrative Agent prior to the funding of any Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing is no longer true and correct as of the applicable Funding Date, and the acceptance by Company of the proceeds of any Loans shall constitute a re-certification by Company, as of the applicable Funding Date, as to the matters to which Company is required to certify in the applicable Notice of Borrowing. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. C. Disbursement of Funds. All Term Loans and Revolving Loans under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), Administrative Agent shall no- -32- tify each Lender or Swing Line Lender, as the case may be, of the proposed borrowing. Each Lender shall make the amount of its Loan available to Administrative Agent not later than 12:00 Noon (New York City time) on the applicable Funding Date, and Swing Line Lender shall make the amount of its Swing Line Loan available to Administrative Agent not later than 2:00 P.M. (New York City time) on the applicable Funding Date, in each case in same day funds in Dollars, at the Funding and Payment Office. Except as provided in subsection 2.1A(iii) or subsection 3.3B with respect to Revolving Loans used to repay Refunded Swing Line Loans or to reimburse any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it, upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Loans made on the Closing Date) and 4.2 (in the case of all Loans), Administrative Agent shall make the proceeds of such Loans available to Company on the applicable Funding Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders or Swing Line Lender, as the case may be, to be credited to the account of Company at the Funding and Payment Office. Unless Administrative Agent shall have been notified by any Lender prior to the Funding Date for any Loans that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Funding Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Funding Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Alternate Base Rate. If such Lender does not pay such corresponding amount within three Business Days after such amount should have been made available, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the rate payable under this Agreement for Alternate Base Rate Loans. Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. D. The Register. (i) Administrative Agent shall maintain, at its address referred to in subsection 10.8, a register for the recordation of the names and addresses of Lenders and the Commitments and Loans of each Lender from time to time (the "Register"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. -33- (ii) Administrative Agent shall record in the Register the Tranche A Commitment and Tranche B Commitment, respectively, and the Tranche A Term Loan and the Tranche B Term Loan, respectively, of each Term Lender, the Revolving Loan Commitment and the Revolving Loans from time to time of each Revolving Lender, the Swing Line Loan Commitment and the Swing Line Loans from time to time of Swing Line Lender, and each repayment or prepayment in respect of the principal amount of the Tranche A Term Loan and the Tranche B Term Loan, respectively, of each Term Lender, the Revolving Loans of each Revolving Lender or the Swing Line Loans of Swing Line Lender. Any such recordation shall be conclusive and binding on Company and each Lender, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans. (iii) Each Lender shall record on its internal records (including any Notes held by such Lender) the amount of the Tranche A Term Loan and the Tranche B Term Loan, respectively, and each Revolving Loan made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent manifest error; provided that failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans; and provided, further, that in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern. (iv) Company, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. (v) Company hereby designates CSFB to serve as Company's agent solely for purposes of maintaining the Register as provided in this subsection 2.1D, and Company hereby agrees that, to the extent CSFB serves in such capacity, CSFB and its officers, directors, employees, agents and affiliates shall constitute Indemnitees for all purposes under subsection 10.3. E. Notes. At the request of any Lender, Company shall execute and deliver to that Lender (or to Administrative Agent for that Lender) each of the following, as appropriate: (i) a Tranche A Term Note substantially in the form of Exhibit IV-A annexed hereto to evidence that Lender's Tranche A Term Loan, in the principal amount of that Lender's Tranche A Term Loan and with other appropriate insertions, and a Tranche B Term Note substantially in the form -34- of Exhibit IV-B annexed hereto to evidence that Lender's Tranche B Term Loan, in the principal amount of that Lender's Tranche B Term Loan and with other appropriate insertions, (ii) a Revolving Note substantially in the form of Exhibit V annexed hereto to evidence that Lender's Revolving Loans, in the principal amount of that Lender's Revolving Loan Commitment and with other appropriate insertions, and (iii) a Swing Line Note substantially in the form of Exhibit VI annexed hereto to evidence that Lender's Swing Line Loans, in the principal amount of the Swing Line Loan Commitment and with other appropriate insertions. In the event a Lender requests such Notes at least 3 Business Days prior to the Closing Date, Company shall execute and deliver the Notes on such date. 2.2. Interest on the Loans A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7, each Term Loan and each Revolving Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Alternate Base Rate or the Adjusted Eurodollar Rate. Subject to the provisions of subsection 2.7, each Swing Line Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Alternate Base Rate. The applicable basis for determining the rate of interest with respect to any Term Loans or any Revolving Loan shall be selected by Company initially at the time a Notice of Borrowing is given with respect to such Loans pursuant to subsection 2.1B, and the basis for determining the interest rate with respect to any Term Loans or any Revolving Loan may be changed from time to time pursuant to subsection 2.2D. If on any day a Tranche A Term Loan, Tranche B Term Loan or Revolving Loan is outstanding with respect to which notice has not been delivered to Administrative Agent in accordance with the terms of this Agreement specifying the applicable basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Alternate Base Rate. Subject to the provisions of subsections 2.2E and 2.7, the Term Loans and the Revolving Loans shall bear interest through maturity as follows: (i) if an Alternate Base Rate Loan, then at the sum of the Alternate Base Rate and the applicable Base Rate Margin set forth in the table below opposite the Consolidated Leverage Ratio for the four-Fiscal Quarter period ending on the date for which the applicable Compliance Certificate has been delivered pursuant to subsection 6.1(iii):

-35- Greater than or equal to 2.5x but less than 3.0x 0.750% 0.500% 0.250% Greater than or equal to 1.75x but less than 2.5x 0.500% 0.250% 0.250% Greater than or equal to 1.25x but less than 1.75x 0.250% 0% 0.250% Less than 1.25x 0% 0% 0.250%

provided, that until the date on which the Compliance Certificate is delivered pursuant to subsection 6.1(iii) for the Fiscal Quarter ended March 31, 2004, the Base Rate Margin shall be 0.250% for Revolving Loans, Tranche A Term Loans and Tranche B Term Loans. (ii) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate and the applicable Eurodollar Rate Margin set forth in the table below, opposite the Consolidated Leverage Ratio for the four-Fiscal Quarter period ending on the date for which the applicable Compliance Certificate has been delivered pursuant to subsection 6.1(iii):
APPLICABLE EURODOLLAR RATE MARGIN (PER ANNUM) ------------------------------------------------------ Tranche A Term Loans and Revolving Tranche B Term Loans Loans ------------------------------------ -------------- At any time At any time Company is not Company is rated rated Investment Investment CONSOLIDATED LEVERAGE RATIO Grade Grade At any time - -------------------------------------------------- ---------------- ---------------- -------------- Greater than or equal to 3.0x 2.250% 2.000% 1.500% Greater than or equal to 2.5x but less than 3.0x 2.000% 1.750% 1.500% Greater than or equal to 1.75x but less than 2.5x 1.750% 1.500% 1.500% Greater than or equal to 1.25x but less than 1.75x 1.500% 1.125% 1.500% Greater than or equal to 0.75x but less than 1.25x 1.250% 0.750% 1.500% Less than 0.75x 1.000% 0.750% 1.500%
provided, that until the date on which the Compliance Certificate is delivered pursuant to subsection 6.1(iii) for the Fiscal Quarter ended March 31, 2004, the Eurodollar Rate Margin shall be 1.500% per annum for Revolving Loans, Tranche A Term Loans and Tranche B Term Loans. -36- Upon delivery of the Compliance Certificate by Company to Administrative Agent pursuant to subsection 6.1(iii), the applicable Base Rate Margin and Eurodollar Rate Margin shall automatically be adjusted in accordance with such Compliance Certificate, such adjustment to become effective on the next succeeding Business Day following receipt by Administrative Agent of such Compliance Certificate; provided, that if at any time a Compliance Certificate is not delivered at the time required pursuant to subsection 6.1(iii), from the time such Compliance Certificate was required to be delivered until delivery of such Compliance Certificate, such applicable Base Rate Margin and Eurodollar Rate Margin shall be the maximum percentage amount until such Compliance Certificate is delivered. Subject to the provisions of subsections 2.2E and 2.7, any Swing Line Loans provided to Company shall bear interest through maturity at the rate then applicable to Revolving Loans pursuant to subsection 2.2A(i). B. Interest Periods. In connection with each Eurodollar Rate Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, select an interest period (each an "Interest Period") to be applicable to such Loan, which Interest Period shall be, at Company's option, either a seven day, 14 day, or one, two, three or six month period or, if deposits in the interbank Eurodollar market are available to all Lenders for such period (as determined by each Lender), a nine or twelve month period; provided that: (i) the initial Interest Period for any Eurodollar Rate Loan shall commence on the Funding Date in respect of such Loan, in the case of a Loan initially made as a Eurodollar Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, in the case of a Loan converted to a Eurodollar Rate Loan; (ii) in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; -37- (v) no Interest Period with respect to any portion of the Tranche A Term Loans shall extend beyond the Tranche A Maturity Date, no Interest Period with respect to any portion of the Tranche B Term Loans shall extend beyond the Tranche B Maturity Date, and no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Loan Commitment Termination Date; (vi) no Interest Period with respect to any portion of the Term Loans shall extend beyond a date on which Company is required to make a scheduled payment of principal of such Term Loans unless the sum of (a) the aggregate principal amount of Term Loans of the type to be repaid that are Alternate Base Rate Loans plus (b) the aggregate principal amount of Term Loans of the type to be repaid that are Eurodollar Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the Term Loans of such type on such date; (vii) there shall be no more than 15 Interest Periods outstanding at any time; and (viii) in the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of Conversion/Continuation, Company shall be deemed to have selected an Interest Period of one month. C. Interest Payments. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity); provided that in the event any Swing Line Loans or any Revolving Loans that are Alternate Base Rate Loans are prepaid pursuant to subsection 2.4B(i), interest accrued on such Swing Line Loans or Revolving Loans through the date of such prepayment shall be payable on the next succeeding Interest Payment Date applicable to Alternate Base Rate Loans (or, if earlier, at final maturity). D. Conversion or Continuation. Subject to the provisions of subsection 2.6, Company shall have the option (i) to convert at any time all or any part of its outstanding Tranche A Term Loans, Tranche B Term Loans or Revolving Loans equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $5,000,000 and integral multiples of $1,000,000 in excess of that amount as a Eurodollar Rate Loan; provided, however, that a Eurodollar Rate Loan may only be converted into a Alternate Base Rate Loan on the expiration date of an Interest Period applicable thereto. Company shall deliver a Notice of Conversion/Continuation to Administrative Agent no later than 12:00 Noon (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to an Alternate Base Rate Loan) and at -38- least three Eurodollar Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and type of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, that no Potential Event of Default or Event of Default has occurred and is continuing. In lieu of delivering the above-described Notice of Conversion/Continuation, Company may give Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to Administrative Agent on or before the proposed conversion/continuation date. Upon receipt of written or telephonic notice of any proposed conversion/continuation under this subsection 2.2D, Administrative Agent shall promptly notify each Lender. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of Company or for otherwise acting in good faith under this subsection 2.2D, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected a conversion or continuation, as the case may be, hereunder. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable and Company shall be bound to effect a conversion or continuation in accordance therewith. E. Default Rate. In the event that the outstanding principal amount of any Loan, any interest or any fees or other amounts due and payable hereunder are not paid when due, such overdue amounts shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum, in excess of the interest rate otherwise payable under this Agreement for Alternate Base Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Alternate Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Alternate Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of -39- Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender. F. Computation of Interest. Interest on the Loans shall be computed on the basis of (i) in the case of Eurodollar Rate Loans a 360-day year or (ii) in the case of Alternate Base Rate Loans, a 365 or 366 day year, unless the interest rate on such Alternate Base Rate Loans is based on the Federal Funds Rate, in which case the calculation will be on the basis of a 360 day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to an Alternate Base Rate Loan being converted from a Eurodollar Rate Loan the date of conversion of such Eurodollar Rate Loan to such Alternate Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to an Alternate Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. 2.3. Fees A. Commitment Fees. Company agrees to pay to Administrative Agent, for distribution to each Revolving Lender in proportion to that Revolving Lender's Pro Rata Share, commitment fees for the period from and including the Closing Date to and excluding the Revolving Loan Commitment Termination Date equal to the average of the daily excess of the Revolving Loan Commitments over the sum of the aggregate principal amount of outstanding Revolving Loans (but not any outstanding Swing Line Loans) and the Letter of Credit Usage multiplied by the percentage per annum determined by reference to the applicable percentage set forth in the table below opposite the Consolidated Leverage Ratio for the four-Fiscal Quarter period ending on the date for which the applicable Compliance Certificate has been delivered pursuant to subsection 6.1(iii), such commitment fees to be calculated on the basis of a 360 day year and the actual number of days elapsed and to be payable quarterly in arrears on the last Business Day of March, June, September and December of each year, commencing on March 31, 2004, and on the Revolving Loan Commitment Termination Date: -40-
Commitment Fee Applicable Percentage (Per Annum) ------------------------------------ At any time At any time Company is not Company is rated rated Investment Investment Consolidated Leverage Ratio Grade Grade - -------------------------------------------------- ---------------- ---------------- Greater than or equal to 3.0x 0.500% 0.375% Greater than or equal to 2.5x but less than 3.0x 0.500% 0.375% Greater than or equal to 1.75x but less than 2.5x 0.375% 0.300% Greater than or equal to 1.25x but less than 1.75x 0.300% 0.250% Greater than or equal to 0.75x but less than 1.25x 0.250% 0.200% Less than 0.75x 0.250% 0.200%
provided, that until the date on which the Compliance Certificate is delivered pursuant to subsection 6.1(iii) for the Fiscal Quarter ended March 31, 2004, the commitment fee percentage shall equal 0.300% per annum. Upon delivery of the Compliance Certificate by Company to Administrative Agent pursuant to subsection 6.1(iii), the applicable commitment fee percentage shall automatically be adjusted in accordance with such Compliance Certificate, such adjustment to become effective on the next succeeding Business Day following receipt by Administrative Agent of such Compliance Certificate; provided, that if at any time a Compliance Certificate is not delivered at the time required pursuant to subsection 6.1(iii), from the time such Compliance Certificate was required to be delivered until delivery of such Compliance Certificate, such applicable commitment fee percentage shall be the maximum percentage amount until such Compliance Certificate is delivered. B. Other Fees. Company agrees to pay to an Agent such other fees in the amounts and at the times separately agreed upon between Company and such Agent. 2.4. Repayments, Prepayments and Reductions in Revolving Loan Commitments; General Provisions Regarding Payments A. Scheduled Payments of Term Loans. (i) Company shall make principal payments on the Tranche A Term Loans in installments on the dates and in the amounts set forth below: -41- Scheduled Repayment of Tranche A Term Loans
Date Amount Repaid - ---------------------- ------------- June 30, 2004 $ 5,000,000 September 30, 2004 $ 5,000,000 December 31, 2004 $ 5,000,000 March 31, 2005 $ 5,000,000 June 30, 2005 $ 5,000,000 September 30, 2005 $ 5,000,000 December 31, 2005 $ 5,000,000 March 31, 2006 $ 5,000,000 June 30, 2006 $ 7,500,000 September 30, 2006 $ 7,500,000 December 31, 2006 $ 7,500,000 March 31, 2007 $ 7,500,000 June 30, 2007 $ 10,000,000 September 30, 2007 $ 10,000,000 December 31, 2007 $ 10,000,000 March 31, 2008 $ 10,000,000 June 30, 2008 $ 22,500,000 September 30, 2008 $ 22,500,000 December 31, 2008 $ 22,500,000 February 13, 2009 $ 22,500,000
; provided that the scheduled installments of principal of the Tranche A Term Loans set forth above shall be reduced in connection with any voluntary prepayments of the Term Loans in accordance with subsection 2.4B(iii); and provided, further, that the Tranche A Term Loans and all other amounts owed hereunder with respect to the Tranche A Term Loans shall be paid in full no later than the Tranche A Maturity Date, and the final installment payable by Company in respect of the Tranche A Term Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Tranche A Term Loans. -42- (ii) Company shall make principal payments on the Tranche B Term Loans in installments on the dates and in the amounts set forth below: Scheduled Repayment of Tranche B Term Loans
Date Amount Repaid - ---------------------- ------------- June 30, 2004 $ 500,000 September 30, 2004 $ 500,000 December 31, 2004 $ 500,000 March 31, 2005 $ 500,000 June 30, 2005 $ 500,000 September 30, 2005 $ 500,000 December 31, 2005 $ 500,000 March 31, 2006 $ 500,000 June 30, 2006 $ 500,000 September 30, 2006 $ 500,000 December 31, 2006 $ 500,000 March 31, 2007 $ 500,000 June 30, 2007 $ 500,000 September 30, 2007 $ 500,000 December 31, 2007 $ 500,000 March 31, 2008 $ 500,000 June 30, 2008 $ 500,000 September 30, 2008 $ 500,000 December 31, 2008 $ 500,000 March 31, 2009 $ 500,000 June 30, 2009 $ 47,500,000 September 30, 2009 $ 47,500,000 December 31, 2009 $ 47,500,000 February 13, 2010 $ 47,500,000
-43- ; provided that the scheduled installments of principal of the Tranche B Term Loans set forth above shall be reduced in connection with any voluntary prepayments of the Term Loans in accordance with subsection 2.4B(iii); and provided, further, that the Tranche B Term Loans and all other amounts owed hereunder with respect to the Tranche B Term Loans shall be paid in full no later than the Tranche B Maturity Date, and the final installment payable by Company in respect of the Tranche B Term Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Tranche B Term Loans. B. Prepayments and Unscheduled Reductions in Revolving Loan Commitments. (i) Voluntary Prepayments. Company may, upon written or telephonic notice to Administrative Agent on or prior to 12:00 Noon (New York City time) on the date of prepayment, which notice, if telephonic, shall be promptly confirmed in writing, at any time and from time to time prepay any Swing Line Loan on any Business Day in whole or in part in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount. Company may, upon not less than one Business Day's prior written or telephonic notice, in the case of Alternate Base Rate Loans, and three Business Days' prior written or telephonic notice, in the case of Eurodollar Rate Loans, in each case given to Administrative Agent by 12:00 Noon (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (which written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time prepay any Tranche A Term Loans, Tranche B Term Loans or Revolving Loans on any Business Day in whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount; provided, however, that Company shall pay any amounts payable pursuant to subsection 2.6D in connection with any such prepayment other than at the expiration of an Interest Period. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in subsection 2.4B(iii). (ii) Voluntary Reductions of Revolving Loan Commitments. Company may, upon not less than one Business Day's prior written or telephonic notice confirmed in writing to Administrative Agent (which written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephonic notice confirmed in writing to each Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the Total Utilization of Revolving Loan Commitments at the time of such proposed termination or reduction after giving effect to any prepayments of the Revolving Loans and Swing Line Loans made on the effective date thereof; provided that any such partial reduction of the Revolving Loan Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. Company's notice to -44- Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Loan Commitments shall be effective on the date specified in Company's notice and shall reduce the Revolving Loan Commitment of each Revolving Lender proportionately to its Pro Rata Share. (iii) Application of Prepayments and Unscheduled Reductions of Revolving Loan Commitments. (a) Application of Voluntary Prepayments by Type of Loans and Maturity. Any voluntary prepayments pursuant to subsection 2.4B(i) shall be applied as specified by Company in the applicable notice of prepayment. In the event Company fails to specify the Loans to which prepayment shall be applied, such prepayment shall be applied first, to outstanding Swing Line Loans to the full extent thereof, second to outstanding Revolving Loans to the full extent thereof, and third to outstanding Term Loans pro rata between Tranche A Term Loans and Tranche B Term Loans based upon the aggregate amounts then outstanding to the full extent thereof. Any voluntary prepayments of the Term Loans pursuant to subsection 2.4B(i) shall be applied to reduce the scheduled installments of principal of the Tranche A Term Loans and the Tranche B Term Loans set forth in subsections 2.4A(i) and (ii), respectively, as specified by Company. (b) Application of Prepayments to Alternate Base Rate Loans and Eurodollar Rate Loans. Considering Tranche A Term Loans, Tranche B Term Loans and Revolving Loans being prepaid separately, any prepayment thereof shall be applied first to Alternate Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to subsection 2.6D. C. General Provisions Regarding Payments. (i) Manner and Time of Payment. All payments by Company of principal, interest, fees and other Obligations hereunder and under the Notes shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 12:00 Noon (New York City time) on the date due at the Funding and Payment Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. Company hereby authorizes Administrative Agent to charge its accounts with Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Application of Payments to Principal and Interest. Except as provided in subsection 2.2C, all payments in respect of the principal amount of any Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments -45- (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate principal and interest payments in respect of Tranche A Term Loans, Tranche B Term Loans and Revolving Loans shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to Lenders' respective Pro Rata Shares. Administrative Agent shall promptly distribute to each Lender, at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request, its Pro Rata Share of all such payments received by Administrative Agent and the commitment fees of such Lender when received by Administrative Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Alternate Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter. (iv) Payments on Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees hereunder, as the case may be. (v) Notation of Payment. Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), that Lender will make a notation thereon of all Loans evidenced by that Note and all principal payments previously made thereon and of the date to which interest thereon has been paid; provided that the failure to make (or any error in the making of) a notation of any Loan made under such Note shall not limit or otherwise affect the obligations of Company hereunder or under such Note with respect to any Loan or any payments of principal or interest on such Note. D. Application of Proceeds of Collateral and Payments Under Subsidiary Guaranty. (i) Application of Proceeds of Collateral. All proceeds received by the Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral under any Pledge Agreements may, in the discretion of the Collateral Agent, be held by Collateral Agent as Collateral for, and/or (then or at any time thereafter) applied in full or in part by the Collateral Agent against, the applicable secured obligations (as defined in such Pledge Agreement, the "Secured Obligations") in the following order of priority: (a) to the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to Collateral Agent and its agents and counsel, and all other expenses, liabilities and advances made or incurred by Collateral -46- Agent in connection therewith, and all amounts for which Collateral Agent is entitled to indemnification under such Pledge Agreement and all advances made by Collateral Agent thereunder for the account of the applicable Loan Party, and to the payment of all costs and expenses paid or incurred by Collateral Agent in connection with the exercise of any right or remedy under such Pledge Agreement, all in accordance with the terms of this Agreement and such Pledge Agreement; (b) thereafter, to the extent of any excess such proceeds, to the payment of all other such Secured Obligations for the ratable benefit of the holders thereof; (c) thereafter, to the extent of any excess such proceeds, to the payment of cash collateral for Letters of Credit for the ratable benefit of the Issuing Lenders thereof and holders of participations therein; and (d) thereafter, to the extent of any excess such proceeds, to the payment to or upon the order of such Loan Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (ii) Application of Payments Under Subsidiary Guaranty. All payments received by Administrative Agent under the Subsidiary Guaranty shall be applied promptly from time to time by Administrative Agent in the following order of priority: (a) to the payment of the costs and expenses of any collection or other realization under the Subsidiary Guaranty, including reasonable compensation to Administrative Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by Administrative Agent in connection therewith, all in accordance with the terms of this Agreement and the Subsidiary Guaranty; (b) thereafter, to the extent of any excess such payments, to the payment of all other Guarantied Obligations (as defined in the Subsidiary Guaranty) for the ratable benefit of the holders thereof; (c) thereafter, to the extent of any excess such payments, to the payment of cash collateral for Letters of Credit for the ratable benefit of the Issuing Lenders thereof and holders of participations therein; and (d) thereafter, to the extent of any excess such payments, to the payment to the applicable Subsidiary Guarantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 2.5. Use of Proceeds A. Term Loans. The proceeds of the Term Loans and Revolving Loans made on the Closing Date shall be used: -47- (i) to refinance the Indebtedness outstanding under the Existing Credit Agreement; (ii) to pay fees and expenses in connection with the Refinancing; and (iii) for working capital and general corporate purposes. B. Revolving Loans; Swing Line Loans. Revolving Loans and any Swing Line Loans shall also be used for working capital requirements and general corporate purposes, which may include the making of intercompany loans to any of Company's Wholly Owned Subsidiaries, for making acquisitions and for the refinancing of the 9 5/8% Notes. C. Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by Company or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. 2.6. Special Provisions Governing Eurodollar Rate Loans Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: A. Determination of Applicable Interest Rate. As soon as practicable after 10:00 A.M. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. B. Inability to Determine Applicable Interest Rate. In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the interbank Eurodollar market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist and (ii) any Notice of Borrowing or Notice of -48- Conversion/Continuation given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. C. Illegality of Eurodollar Rate Loans. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), then, and in any such event, such Lender shall be an "Affected Lender" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make such Loan as (or convert such Loan to, as the case may be) an Alternate Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "Affected Loans") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Alternate Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Company shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement. D. Compensation for Breakage or Non-Commencement of Interest Periods. Company shall compensate each Lender, upon written request by that Lender (which request shall set forth in reasonable detail the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by that Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, -49- expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for conversion or continuation, (ii) if any prepayment (including any prepayment pursuant to subsection 2.4B(i) or by virtue of the replacement of any Lender pursuant to subsection 2.8B or 10.6B) or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company, or (iv) as a consequence of any other default by Company in the repayment of its Eurodollar Rate Loans when required by the terms of this Agreement. E. Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender; provided, that such making, carrying or transferring Eurodollar Rate Loans does not result in any costs or taxes to Company pursuant to subsection 2.7. F. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to the definition of Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this subsection 2.6 and under subsection 2.7A. G. Eurodollar Rate Loans After Default. After the occurrence of and during the continuation of a Potential Event of Default or an Event of Default, (i) Company may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to a requested borrowing or conversion/continuation that has not yet occurred shall be deemed to be rescinded by Company. -50- 2.7. Increased Costs; Taxes; Capital Adequacy A. Compensation for Increased Costs and Taxes. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the Overall Net Income of such Lender) with respect to this Agreement or any of its obligations hereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the interbank Eurodollar market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder; provided that Company shall not be required to compensate a Lender pursuant to this subsection for any increased cost or reduction incurred more than 180 days prior to the date that such Lender notifies Company of such change giving rise to such increased cost or reduction and of such Lender's intention to claim compensation therefor; provided, further, that, if such change giving rise to such increased cost or reduction is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof. Such Lender shall deliver to -51- Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this subsection 2.7A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. B. Withholding of Taxes. (i) Payments to Be Free and Clear. All sums payable by Company under this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the Overall Net Income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of Company or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (ii) Grossing-Up of Payments. If Company or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Company to Administrative Agent or any Lender under any of the Loan Documents: (a) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (b) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on Company) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (c) the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (d) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (b) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided that no such additional amount shall be required to be paid to any Lender under clause (c) above except to the extent that any change in any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (in- -52- cluding the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof (in the case of each Lender listed on the signature pages hereof) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) affecting any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date of this Agreement or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender. (iii) Evidence of Exemption From Withholding Tax. (a) Each Lender that is not a United States person as defined in Section 7701(a)(30) of the Internal Revenue Code (for purposes of this subsection 2.7B(iii), a "Non-US Lender") shall deliver to Administrative Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (1) two original copies of Internal Revenue Service Form W-8BEN, Form W-8ECI or Form W-8IMY, as the case may be (or any successor forms), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents or (2) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8BEN or W-8IMY (or any successor form), properly completed and duly executed by such Lender, together with any other certificates or statements of exemption requested by Company required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Loan Documents. (b) Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to subsection 2.7B(iii)(a) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly (1) deliver to Administrative Agent for transmission to Company two new original copies of Internal Revenue Service Form W-8BEN, W-8ECI or W-8IMY, as the case may be, or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8BEN or W-8IMY, as the case may be, properly completed and duly executed by such Lender, together with any other certificates or statements of exemption requested by -53- Company required in order to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Loan Documents or (2) notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. (c) Company shall not be required to pay any additional amount to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such Lender shall have failed to satisfy the requirements of clause (a) or (b)(1) of this subsection 2.7B(iii); provided that if such Lender shall have satisfied the requirements of subsection 2.7B(iii)(a) on the Closing Date (in the case of each Lender listed on the signature pages hereof) or on the date of the Assignment Agreement pursuant to which it became a Lender (in the case of each other Lender), nothing in this subsection 2.7B(iii)(c) shall relieve Company of its obligation to pay any additional amounts pursuant to clause (c) of subsection 2.7B(ii) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in subsection 2.7B(iii)(a). C. Capital Adequacy Adjustment. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the date hereof of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or Letters of Credit or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction; provided that Company shall not be required to compensate a Lender pursuant to this subsection for any reduction incurred more than 180 days prior to the date that such Lender notifies Company of such change giving rise to such reduction and of such Lender's intention to claim compensation therefor; provided, further, that, if such change giving rise to such reduction is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis of -54- the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. D. Refund and Contest. If Administrative Agent or any Lender receives a refund with respect to Tax deducted, withheld or paid by Company and with respect to which Company has been required to and has paid an additional amount under this subsection 2.7, which in the good faith judgment of such Lender is allocable to such deduction, withholding or payment, it shall promptly pay such refund, together with any other amount paid by Company in connection with such refunded Tax and any interest paid by the relevant governmental authority with respect to such refund, to Company, net of all out-of-pocket expenses of such Lender incurred in obtaining such refund, provided, however, that Company agrees to promptly return such refund to Administrative Agent or the applicable Lender, as the case may be, if it receives notice from Administrative Agent or applicable Lender that such Administrative Agent or Lender is required to repay such refund. Each of Administrative Agent and such Lender agrees that it will contest such Tax or liabilities paid by Company if Agent or such Lender determines, in its sole discretion, that it would not be materially disadvantaged or prejudiced as a result of such contest. 2.8. Obligation of Lenders and Issuing Lenders to Mitigate; Replacement A. Mitigation. Each Lender and Issuing Lender agrees that, as promptly as practicable after the officer of such Lender or Issuing Lender responsible for administering the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender or Issuing Lender to receive payments under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent with the internal policies of such Lender or Issuing Lender and any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or maintain the Commitments of such Lender or the affected Loans or Letters of Credit of such Lender or Issuing Lender through another lending or letter of credit office of such Lender or Issuing Lender, or (ii) take such other measures as such Lender or Issuing Lender may deem reasonable, which may include assignment of its rights and obligations hereunder to another of its offices, branches or affiliates, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6 would be materially reduced and if, as determined by such Lender or Issuing Lender in its sole discretion, the making, issuing, funding or maintaining of such Commitments or Loans or Letters of Credit through such other lending or letter of credit office or in accordance with such other measures, including assignment, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or Letters of Credit or the interests of such Lender or Issuing Lender; provided that such Lender or Issuing Lender will not be obligated to utilize such other lending or letter of credit office pursuant to this subsection 2.8 unless Company agrees to pay all reasonable incremental expenses in- -55- curred by such Lender or Issuing Lender as a result of utilizing such other lending or letter of credit office as described in clause (i) above. A certificate as to the amount of any such expenses payable by Company pursuant to this subsection 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender or Issuing Lender to Company (with a copy to Administrative Agent) shall be conclusive absent manifest error. B. Replacement. In the event of (a) a refusal by a Lender to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by Requisite Lenders (but requires consent of all Lenders) as provided in subsection 10.6, (b) any Lender becomes an Affected Lender or requests compensation under subsection 2.7A, 2.7C or 3.6, (c) Company is required to pay any additional amount to any Lender or any governmental authority for the account of any Lender pursuant to subsection 2.7B, or (d) any Lender defaults in its obligation to fund Loans hereunder, then Company may, at its sole expense and effort, replace such Lender (a "Replaced Lender") with one or more Eligible Assignees (collectively, the "Replacement Lender") acceptable to Administrative Agent, provided that (i) at the time of any replacement pursuant to this subsection 2.8 the Replacement Lender shall enter into one or more Assignment Agreements pursuant to subsection 10.1B (and with all fees payable pursuant to such subsection 10.1B to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the outstanding Loans and Commitments of, and in each case participations in Letters of Credit and Swing Line Loans by, the Replaced Lender and, in connection therewith, shall pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender, (B) an amount equal to all unpaid drawings with respect to Letters of Credit that have been funded by (and not reimbursed to) such Replaced Lender, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid, fees owing to the Replaced Lender with respect thereto, (y) the appropriate Issuing Lender an amount equal to such Replaced Lender's Pro Rata Share of any unpaid drawings with respect to Letters of Credit (which at such time remains an unpaid drawing) issued by it to the extent such amount was not theretofore funded by such Replaced Lender, and (z) Swing Line Lender an amount equal to such Replaced Lender's Pro Rata Share of any Refunded Swing Line Loans to the extent such amount was not theretofore funded by such Replaced Lender, and (ii) all obligations (including without limitation all such amounts, if any, owing under subsection 2.6D) of Company owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid), shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment Agreements and the acceptance thereof by Administrative Agent pursuant to subsection 10.1B, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by Company, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder except with respect to indemnification provisions under this Agreement which by the terms of this Agreement survive the termination of this Agreement, which indemnification provisions shall survive as to such Replaced Lender. Notwithstanding anything to the contrary -56- contained above, no Issuing Lender may be replaced hereunder at any time while it has Letters of Credit outstanding hereunder unless arrangements satisfactory to such Issuing Lender (including the furnishing of a Standby Letter of Credit in form and substance, and issued by an issuer satisfactory to such Issuing Lender or the furnishing of cash collateral in amounts and pursuant to arrangements satisfactory to such Issuing Lender) have been made with respect to such outstanding Letters of Credit. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling Company to require such assignment and delegation cease to apply. SECTION 3. LETTERS OF CREDIT 3.1. Issuance of Letters of Credit and Lenders' Purchase of Participations Therein A. Letters of Credit. In addition to Company requesting that Revolving Lenders make Revolving Loans pursuant to subsection 2.1A(ii) and that Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(iii), Company may request, in accordance with the provisions of this subsection 3.1, from time to time during the period from the Closing Date to but excluding the date that is 30 days prior to the Revolving Loan Commitment Termination Date, that one or more Revolving Lenders issue Letters of Credit for the account of Company. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, any one or more Revolving Lenders may, but (except as provided in subsection 3.1B(ii)) shall not be obligated to, issue such Letters of Credit in accordance with the provisions of this subsection 3.1; provided that such Letters of Credit shall be issued on a sight basis only and Company shall not request that any Revolving Lender issue (and no Revolving Lender shall issue): (i) any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed the Revolving Loan Commitments then in effect; (ii) any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed $100,000,000; (iii) any Letter of Credit denominated in a currency other than Dollars; or (iv) any Letter of Credit having an expiration date later than the earlier of (a) the date that is five Business Days prior to the Revolving Loan Commitment Termination Date and (b) the date which is one year from the date of issuance of such Letter of Credit; provided that the immediately preceding clause (b) shall not prevent any Issuing Lender from agreeing that a Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each unless such Issuing Lender elects not to ex- -57- tend for any such additional period; and provided, further, that such Issuing Lender shall elect not to extend such Letter of Credit if it has knowledge that an Event of Default or Potential Event of Default has occurred and is continuing (and has not been waived in accordance with subsection 10.6) at the time such Issuing Lender must elect whether or not to allow such extension. B. Mechanics of Issuance. (i) Notice of Issuance. Whenever Company desires the issuance of a Letter of Credit, it shall deliver to the proposed Issuing Lender and Administrative Agent a Notice of Request to Issue Letter of Credit in the form of Exhibit III annexed hereto no later than 12:00 Noon (New York City time) at least three Business Days or in each case such shorter period as may be agreed to by the proposed Issuing Lender in any particular instance, in advance of the proposed date of issuance. The Notice of Request to Issue Letter of Credit shall specify (a) the proposed date of issuance (which shall be a Business Day), (b) the face amount of the Letter of Credit, (c) the expiration date of the Letter of Credit, (d) the name and address of the beneficiary, and (e) either the verbatim text of the proposed Letter of Credit or the proposed terms and conditions thereof, including a precise description of any documents to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require the Issuing Lender to make payment under the Letter of Credit; provided that the Issuing Lender, in its reasonable discretion, may require changes in the text of the proposed Letter of Credit or any such documents. Company shall notify the applicable Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) prior to the issuance of any Letter of Credit in the event that any of the matters to which Company is required to certify in the applicable Notice of Request to Issue Letter of Credit is no longer true and correct as of the proposed date of issuance of such Letter of Credit, and upon the issuance of any Letter of Credit Company shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Company is required to certify in the applicable Notice of Request to Issue Letter of Credit. The existing Letters of Credit identified on Schedule 3.1B(i) shall be deemed issued under and pursuant to this subsection 3.1B(i) and shall be treated as Letters of Credit for all purposes under this Agreement. (ii) Determination of Issuing Lender. Upon receipt by a proposed Issuing Lender and Administrative Agent of a Notice of Request to Issue Letter of Credit pursuant to subsection 3.1B(i) requesting the issuance of a Letter of Credit, any Revolving Lender so requested to issue such Letter of Credit shall promptly notify Company and Administrative Agent whether or not, in its sole discretion, it has elected to issue such Letter of Credit, and any such Revolving Lender which so elects to issue such Letter of Credit shall be the Issuing Lender with respect thereto. In the event that the proposed Issuing Lender selected by Company with respect to any Letter of Credit shall have declined to issue such Letter of Credit, Administrative Agent shall be obligated to issue such Letter of Credit and shall be the Issuing Lender with respect -58- thereto, notwithstanding the fact that the Letter of Credit Usage with respect to such Letter of Credit and with respect to all other Letters of Credit issued by Administrative Agent, when aggregated with Administrative Agent's outstanding Revolving Loans and Swing Line Loans, may exceed Administrative Agent's Revolving Loan Commitment then in effect. (iii) Issuance of Letter of Credit. Upon satisfaction or waiver (in accordance with subsection 10.6) of the conditions set forth in subsection 4.3, the Issuing Lender shall issue the requested Letter of Credit in accordance with the Issuing Lender's standard operating procedures. (iv) Notification to Revolving Lenders. Upon the issuance of any Letter of Credit the applicable Issuing Lender shall promptly notify Administrative Agent and each other Revolving Lender of such issuance, which notice shall be accompanied by a copy of such Letter of Credit. Promptly after receipt of such notice (or, if Administrative Agent is the Issuing Lender, together with such notice), Administrative Agent shall notify each Revolving Lender of the amount of such Revolving Lender's respective participation in such Letter of Credit, determined in accordance with subsection 3.1C. (v) Reports to Revolving Lenders. Within 5 days after the end of each calendar quarter ending after the Closing Date, so long as any Letter of Credit shall have been outstanding during such calendar quarter, each Issuing Lender shall deliver to Administrative Agent a report setting forth for such calendar quarter the daily aggregate amount available to be drawn under the Letters of Credit issued by such Issuing Lender that were outstanding during such calendar quarter. C. Revolving Lenders' Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Letter of Credit, each Revolving Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Revolving Lender's Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. 3.2. Letter of Credit Fees Company agrees to pay the following amounts with respect to Letters of Credit issued hereunder: (i) with respect to each Letter of Credit, (a) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to 0.125% per annum of the daily amount available to be drawn under such Letter of Credit and (b) a letter of credit fee, payable to Administrative Agent for the account of Revolving Lenders, equal to the applicable Eurodollar Rate Margin for Revolving Loans per annum of the daily amount available to be drawn under such Letter of Credit, each such fronting fee and letter of credit fee to be payable in arrears on and to (but excluding) the last Business Day of -59- March, June, September and December of each year and computed on the basis of a 360 day year for the actual number of days elapsed; (ii) with respect to the issuance, amendment or transfer of each Letter of Credit and each payment of a drawing made thereunder (without duplication of the fees payable under clauses (a) and (b) above), documentary and processing charges payable directly to the applicable Issuing Lender for its own account in accordance with such Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or payment, as the case may be. For purposes of calculating any fees payable under clause (i) of this subsection 3.2, the daily amount available to be drawn under any Letter of Credit shall be determined as of the close of business on any date of determination. Promptly upon receipt by Administrative Agent of any amount described in clause (i)(b) of this subsection 3.2, Administrative Agent shall distribute to each Revolving Lender its Pro Rata Share of such amount. 3.3. Drawings and Reimbursement of Amounts Paid Under Letters of Credit A. Responsibility of Issuing Lender With Respect to Drawings. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. B. Reimbursement by Company of Amounts Paid Under Letters of Credit. In the event an Issuing Lender has determined to honor a drawing under a Letter of Credit issued by it, such Issuing Lender shall immediately notify Company and Administrative Agent, and Company shall reimburse such Issuing Lender on or before the Business Day immediately following the date on which such drawing is honored (the "Reimbursement Date") in an amount in Dollars and in same day funds equal to the amount of such honored drawing; provided that, anything contained in this Agreement to the contrary notwithstanding, (i) unless Company shall have notified Administrative Agent and such Issuing Lender prior to 12:00 Noon (New York City time) on the Business Day following the date such drawing is honored that Company intends to reimburse such Issuing Lender for the amount of such honored drawing with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Notice of Borrowing to Administrative Agent requesting Revolving Lenders to make Revolving Loans that are Alternate Base Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount of such honored drawing and (ii) subject to satisfaction or waiver of the conditions specified in subsection 4.2B, Revolving Lenders shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount of such honored drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse such Issuing Lender for the amount of such honored drawing; and provided, further that if for any reason proceeds of Revolving Loans are not received by such Issuing Lender on the Reimbursement Date in an amount -60- equal to the amount of such honored drawing, Company shall reimburse such Issuing Lender, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this subsection 3.3B shall be deemed to relieve any Revolving Lender from its obligation to make Revolving Loans on the terms and conditions set forth in this Agreement, and Company shall retain any and all rights it may have against any Revolving Lender resulting from the failure of such Revolving Lender to make such Revolving Loans under this subsection 3.3B. C. Payment by Revolving Lenders of Unreimbursed Amounts Paid Under Letters of Credit. (i) Payment by Revolving Lenders. In the event that Company shall fail for any reason to reimburse any Issuing Lender as provided in subsection 3.3B in an amount equal to the amount of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall promptly notify each other Revolving Lender of the unreimbursed amount of such honored drawing and of such other Revolving Lender's respective participation therein based on such Revolving Lender's Pro Rata Share. Each Revolving Lender shall make available to such Issuing Lender an amount equal to its respective participation, in Dollars and in same day funds, at the office of such Issuing Lender specified in such notice, not later than 12:00 Noon (New York City time) on the first business day (under the laws of the jurisdiction in which such office of such Issuing Lender is located) after the date notified by such Issuing Lender. In the event that any Revolving Lender fails to make available to such Issuing Lender on such business day the amount of such Revolving Lender's participation in such Letter of Credit as provided in this subsection 3.3C, such Issuing Lender shall be entitled to recover such amount on demand from such Revolving Lender together with interest thereon at the rate customarily used by such Issuing Lender for the correction of errors among banks for three Business Days and thereafter at the Alternate Base Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right of any Revolving Lender to recover from any Issuing Lender any amounts made available by such Revolving Lender to such Issuing Lender pursuant to this subsection 3.3C in the event that it is determined by the final judgment of a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Lender in respect of which payment was made by such Revolving Lender constituted gross negligence or willful misconduct on the part of such Issuing Lender. (ii) Distribution to Revolving Lenders of Reimbursements Received From Company. In the event any Issuing Lender shall have been reimbursed by other Revolving Lenders pursuant to subsection 3.3C(i) for all or any portion of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall distribute to each other Revolving Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing such other Revolving Lender's Pro Rata Share of all payments subsequently received by such Issuing Lender from Company in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Revolving -61- Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Revolving Lender may request. D. Interest on Amounts Paid Under Letters of Credit. (i) Payment of Interest by Company. Company agrees to pay to each Issuing Lender, with respect to drawings honored under any Letters of Credit issued by it, interest on the amount paid by such Issuing Lender in respect of each such honored drawing from the date such drawing is honored to but excluding the date such amount is reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B) at a rate equal to (a) for the period from the date such drawing is honored to but excluding the Reimbursement Date, the rate then in effect under this Agreement with respect to Revolving Loans that are Alternate Base Rate Loans and (b) thereafter, a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement with respect to Revolving Loans that are Alternate Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i) shall be computed on the basis of a 365 or 366 day year for the actual number of days elapsed in the period during which it accrues and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. (ii) Distribution of Interest Payments by Issuing Lender. Promptly upon receipt by any Issuing Lender of any payment of interest pursuant to subsection 3.3D(i) with respect to a drawing honored under a Letter of Credit issued by it, (a) such Issuing Lender shall distribute to each other Revolving Lender, out of the interest received by such Issuing Lender in respect of the period from the date such drawing is honored to but excluding the date on which such Issuing Lender is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that such other Revolving Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period pursuant to subsection 3.2 if no drawing had been honored under such Letter of Credit, and (b) in the event such Issuing Lender shall have been reimbursed by other Revolving Lenders pursuant to subsection 3.3C(i) for all or any portion of such honored drawing, such Issuing Lender shall distribute to each other Revolving Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing such other Revolving Lender's Pro Rata Share of any interest received by such Issuing Lender in respect of that portion of such honored drawing so reimbursed by other Revolving Lenders for the period from the date on which such Issuing Lender was so reimbursed by other Revolving Lenders to but excluding the date on which such portion of such honored drawing is reimbursed by Company. Any such distribution shall be made to a Revolving Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Revolving Lender may request. 3.4. Obligations Absolute The obligation of Company to reimburse each Issuing Lender for drawings honored under the Letters of Credit issued by it and to repay any Revolving Loans made by Revolv- -62- ing Lenders pursuant to subsection 3.3B and the obligations of Revolving Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Company or any Revolving Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), any Issuing Lender or other Revolving Lender or any other Person or, in the case of a Revolving Lender, against Company, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Company or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the applicable Issuing Lender under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (vi) any breach of this Agreement or any other Loan Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing; provided, in each case, that payment by the applicable Issuing Lender under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of such Issuing Lender under the circumstances in question (as determined by a final judgment of a court of competent jurisdiction). -63- 3.5. Indemnification; Nature of Issuing Lenders' Duties A. Indemnification. In addition to amounts payable as provided in subsection 3.6, Company hereby agrees to protect, indemnify, pay and save harmless each Issuing Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which such Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing Lender, other than as a result of (a) the gross negligence or willful misconduct of such Issuing Lender as determined by a final judgment of a court of competent jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor by such Issuing Lender of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of such Issuing Lender to honor a drawing under any such 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 government or governmental authority (all such acts or omissions herein called "Governmental Acts"). B. Nature of Issuing Lenders' Duties. As between Company and any Issuing Lender, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Issuing Lender by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, such Issuing Lender shall not be responsible for: (i) 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 any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such 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) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of such Issuing Lender, including any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of such Issuing Lender's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this subsection 3.5B, any action taken or omitted by any Issuing Lender under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put such Issuing Lender under any resulting liability to Company, except for liability arising solely out of the gross negli- -64- gence or willful misconduct of such Issuing Lender, as determined by a final judgment of a court of competent jurisdiction. 3.6. Increased Costs and Taxes Relating to Letters of Credit Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Issuing Lender or Revolving Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by any Issuing Lender or Revolving Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Issuing Lender or Revolving Lender (or its applicable lending or letter of credit office) to any additional Tax (other than any Tax on the overall net income of such Issuing Lender or Revolving Lender) with respect to the issuing or maintaining of any Letters of Credit or the purchasing or maintaining of any participations therein or any other obligations under this Section 3, whether directly or by such being imposed on or suffered by any particular Issuing Lender; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement in respect of any Letters of Credit issued by any Issuing Lender or participations therein purchased by any Revolving Lender; or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Issuing Lender or Revolving Lender (or its applicable lending or letter of credit office) regarding this Section 3 or any Letter of Credit or any participation therein; and the result of any of the foregoing is to increase the cost to such Issuing Lender or Revolving Lender of agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any amount received or receivable by such Issuing Lender or Revolving Lender (or its applicable lending or letter of credit office) with respect thereto; then, in any case, Company shall promptly pay to such Issuing Lender or Revolving Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate such Issuing Lender or Revolving Lender for any such increased cost or reduction in amounts received or receivable hereunder; provided that Company shall not be required to compensate a Lender pursuant to this subsection for any increased cost or reduction incurred more than 180 days prior to the date that such Lender notifies Company of such change giving rise to such increased cost or reduction and of such Lender's intention to claim compensation therefor; provided further that, if -65- such change giving rise to such increased cost or reduction is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof. Such Issuing Lender or Revolving Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Issuing Lender or Revolving Lender under this subsection 3.6, which statement shall be conclusive and binding upon all parties hereto absent manifest error. SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT The obligations of Lenders to make Loans and the issuance of Letters of Credit hereunder are subject to the satisfaction of the following conditions. 4.1. Conditions to Term Loans and Initial Revolving Loans and Swing Line Loans The obligations of Lenders to make the Term Loans and any Revolving Loans and Swing Line Loans to be made on the Closing Date are, in addition to the conditions precedent specified in subsection 4.2, subject to prior or concurrent satisfaction of each of the following conditions: A. Loan Documents. On or before the Closing Date, Company shall, and shall cause each other Loan Party to, deliver to Administrative Agent for Lenders (to be followed, promptly after the Closing Date, by sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following with respect to Company or such Loan Party, as the case may be, each, unless otherwise noted, dated the Closing Date: (i) Certified copies of the Certificate or Articles of Incorporation (or equivalent organizational documents) of such Person, together with a good standing certificate from the Secretary of State of its jurisdiction of organization and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of such jurisdiction, each dated a recent date prior to the Closing Date; (ii) Copies of the Bylaws (or equivalent organizational documents) of such Person, certified as of the Closing Date by such Person's secretary or an assistant secretary or an equivalent officer; (iii) Resolutions of the Board of Directors or managing member of such Person approving and authorizing the execution, delivery and performance of the -66- Loan Documents to which it is a party, certified as of the Closing Date by the secretary or an assistant secretary of such Person as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of the officers of such Person executing the Loan Documents to which it is a party; and (v) Executed originals of the Loan Documents to which such Person is a party (including, without limitation, Subsidiary Guaranties executed and delivered by the existing Domestic Subsidiaries of Company on the Closing Date (other than Exempt Subsidiaries)). B. No Material Adverse Effect. Since December 31, 2002, no event or events, adverse condition or change in or affecting Company that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect shall have occurred. C. Termination of Existing Credit Agreement and Related Liens. On the Closing Date, Company and its Subsidiaries shall have (or shall direct that the proceeds of the Loans made on the Closing Date be applied to) (i) repaid in full all Indebtedness outstanding under the Existing Credit Agreement; (ii) terminated any commitments to lend or make other extensions of credit thereunder; and (iii) delivered to Administrative Agent all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Company and its Subsidiaries thereunder. D. Other Indebtedness. On the Closing Date, other than Indebtedness outstanding under the 9 5/8% Notes and this Agreement, Company and its Subsidiaries shall have outstanding no Indebtedness, Contingent Obligations or preferred stock in an aggregate amount exceeding $10,000,000. E. Security Interests in Investment Securities. Agents shall have received evidence reasonably satisfactory to them that Company and Subsidiary Guarantors shall have taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such filings, if any, that may be necessary or, in the reasonable opinion of Agents, desirable in order to create in favor of Agents, for the benefit of Lenders, a valid and perfected First Priority Lien in the Collateral. Such actions shall include the following: (i) Schedules to Collateral Documents. Delivery to Agents of accurate and complete schedules to the Company Pledge Agreement and the Subsidiary Pledge Agreement. -67- (ii) Stock Certificates. Delivery to Collateral Agent of certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to Collateral Agent) representing all capital stock pledged pursuant to the Company Pledge Agreement and the Subsidiary Pledge Agreements. F. Opinions of Counsel to Loan Parties. Agents shall have received originally executed copies of one or more favorable written opinions of (A) Thomas M. Boudreau, general counsel of Company, (B) Simpson Thacher & Bartlett LLP, special New York counsel for Loan Parties, and (C) Drinker Biddle & Shanley LLP, special New Jersey and Pennsylvania counsel for Loan Parties, each in form and substance reasonably satisfactory to Agents and their counsel, dated as of the Closing Date and setting forth substantially the matters in the opinions designated in Exhibits VIII-A and VIII-B annexed hereto and as to such other matters as Agents acting on behalf of Lenders may reasonably request. G. Opinions of Agents' Counsel. Lenders shall have received originally executed copies of one or more favorable written opinions of Cahill Gordon & Reindel LLP, counsel to Agents, dated as of the Closing Date, substantially in the form of Exhibit IX annexed hereto and as to such other matters as Agents acting on behalf of Lenders may reasonably request. H. Fees and Expenses. Company shall have paid to Administrative Agent, for distribution (as appropriate) to Agents and Lenders, the fees payable on the Closing Date referred to in subsection 2.3 and the expenses referred to in subsection 10.2 for which invoices have been received prior to the Closing Date. I. Representations and Warranties; Performance of Agreements. Company shall have delivered to Agents an Officers' Certificate, in form and substance reasonably satisfactory to Agents, to the effect that the representations and warranties in Section 5 hereof are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were true, correct and complete in all material respects on and as of such earlier date) and that Company shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it on or before the Closing Date except as otherwise disclosed to and agreed to in writing by Agents. J. Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Agents and such counsel, and Agents and such counsel shall have received all such counterpart originals or certified copies of such documents as Agents may reasonably request. -68- K. Certain Approvals. All material governmental and third party approvals necessary in connection with the Refinancing and the financings contemplated thereby shall have been obtained and be in full force and effect and there shall be no litigation, governmental, administrative or judicial action, actual or threatened, that could reasonably be expected to have a Material Adverse Effect on Company and its Subsidiaries, taken as a whole, or the Refinancing. L. Financial Information. Company shall have delivered to Agents and the Lenders: financial statements of Company (including notes thereto), consisting of (a) consolidated audited balance sheets for the fiscal years ended December 31, 2000, December 31, 2001 and December 31, 2002, (b) consolidated audited statements of operations and cash flows for the fiscal years ended December 31, 2000, December 31, 2001 and December 31, 2002 and (c) consolidated unaudited balance sheets as of the end of the quarterly periods ended March 31, 2003, June 30, 2003 and September 30, 2003 and consolidated unaudited statements of operations and cash flows for each such quarterly period and, in each case for the same quarterly periods during fiscal 2002, prepared in each case in the same manner as the historical audited statements. In addition, the Administrative Agent shall have received financial projections (including the related assumptions) of Company and its subsidiaries for the years 2004 through 2008, in form and substance reasonably satisfactory to the Administrative Agent. M. Know Your Customer and Anti-Money Laundering Rules. The Lenders shall have received, at least five Business Days in advance of the Closing Date, all documentation and other information required by bank regulatory authorities and requested by the Lenders under applicable "know your customer" and anti-money laundering rules and regulations, including, without limitation, the U.S.A. Patriot Act. 4.2. Conditions to All Loans The obligations of Lenders to make Loans on each Funding Date are subject to the following further conditions precedent: A. Administrative Agent shall have received before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by the chief financial officer or the treasurer or controller of Company or by any officer of Company designated by any of the above-described officers on behalf of Company in a writing delivered to Administrative Agent. B. As of that Funding Date: (i) The representations and warranties contained herein and in the other Loan Documents shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically re- -69- late to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date; and (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an Event of Default or a Potential Event of Default. 4.3. Conditions to Letters of Credit The issuance of any Letter of Credit hereunder (whether or not the applicable Issuing Lender is obligated to issue such Letter of Credit) is subject to the following conditions precedent: A. On or before the date of issuance of the initial Letter of Credit pursuant to this Agreement, the initial Loans shall have been made. B. On or before the date of issuance of such Letter of Credit, Administrative Agent shall have received, in accordance with the provisions of subsection 3.1B(i), an originally executed Notice of Request to Issue Letter of Credit, in each case signed by the chief financial officer or the treasurer or controller of Company or by any officer of Company designated by any of the above-described officers on behalf of Company in a writing delivered to Administrative Agent, together with all other information specified in subsection 3.1B(i). C. On the date of issuance of such Letter of Credit, all conditions precedent described in subsection 4.2B shall be satisfied to the same extent as if the issuance of such Letter of Credit were the making of a Loan and the date of issuance of such Letter of Credit were a Funding Date. SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make the Loans, to induce Issuing Lenders to issue Letters of Credit and to induce other Lenders to purchase participations therein, Company represents and warrants to each Lender (both before and after giving effect to the Refinancing and the transactions in connection therewith), on the date of this Agreement, on each Funding Date and on the date of issuance of each Letter of Credit, that the following statements are true, correct and complete: -70- 5.1. Organization, Powers, Qualification, Good Standing, Business and Subsidiaries A. Organization and Powers. Each Loan Party is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as specified in Schedule 5.1 annexed hereto. Each Loan Party has all requisite corporate or other power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents to which it is a party and to carry out the transactions contemplated thereby. B. Qualification and Good Standing. Each Loan Party is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and could not reasonably be expected to have a Material Adverse Effect. C. Conduct of Business. Company and its Subsidiaries are engaged only in the businesses permitted to be engaged in pursuant to subsection 7.10. D. Subsidiaries. All of the Subsidiaries of Company are identified in Schedule 5.1 annexed hereto, as said Schedule 5.1 may be supplemented from time to time pursuant to the provisions of subsection 6.1(xi). The capital stock or other interests of each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto (as so supplemented) are duly authorized, validly issued, fully paid and nonassessable and free and clear of all liens except liens created by the Loan Documents and liens permitted thereunder and none of such capital stock constitutes Margin Stock. Each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto (as so supplemented) is duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization set forth therein, has all requisite corporate or other power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted and is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case except where failure to be so qualified or in good standing or a lack of such corporate or other power and authority has not had and is not reasonably expected to have a Material Adverse Effect. Schedule 5.1 annexed hereto (as so supplemented) correctly sets forth the ownership interest of Company and each of its Subsidiaries in each of the Subsidiaries of Company identified therein. 5.2. Authorization of Borrowing, Etc. A. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary corporate or other equivalent action on the part of each Loan Party that is a party thereto. -71- B. No Conflict. The execution, delivery and performance by Loan Parties of the Loan Documents and the consummation of the transactions contemplated by the Loan Documents do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws (or other organizational documents) of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of the Collateral Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders. C. Governmental Consents. The execution, delivery and performance by Loan Parties of the Loan Documents and the consummation of the transactions contemplated by the Loan Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. D. Binding Obligation. Each of the Loan Documents has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and (ii) general equitable principles (whether considered in a proceeding in equity or at law) and (iii) an implied covenant of good faith and fair dealing. 5.3. Financial Condition Company has heretofore delivered to Lenders, at Lenders' request, (i) the audited financial statements (including balance sheets and statements of operations, stockholders' equity and cash flows) of Company and its Subsidiaries for the fiscal year ended December 31, 2002 and (ii) the unaudited financial statements (including balance sheets and statements of operations, stockholders' equity and cash flows) of Company and its Subsidiaries for the fiscal quarters ended March 31, 2003, June 30, 2003 and September 30, 2003. Except as disclosed in Company's 10-Q for the quarter ended September 30, 2003, all such statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position (on a consolidated basis) of the entities described in such financial statements as at the date thereof and the results of operations and cash flows (on a consolidated basis) of the entities described therein for the period then ended. Company does not (and will not immediately following the funding of the initial Loans) have any Contingent Obligation, contingent liability or liability for taxes, long- -72- term lease or unusual forward or long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets or financial condition of Company and its Subsidiaries taken as a whole. 5.4. No Material Adverse Change Since December 31, 2002, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. 5.5. Title to Properties; Liens Company and its Subsidiaries have (i) good title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), or (iii) good title to (in the case of all other personal property), all of their respective properties and assets necessary or useful for the conduct of their business, in each case except for assets disposed of since the date of the most recent financial statements received by Administrative Agent in the ordinary course of business or as otherwise permitted under subsection 7.5 and except where failure to have such title would not, individually or in the aggregate, have a Material Adverse Effect. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. 5.6. Litigation; Adverse Facts Except as set forth on Schedule 5.6, there are no actions, suits, proceedings, arbitrations or governmental investigations (whether or not purportedly on behalf of Company or any of its Subsidiaries) at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (including any Environmental Claims) that are pending or, to the knowledge of Company, threatened against or affecting Company or any of its Subsidiaries or any property, license or registration of Company or any of its Subsidiaries and that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither Company nor any of its Subsidiaries (i) is in violation of any applicable laws (including those involving the licensing or registration relating to the pharmaceutical and healthcare services provided by Company and its Subsidiaries and Environmental Laws) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or (ii) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. -73- 5.7. Payment of Taxes Except to the extent permitted by subsection 6.3, (i) all tax returns and reports of Company and its Subsidiaries required to be filed by any of them have been timely filed, and (ii) all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Company and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable, except for taxes that are being contested in good faith by appropriate proceedings for which Company or relevant Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP, and in either case, to the extent that the failure to do so would not reasonably be expected to result in a Material Adverse Effect. Company knows of no proposed material tax assessment against Company or any of its Subsidiaries which is not being actively contested by Company or such Subsidiary in good faith and by appropriate proceedings; provided that such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. 5.8. Performance of Agreements Neither Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect. 5.9. Governmental Regulation Neither Company nor any of its Subsidiaries is a "holding company" under the Public Utility Holding Company Act of 1935 or an "investment company" under the Investment Company Act of 1940. 5.10. Securities Activities Neither Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. 5.11. Employee Benefit Plans A. Except as would not reasonably be expected to result in a Material Adverse Effect, Company and each of its Subsidiaries are in compliance with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan sponsored by any of them and have performed all their respective obligations under each Employee Benefit Plan sponsored by any of them. -74- B. No ERISA Event that would reasonably be expected to result in a Material Adverse Effect has occurred or is reasonably expected to occur. C. As of the most recent valuation date for any Pension Plan, the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), which if amortized over ten years, would not reasonably be expected, after considering the financial condition of all relevant ERISA Affiliates who could have liability in respect of such liabilities, to result in a Material Adverse Effect. D. For each Multiemployer Plan as of the most recent valuation date for which an actuarial report has been received, the potential liability of Company, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA, would not reasonably be expected to result in a Material Adverse Effect. 5.12. Environmental Protection No event or condition has occurred or is occurring with respect to Company or any of its Subsidiaries relating to any Environmental Law, that individually or in the aggregate has had or could reasonably be expected to have a Material Adverse Effect. 5.13. Employee Matters There is no strike or work stoppage in existence or threatened involving Company or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 5.14. Solvency Each Loan Party is and, upon the incurrence of any Obligations by such Loan Party on any date on which this representation is made, will be, Solvent. 5.15. Matters Relating to Collateral A. Creation, Perfection and Priority of Liens. The execution and delivery by each Loan Party of each Pledge Agreement to which it is a party, together with (i) the actions taken on or prior to the date hereof pursuant to subsection 4.1E and (ii) the delivery to the Collateral Agent of any Collateral (all of which Collateral has been so delivered) are effective to create in favor of the Collateral Agent for the benefit of Lenders, as security for the respective Secured Obligations (as defined in the applicable Pledge Agreement in respect of any Collateral), a valid and perfected First Priority Lien on all of the Collateral, and other actions necessary or -75- desirable to perfect and maintain the perfection and First Priority status of such Liens have been duly made or taken and remain in full force and effect. B. Governmental Authorizations. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for either (i) the pledge or grant by any Loan Party of the Liens with respect to the Collateral purported to be created in favor of the Collateral Agent pursuant to any of the Pledge Agreements or (ii) the exercise by the Collateral Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created pursuant to any of the Pledge Agreements or created or provided for by applicable law), except for filings or recordings contemplated by subsections 5.15A and except as may be required, in connection with the disposition of any Collateral, by laws generally affecting the offering, sale or disposition of property of the same type as the Collateral. C. Absence of Third-Party Filings. Except such as may have been filed in favor of the Collateral Agent, Company has not filed any UCC financing statement or other instrument similar in effect covering all or any part of the Collateral in any filing or recording office. D. Margin Regulations. The pledge of the Collateral pursuant to the Pledge Agreements does not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System. E. Information Regarding Collateral. All information supplied to the Collateral Agent by or on behalf of any Loan Party with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects. 5.16. Disclosure No representation or warranty of Company or any of its Subsidiaries contained in any Loan Document or in any other document, certificate or written statement furnished to Lenders by or on behalf of Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement, taken as a whole, contains any untrue statement of a material fact or omits to state a material fact (known to Company, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made; provided, that no representation is made as to projections or pro forma financial information except as set forth in the next sentence. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. -76- SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. 6.1. Financial Statements and Other Reports Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. Company will deliver to Administrative Agent and Lenders: (i) Quarterly Financial: as soon as available and in any event within 45 days after the end of each Fiscal Quarter, the consolidated balance sheets of Company and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of operations, changes in stockholders' equity and cash flows of Company 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, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year, all in reasonable detail and certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; (ii) Year-End Financial: as soon as available and in any event within 90 days after the end of each Fiscal Year, the consolidated balance sheets of Company and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of operations, changes in stockholders' equity and cash flows of Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year, with a report thereon of PricewaterhouseCoopers LLP or other independent certified public accountants of recognized national standing selected by Company and satisfactory to Administrative Agent, which report shall be unqualified, shall express no doubts about the ability of Company and its Subsidiaries to continue as a going concern, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the -77- examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iii) Officers' and Compliance Certificates: together with each delivery of the consolidated financial statements of Company and its Subsidiaries pursuant to subdivisions (i) and (ii) above, (a) an Officers' Certificate of Company stating that the signers have reviewed the terms of this Agreement and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such Officers' Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Company has taken, is taking and proposes to take with respect thereto; and (b) a Compliance Certificate demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 7; (iv) Reconciliation Statements: if, as a result of any change in accounting principles and policies from those used in the preparation of the audited financial statements most recently delivered pursuant to subsection 5.3 or this subsection 6.1, the consolidated financial statements of Company and its Subsidiaries delivered pursuant to subdivisions (i) or (ii) of this subsection 6.1 will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then together with the first delivery of financial statements pursuant to subdivision (i) or (ii) of this subsection 6.1 following such change, a written statement of the chief accounting officer or chief financial officer of Company setting forth the differences (including any differences that would affect any calculations relating to the financial covenants set forth in subsection 7.4) which would have resulted if such financial statements had been prepared without giving effect to such change; (v) Accountants' Certification: together with each delivery of consolidated financial statements of Company and its Subsidiaries pursuant to subdivision (ii) above, a written statement by the independent certified public accountants giving the report thereon stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Potential Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of their audit examination; -78- (vi) SEC Filings and Press Releases: promptly upon their becoming available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Company to its security holders or by any Subsidiary of Company to its security holders other than Company or another Subsidiary of Company, (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission ("SEC") or any governmental or private regulatory authority (other than filings in the ordinary course of business to maintain Company's licenses and permits), and (c) all press releases and other statements made available generally by Company or any of its Subsidiaries to the public concerning material developments in the business of Company or any of its Subsidiaries; provided that such financial statements, reports, press releases and other documents shall be deemed delivered if delivered electronically to the Administrative Agent; (vii) Events of Default, Etc.: promptly upon any officer of Company obtaining knowledge (a) of any condition or event that constitutes an Event of Default or Potential Event of Default or (b) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto; (viii) Litigation or Other Proceedings: promptly upon any officer of Company obtaining knowledge of (a) the institution of any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration against or affecting Company or any of its Subsidiaries or any property, license or registration of Company or any of its Subsidiaries (collectively, "Proceedings") not previously disclosed in writing by Company to Lenders or (b) any material development in any Proceeding that, in any case: (1) could reasonably be expected to have a Material Adverse Effect; or (2) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; written notice thereof together with such other information as may be reasonably available to Company to enable Lenders and their counsel to evaluate such matters; (ix) ERISA Events: promptly upon Company becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event that would reasonably be expected to result in a Material Adverse Effect, a written notice specifying the nature thereof, what action Company, any of its Subsidiaries or, to the knowledge of Company, -79- any of their respective ERISA Affiliates, has taken, is taking or proposes to take with respect thereto and, when known by Company, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (x) ERISA Notices: with reasonable promptness, copies of (a) all notices received by Company, any of its Subsidiaries or, to the knowledge of Company, any of their respective ERISA Affiliates, from a Multiemployer Plan sponsor concerning an ERISA Event that would reasonably be expected to result in a Material Adverse Effect; and (b) such other documents or governmental reports or filings reasonably available to Company or any of its Subsidiaries relating to any Pension Plan as Administrative Agent shall reasonably request; (xi) New Subsidiaries: promptly upon any Person becoming a Subsidiary of Company, a written notice setting forth with respect to such Person (a) the date on which such Person became a Subsidiary of Company and (b) all of the data required to be set forth in Schedule 5.1 annexed hereto with respect to all Subsidiaries of Company (it being understood that such written notice shall be deemed to supplement Schedule 5.1 annexed hereto for all purposes of this Agreement); (xii) Licensing, Registration and Accreditation: with reasonable promptness, information regarding proceedings regarding any licensing, registration or accreditation of Company or a Subsidiary by or with any governmental body or the Joint Commission Accreditation of Healthcare Organizations, if failure to obtain or maintain such license, registration or accreditation could reasonably be expected to have a Material Adverse Effect; and (xiii) Other Information: with reasonable promptness, such other information and data with respect to Company or any of its Subsidiaries as from time to time may be reasonably requested by any Lender (including, without limitation, all documents and other information required by bank regulatory authorities under applicable "know your customer" and anti-money laundering rules and regulations, including without limitation the U.S.A. Patriot Act). 6.2. Existence, Etc. Except as permitted under subsection 7.5, Company will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights and franchises material to its business, except where the failure to do so would not have a Material Adverse Effect. 6.3. Payment of Taxes and Claims; Tax Consolidation A. Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in -80- respect of any of its income, businesses or franchises before any penalty accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (1) such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor and (2) in the case of a charge or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such charge or claim. B. Company will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Company or any of its Subsidiaries). 6.4. Maintenance of Properties; Insurance A. Maintenance of Properties. Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties necessary in the business of Company and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. B. Insurance. Company will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Company and its Subsidiaries as may customarily be carried or maintained under similar circumstances by companies of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for companies similarly situated in the industry. 6.5. Inspection Rights Company shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by Administrative Agent (on its behalf or on behalf of any Lender), or if an Event of Default has occurred and is continuing, the Lenders, to visit and inspect any of the properties of Company or of any of its Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that Company may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested. -81- 6.6. Compliance With Laws, Etc. Company shall comply and operate in compliance, and shall cause each of its Subsidiaries to comply and to operate in compliance, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including those involving licensing or registration relating to the pharmaceutical and healthcare services provided by Company and its Subsidiaries and Environmental Laws) at all times, noncompliance with which could reasonably be expected to cause, individually or in the aggregate, a Material Adverse Effect. 6.7. Environmental Claims and Violations of Environmental Laws Except as could not reasonably be expected to cause, individually or in the aggregate, a Material Adverse Effect, Company shall promptly take, and shall use best efforts to cause each of its Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by Company or its Subsidiaries and (ii) make an appropriate response to any Environmental Claim against Company or any of its Subsidiaries and discharge any obligations it may have to any Person thereunder. 6.8. Execution of Subsidiary Guaranty and Subsidiary Pledge Agreement by Certain Subsidiaries and Future Subsidiaries A. Execution of Subsidiary Guaranty and Collateral Documents. In the event that any Person becomes a Domestic Subsidiary of Company after the date hereof (other than an Exempt Subsidiary), Company will promptly notify Agents of that fact and cause such Subsidiary to execute and deliver to Collateral Agent a counterpart of the Subsidiary Guaranty and a Subsidiary Pledge Agreement, and to take all such further actions and execute all such further documents and instruments (including actions, documents and instruments comparable to those described in subsection 4.1E) as may be necessary or, in the opinion of Collateral Agent, desirable to create in favor of Collateral Agent, for the benefit of Lenders, a valid and perfected First Priority Lien on all of the property of such Subsidiary described in the Subsidiary Pledge Agreement. B. Subsidiary Charter Documents, Legal Opinions, Etc. Substantially concurrent with the execution and delivery by a Subsidiary of the Loan Documents described under subsection 6.8A, Company shall deliver to Administrative Agent, together with such Loan Documents, (i) certified copies of such Subsidiary's Certificate or Articles of Incorporation (or similar organizational document), together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of such jurisdiction, each to be dated a recent date prior to their delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws (or similar organiza- -82- tional document), certified by its secretary or an assistant secretary or an equivalent officer as of a recent date prior to their delivery to Administrative Agent, (iii) a certificate executed by the secretary or an assistant secretary or an equivalent officer of such Subsidiary as to (a) the fact that the attached resolutions of the Board of Directors or managing member of such Subsidiary approving and authorizing the execution, delivery and performance of such Loan Documents are in full force and effect and have not been modified or amended and (b) the incumbency and signatures of the officers of such Subsidiary executing such Loan Documents, and (iv) a favorable opinion of counsel to such Subsidiary, in form and substance reasonably satisfactory to Administrative Agent and its counsel, as to (a) the due organization and good standing of such Subsidiary, (b) the due authorization, execution and delivery by such Subsidiary of such Loan Documents, (c) the enforceability of such Loan Documents against such Subsidiary, (d) such other matters (including matters relating to the creation and perfection of Liens in any Collateral pursuant to such Loan Documents) as Administrative Agent may reasonably request, all of the foregoing to be reasonably satisfactory in form and substance to Administrative Agent and its counsel. 6.9. Release of Collateral. Any Collateral with respect to which a Lien shall have been granted pursuant to this Agreement or the Pledge Agreements shall be released by Collateral Agent upon both (x) Company's delivery to Administrative Agent of an Officers' Certificate stating that the Indebtedness outstanding under this Agreement has been rated Investment Grade (which Officers' Certificate shall include a copy of the relevant notifications from S&P and Moody's) and (y) the Tranche B Term Loans having been permanently repaid in full. SECTION 7. COMPANY'S NEGATIVE COVENANTS Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 7. 7.1. Indebtedness Company shall not permit its Subsidiaries which are not Subsidiary Guarantors to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness in excess of an aggregate of $100.0 million at any time for all such non-Subsidiary Guarantors, except for Indebtedness up to an aggregate of $300.0 million incurred in connection with a Permitted Receivables Transaction. -83- 7.2. Prohibition on Liens. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Company or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file, or cause or cooperate with any other Person in filing any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC of any State or under any similar recording or notice statute, except: (i) Permitted Encumbrances; (ii) Liens granted pursuant to the Pledge Agreements; (iii) Liens described in Schedule 7.2 annexed hereto; provided, that such Liens shall secure only those obligations it secures on the date hereof and extensions, renewals, and replacement thereof that do not increase the outstanding principal amount thereof; (iv) Any Lien existing on any property or asset prior to the acquisition thereof by Company or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary, provided that (A) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, (B) such Lien shall not apply to any other property or assets of Company or any Subsidiary and (C) such Lien shall secure only those obligations that it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be, and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (v) Liens on fixed or capital assets acquired, constructed or improved by Company or any Subsidiary, provided that (A) such security interests secure Indebtedness permitted by subsection 7.1, (B) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (C) the Indebtedness secured thereby does not exceed 80% (100% of the Indebtedness if in the form of a Capital Lease) of the cost of acquiring, constructing or improving such fixed or capital assets and (D) such security interests shall not apply to any other property or assets of Company or any Subsidiary; (vi) Liens arising in connection with Sale and Leaseback Transactions permitted by subsection 7.7; and (vii) Other Liens securing Indebtedness in an aggregate amount not to exceed $75,000,000 at any time outstanding. -84- 7.3. Restricted Junior Payments Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment; provided that, so long as no Event of Default or Potential Event of Default has occurred and is continuing or would result from making such Restricted Junior Payment, Company may cumulatively make Restricted Junior Payments on and after the Closing Date in an aggregate amount of $100,000,000 plus 75% of the Consolidated Net Income for the period commencing on January 1, 2004 and ending on the last day of the most recently ended full Fiscal Quarter prior to any such payment (other than Restricted Junior Payments made pursuant to the following proviso hereto); provided, further, that the restrictions set forth in this subsection 7.3 shall not apply at any time Company either (i) is rated Investment Grade or (ii) has a Consolidated Leverage Ratio of 2.0:1.0 or less (after giving effect to the proposed Restricted Junior Payment and any related incurrence of Indebtedness). 7.4. Financial Covenants A. Minimum Interest Coverage Ratio. Company shall not permit the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense at the end of the four Fiscal Quarter period ending on the last day of any Fiscal Quarter to be less than 3.5:1.0. B. Maximum Leverage Ratio. Company shall not permit the Consolidated Leverage Ratio as of the last day of any Fiscal Quarter to exceed 3.0:1.0. 7.5. Restriction on Fundamental Changes; Asset Sales and Acquisitions Company shall not, and shall not permit any of its Subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sublease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person, except: (i) so long as no Default or Event of Default then exists or would exist immediately after giving effect thereto or would result therefrom and subject to subsection 8.11, (A) Company and any Subsidiary may merge with any other Person, provided that Company or such Subsidiary, as the case may be, is the survivor of such merger or (B) if Company or such Subsidiary is not the survivor of such merger, the survivor assumes all the obligations of Company or such Subsidiary, as the case may be, under the Loan Documents to which such Person is a party; provided that it is understood and agreed that notwithstanding the foregoing, but subject to subsection 8.11, Company may consummate a transaction at any time which has the effect of creating a holding company -85- ("Holdings") above Company which shall own 100% of the capital stock of Company, so long as (x) the conditions set forth in clause (A) or (B), as applicable, have been satisfied and (y) at the time such transaction is consummated, Holdings shall (i) pledge all the capital stock of Company to the Collateral Agent for the benefit of the Lenders pursuant to a pledge agreement in form and substance similar to Exhibit XII and (ii) guarantee the obligations of Company under the Loan Documents pursuant to a guarantee in form and substance reasonably satisfactory to the Administrative Agent (the "Holdings Guarantee"); (ii) Company and its Subsidiaries may dispose of obsolete, worn out or surplus property in the ordinary course of business; (iii) Company and its Subsidiaries may sell or otherwise dispose of assets in transactions that do not constitute Asset Sales; provided that the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (iv) Company and its Subsidiaries may make Asset Sales not otherwise permitted by any other clause of this subsection 7.5 if, after giving effect to such Asset Sale, Company is in compliance with subsection 7.4 and the aggregate consideration received from all such sales since the Closing Date (other than proceeds received from Asset Sales permitted under any other clause of this subsection 7.5) does not exceed 25% of the book value of consolidated total assets of Company on the last day of the most recent Fiscal Quarter; (v) Company and its Subsidiaries may make Asset Sales of Receivables Assets to the extent permitted by subsection 7.8; (vi) Company and its Subsidiaries may make Asset Sales of the NPA Real Estate; and (vii) Company may acquire by purchase or otherwise any business, property or assets or any divisions or line of business of any Person if, after giving pro forma effect thereto as if such acquisition had occurred on the first day of the four Fiscal Quarter period most recently ended prior to the date of such acquisition, Company is in compliance with subsection 7.4. 7.6. Fiscal Year Company shall not change its Fiscal Year-end from December 31. 7.7. Sales and Leasebacks Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any -86- lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) which Company or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than Company or any of its Subsidiaries) or (ii) which Company or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by Company or any of its Subsidiaries to any Person (other than Company or any of its Subsidiaries) in connection with such lease (any such transaction, a "Sale and Leaseback Transaction") other than any Sale and Leaseback Transactions the Attributable Debt of which shall not exceed $50.0 million at any time outstanding. 7.8. Sale or Discount of Receivables Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable, except (i) a Permitted Receivables Transaction and (ii) in connection with the sale of all or substantially all of any line of business of Company or its Subsidiaries permitted under subsection 7.5. 7.9. Transactions With Shareholders and Affiliates Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity Securities of Company or with any Affiliate of Company or of any such holder, on terms that are less favorable to Company or that Subsidiary, as the case may be, than those that might be obtained at the time from Persons who are not such a holder or Affiliate; provided that the foregoing restriction shall not apply to (i) any transaction between Company and any of its Wholly Owned Subsidiaries or between any of its Wholly Owned Subsidiaries or (ii) reasonable and customary fees paid to members of the Boards of Directors of Company and its Subsidiaries or (iii) transactions with Receivables Entities pursuant to a Permitted Receivables Transaction. 7.10. Conduct of Business From and after the Closing Date, Company shall not, and shall not permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by Company and its Subsidiaries on the Closing Date and similar or related businesses or businesses ancillary thereto and (ii) such other lines of business as may be consented to by Requisite Lenders. -87- SECTION 8. EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur: 8.1. Failure to Make Payments When Due Failure by Company to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration or otherwise; failure by Company to pay when due any amount payable to an Issuing Lender in reimbursement of any drawing under a Letter of Credit; or failure by Company to pay any interest on any Loan or any fee or any other amount due under this Agreement within five days after the date due; or 8.2. Default in Other Agreements (i) Failure of Company or any of its Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in subsection 8.1) or Contingent Obligations in an individual principal amount of $25,000,000 or more or with an aggregate principal amount of $25,000,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Company or any of its Subsidiaries with respect to any other term of (a) one or more items of Indebtedness or Contingent Obligations in the individual or aggregate principal amounts referred to in clause (i) above or (b) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); or 8.3. Breach of Certain Covenants Failure of Company to perform or comply with any term or condition contained in subsections 2.5, 6.1(vii)(a) or 6.2 (with respect to Company's corporate existence) or Section 7 of this Agreement or failure by Holdings to deliver the pledge and Holdings Guarantee if required pursuant to subsection 7.5 ; or 8.4. Breach of Warranty Any representation, warranty, certification or other statement made by Company or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by Company or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or -88- 8.5. Other Defaults Under Loan Documents Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within 30 days after the earlier of (i) an officer of Company or such Loan Party becoming aware of such default or (ii) receipt by Company and such Loan Party of notice from Administrative Agent or any Lender of such default; or 8.6. Involuntary Bankruptcy; Appointment of Receiver, Etc. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of Company or any of its Subsidiaries or Holdings in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not vacated, discharged or stayed within 60 days of the entry thereof; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Company or any of its Subsidiaries or Holdings under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or 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 Company or any of its Subsidiaries or Holdings, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Company or any of its Subsidiaries or Holdings for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Company or any of its Subsidiaries or Holdings, and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; or 8.7. Voluntary Bankruptcy; Appointment of Receiver, Etc. (i) Company or any of its Subsidiaries or Holdings shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall 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, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Company or any of its Subsidiaries or Holdings shall make any assignment for the benefit of creditors; or (ii) Company or any of its Subsidiaries or Holdings shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of Company or any of its Subsidiaries (or any committee thereof) or Holdings shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or -89- 8.8. Judgments and Attachments Any money judgment, writ or warrant of attachment or similar process involving (i) in any individual case an amount in excess of $25,000,000 or (ii) in the aggregate at any time an amount in excess of $25,000,000 (in either case not adequately covered by insurance as to which a solvent and unaffiliated insurance company has not disputed coverage) shall be entered or filed against Company or any of its Subsidiaries or Holdings or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any event later than five days prior to the date of any proposed sale thereunder); or 8.9. Dissolution Any order, judgment or decree shall be entered against Company or any of its Subsidiaries or Holdings decreeing the dissolution or split up of Company or that Subsidiary or Holdings and such order shall remain undischarged or unstayed for a period in excess of 60 days; or 8.10. Employee Benefit Plans There shall occur one or more ERISA Events which individually or in the aggregate results in or could reasonably be expected to result in a Material Adverse Effect; or 8.11. Change in Control (i) Any Person or any two or more Persons acting in concert (other than New York Life and its Affiliates) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Exchange Act), directly or indirectly, of Securities of Company (or other Securities convertible into such Securities) representing 20% or more of the combined voting power of all Securities of Company entitled to vote in the election of directors, other than Securities having such power only by reason of the happening of a contingency; provided that the acquisition of shares of Common Stock of Company owned by New York Life and its Affiliates by one or more Persons from time to time shall not be an Event of Default pursuant to this subsection 8.11; or (ii) during any period of up to twenty-for (24) consecutive months, commencing after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of Company shall cease for any reason (other than solely as a result of (A) death or disability or (B) voluntary retirement or resignation of any individual in the ordinary course and not for reasons related to an actual or proposed change of control of Company) to constitute a majority of the board of directors of Company; or (iii) the occurrence of a "Change of Control" as defined in the indenture governing the 9 5/8% Notes to the extent such Notes remain outstanding; or -90- 8.12. Invalidity of Subsidiary Guaranty; Failure of Security; Repudiation of Obligations At any time after the execution and delivery thereof, (i) the Subsidiary Guaranty or, if required pursuant to subsection 7.5, the Holdings Guaranty, for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, (ii) any Pledge Agreement shall cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the Obligations or any other termination of such Pledge Agreement in accordance with the terms hereof or thereof) or shall be declared null and void, or the Collateral Agent shall not have or shall cease to have a valid and perfected First Priority Lien in any Collateral purported to be covered thereby, in each case for any reason other than as contemplated by subsection 6.9B or the failure of any Agent or any Lender to take any action within its control, or (iii) any Loan Party shall contest the validity or enforceability of any Loan Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Loan Document to which it is a party; Then (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit), and (c) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Company, and the obligation of each Lender to make any Loan, the obligation of Administrative Agent to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, upon the written request or with the written consent of Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) through (c) above to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Lender to make any Loan, the obligation of any Issuing Lender to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate; provided that the foregoing shall not affect in any way the obligations of Lenders under subsection 3.3C(i) or the obligations of Lenders to purchase participations in any unpaid Swing Line Loans as provided in subsection 2.1A(iii). Notwithstanding anything contained in the preceding paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to clause (ii) of such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all -91- Events of Default and Potential Events of Default (other than non-payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind Lenders to a decision which may be made at the election of Requisite Lenders and are not intended, directly or indirectly, to benefit Company, and such provisions shall not at any time be construed so as to grant Company the right to require Lenders to rescind or annul any acceleration hereunder or to preclude Agents or Lenders from exercising any of the rights or remedies available to them under any of the Loan Documents, even if the conditions set forth in this paragraph are met. SECTION 9. AGENTS 9.1. Appointment A. Appointment of Agent. CSFB is hereby appointed as Joint Lead Arranger, Administrative Agent and Collateral Agent, CGMI is hereby appointed as Joint Lead Arranger and Syndication Agent, and Bank of America, Bank One, N.A. and U.S. Bank National Association, are hereby appointed as Co-Documentation Agents hereunder and under the other Loan Documents, and each Lender hereby authorizes each Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Each Agent agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and Company shall have no rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Company or any of its Subsidiaries. Upon the conclusion of the Initial Period, all obligations of the Joint Lead Arrangers hereunder shall terminate and thereafter the Joint Lead Arrangers (in such capacities) shall have no obligations or liabilities under any of the Loan Documents. B. Appointment of Supplemental Collateral Agents. It is the intent of this Agreement and the other Loan Documents that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case Collateral Agent deems that by reason of any present or future law of any jurisdiction it may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or -92- necessary in connection therewith, it may be necessary that the Collateral Agent appoint an additional individual or institution as a separate trustee, co-trustee, collateral agent or collateral co-agent (any such additional individual or institution being referred to herein individually as a "Supplemental Collateral Agent" and collectively as "Supplemental Collateral Agents"). In the event that the Collateral Agent appoints a Supplemental Collateral Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in or conveyed to the Collateral Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Collateral Agent to the extent, and only to the extent, necessary to enable such Supplemental Collateral Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either the Collateral Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to the Collateral Agent shall inure to the benefit of such Supplemental Collateral Agent and all references therein to the Collateral Agent shall be deemed to be references to Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from Company or any other Loan Party be required by any Supplemental Collateral Agent so appointed by the Collateral Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, Company shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by the Collateral Agent. In case any Supplemental Collateral Agent, or a successor thereto, shall die, become incapable of acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental Collateral Agent, to the extent permitted by law, shall vest in and be exercised by the Collateral Agent until the appointment of a new Supplemental Collateral Agent. 9.2. Powers and Duties; General Immunity A. Powers; Duties Specified. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. An Agent shall have only those duties and responsibilities that are expressly specified in this Agreement with respect to such Agent and the other Loan Documents. An Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. An Agent shall not have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. -93- B. No Responsibility for Certain Matters. An Agent shall not be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by such Agent to Lenders or by or on behalf of Company to such Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of Company or any other Person liable for the payment of any Obligations, nor shall such Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or the use of the Letters of Credit or as to the existence or possible existence of any Event of Default or Potential Event of Default. Anything contained in this Agreement to the contrary notwithstanding, an Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Letter of Credit Usage or the component amounts thereof. C. Exculpatory Provisions. None of Agents or any of their respective officers, directors, employees or agents shall be liable to Lenders for any action taken or omitted by such Agent under or in connection with any of the Loan Documents except to the extent caused by such Agent's gross negligence or willful misconduct. An Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) an Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Company and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against an Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). D. Agents Entitled to Act as Lenders. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, an Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and -94- functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include such Agent in its individual capacity. Each Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Company or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company for services in connection with this Agreement and otherwise without having to account for the same to Lenders. 9.3. Representations and Warranties; No Responsibility for Appraisal of Creditworthiness Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Company and its Subsidiaries in connection with the making of the Loans and the issuance of Letters of Credit hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Company and its Subsidiaries. Agents shall not have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and Agents shall not have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. 9.4. Right to Indemnity Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by Company, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as Agent, in any way relating to or arising out of this Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to an Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 9.5. Successor Agent and Swing Line Lender A. Successor Agent. Any Agent may resign at any time by giving 30 days' prior written notice thereof to Lenders and Company. Upon any such notice of resignation, Requisite Lenders shall have the right, with, so long as no Potential Event of Default or Event of Default shall have occurred and be continuing, the consent of Company (not to be unreasonably -95- withheld or delayed), to appoint a successor to such Agent. Upon the acceptance of any appointment as an Agent hereunder by a successor Agent, that successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, as the case may be, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as an Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement. B. Successor Swing Line Lender. Any resignation of Administrative Agent pursuant to subsection 9.5A shall also constitute the resignation of CSFB or its successor as Swing Line Lender, and any successor Administrative Agent appointed pursuant to subsection 9.5A shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event (i) Company shall prepay any outstanding Swing Line Loans made by the retiring Administrative Agent in its capacity as Swing Line Lender, (ii) upon such prepayment, the retiring Administrative Agent and Swing Line Lender shall surrender the Swing Line Note held by it to Company for cancellation, and (iii) Company shall issue a new Swing Line Note to the successor Administrative Agent and Swing Line Lender substantially in the form of Exhibit VI annexed hereto, in the principal amount of the Swing Line Loan Commitment then in effect and with other appropriate insertions. 9.6. Pledge Agreements and Guaranties Each Lender hereby further authorizes Collateral Agent, on behalf of and for the benefit of Lenders, to enter into each Pledge Agreement as secured party and to be the agent for and representative of Lenders under the Subsidiary Guaranty, and each Lender agrees to be bound by the terms of each Pledge Agreement and the Subsidiary Guaranty; provided that Collateral Agent shall not (i) enter into or consent to any amendment, modification, termination or waiver of any provision contained in any Pledge Agreement or the Subsidiary Guaranty or (ii) release any Collateral (except as otherwise expressly permitted or required pursuant to the terms of this Agreement or the applicable Pledge Agreement), in each case without the prior consent of Requisite Lenders (or, if required pursuant to subsection 10.6, all Lenders); provided further, however, that, without further written consent or authorization from Lenders, Collateral Agent may execute any documents or instruments necessary to (a) release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted by this Agreement or to which Requisite Lenders have otherwise consented or (b) release any Subsidiary Guarantor from the Subsidiary Guaranty if all of the capital stock of such Subsidiary Guarantor is sold to any Person (other than an Affiliate of Company) pursuant to a sale or other disposition permitted hereunder or to which Requisite Lenders have otherwise consented. Anything contained in any of the Loan Documents to the contrary notwithstanding, Company, Collateral Agent and each Lender hereby agree that (X) no Lender shall have any right individually to realize upon any of the Collateral under any Pledge Agreement or to enforce the Subsidiary Guaranty, it being understood and agreed that all rights and remedies under the Pledge Agreements and the Subsidiary Guaranty may be exercised solely by Collateral Agent for the benefit of -96- Lenders in accordance with the terms thereof, and (Y) in the event of a foreclosure by Collateral Agent on any of the Collateral pursuant to a public or private sale, Collateral Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Collateral Agent, as agent for and representative of Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale. SECTION 10. MISCELLANEOUS 10.1. Assignments and Participations in Loans and Letters of Credit A. General. Subject to subsection 10.1B, each Lender shall have the right at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii) sell participations to any Person in, all or any part of its Commitments or any Loan or Loans made by it or its Letters of Credit or in any case its rights or obligations with respect thereto or participations therein or any other interest herein or in any other obligations owed to it; provided, further, that no such sale, assignment or transfer described in clause (i) above shall be effective unless and until an Assignment Agreement effecting such sale, assignment or transfer shall have been accepted by Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii); provided, further that no such sale, assignment, transfer or participation of any Letter of Credit or any participation therein may be made separately from a sale, assignment, transfer or participation of a corresponding interest in the Revolving Loan Commitment and the Revolving Loans of the Lender effecting such sale, assignment, transfer or participation; and provided, further that, anything contained herein to the contrary notwithstanding, the Swing Line Loan Commitment and the Swing Line Loans of Swing Line Lender may not be sold, assigned or transferred as described in clause (i) above to any Person other than a successor Administrative Agent and Swing Line Lender to the extent contemplated by subsection 9.5. Except as otherwise provided in this subsection 10.1, no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment or transfer of, or any granting of participations in, all or any part of its Commitments or the Loans, the Letters of Credit or participations therein, or the other Obligations owed to such Lender. B. Assignments. (i) Amounts and Terms of Assignments. Each Commitment, Loan, Letter of Credit or participation therein, or other Obligation may (a) be assigned in any amount to another Lender, or to an Affiliate of the assigning Lender or another Lender or to an Approved Fund, with the giving of notice to Company and Administrative Agent or (b) be assigned in an aggre- -97- gate amount of not less than (i) $5,000,000 in the case of Revolving Loans and Revolving Commitments and Tranche A Term Loans and (ii) $1,000,000 in the case of Tranche B Term Loans (or, in each case, such lesser amount as shall constitute the aggregate amount of the Commitments, Loans, Letters of Credit and participations therein, and other Obligations of the assigning Lender) to any other Eligible Assignee with the consent of Company, Administrative Agent and, in the case of an assignment of Revolving Loans, each Issuing Lender which then has a Letter of Credit outstanding (which consent of Company, Administrative Agent and Issuing Lender shall not be unreasonably withheld or delayed); provided that assignment to an Affiliate (or an Approved Fund) of the assigning Lender that would result in increased costs to Company shall also require the prior written consent of Company and such prior written consent of Company may not be unreasonably withheld and which may be conditioned on the Eligible Assignee agreeing not to require reimbursement from Company of such increased costs; provided, further, that after an Event of Default occurs and is continuing, the consent of Company shall not be required for assignment to an Eligible Assignee. To the extent of any such assignment in accordance with either clause (a) or (b) above, the assigning Lender shall be relieved of its obligations with respect to its Commitments, Loans, Letters of Credit or participations therein, or other obligations or the portion thereof so assigned. The parties to each such assignment shall (i) electronically execute and deliver to the Administrative Agent an Assignment and Acceptance via an electronic settlement system acceptable to the Administrative Agent (which initially shall be ClearPar, LLC) or (ii) manually execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of US$3,500 (except in the event of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund) and, in each case, such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a). Upon such execution, delivery, acceptance and recordation, from and after the effective date specified in such Assignment Agreement, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination of this Agreement under subsection 10.9B) and be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto; provided that, anything contained in any of the Loan Documents to the contrary notwithstanding, if such Lender is the Issuing Lender with respect to any outstanding Letters of Credit such Lender shall continue to have all rights and obligations of an Issuing Lender with respect to such Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder). The Commitments hereunder shall be modified to reflect the Commitment of such assignee and any remaining Commitment of such assigning Lender and, if any such assignment occurs after the issuance of the Notes hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to Administrative Agent for cancellation, and -98- thereupon new Notes shall be issued to the assignee and/or to the assigning Lender, substantially in the form of Exhibit IV-A, Exhibit IV-B or Exhibit V annexed hereto, as the case may be, with appropriate insertions, to reflect the new Commitments and/or outstanding Loans, as the case may be, of the assignee and/or the assigning Lender. (ii) Acceptance by Administrative Agent; Recordation in Register. Upon its receipt of an Assignment Agreement executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing and recordation fee referred to in subsection 10.1B(i) and any forms, certificates or other evidence with respect to United States federal income tax withholding matters that such assignee may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a), Administrative Agent shall, if Administrative Agent and Company have consented to the assignment evidenced thereby (in each case to the extent such consent is required pursuant to subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a counterpart thereof as provided therein (which acceptance shall evidence any required consent of Administrative Agent to such assignment), (b) record the information contained therein in the Register, and (c) promptly provide a copy of the Register to Company on the last Business Day of each quarter and at its request from time to time. Administrative Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it as provided in this subsection 10.1B(ii). C. Participations. The holder of any participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly affecting (i) the extension of the scheduled final maturity date of any Loan allocated to such participation or (ii) a reduction of the principal amount of or the rate of interest payable on any Loan allocated to such participation, and all amounts payable by Company hereunder (including amounts payable to such Lender pursuant to subsections 2.6D, 2.7 and 3.6) shall be determined as if such Lender had not sold such participation. Company and each Lender hereby acknowledge and agree that, solely for purposes of subsections 10.4 and 10.5, (a) any participation will give rise to a direct obligation of Company to the participant and (b) the participant shall be considered to be a "Lender". D. Pledges of Obligations. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 10.1, any Lender may assign and pledge all or any portion of its Loans, the other Obligations owed to such Lender, and its Notes to secure obligations of such Lender including without limitation any assignment or pledge to a Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided that (i) no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. -99- E. Assignments to Special Purpose Funding Vehicles. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 10.1, any Lender (a "Granting Lender") may grant to special purpose funding vehicle (an "SPV"), identified as such in writing from time to time by the Granting Lender to Administrative Agent and Company, the option to provide to Company all or any part of any Loan that such Granting Lender would otherwise be obligated to make Company pursuant to this Agreement; provided, (i) nothing herein shall constitute a commitment by any SPV to make any Loan and (ii) if an SPV elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPV hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPV shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPV, it will not institute against, or join any other person in instituting against, such SPV, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this subsection 10.1E(i), any SPV may (i) with notice to, but without the prior written consent of, Company and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loan to the Granting Lender or to any financial institutions (consented to by Company and Administrative Agent) providing liquidity and/or credit support to or for the account of such SPV to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit liquidity enhancement to such SPV. After the date of a grant to any SPV, this section may not be amended without the written consent of such SPV. F. Information. Each Lender may furnish any information concerning Company and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignee and participants), subject to subsection 10.19. G. Representations of Lenders. Each Lender listed on the signature pages hereof hereby represents and warrants (i) that it is an Eligible Assignee described in clause (A) of the definition thereof; (ii) that it has experience and expertise in the making of or investing in loans such as the Loans; and (iii) that it will make or invest in its Loans for its own account in the ordinary course of its business and without a view to distribution of such Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this subsection 10.1, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control). Each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree that the -100- representations and warranties of such Lender contained in Section 2(c) of such Assignment Agreement are incorporated herein by this reference. 10.2. Expenses Whether or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly after the presentation of invoices (i) all the actual and reasonable costs and expenses of Agents in connection with the preparation of the Loan Documents and any consents, amendments, waivers or other modifications thereto; (ii) all reasonable costs of furnishing all opinions by counsel for Company (including any opinions requested by Lenders as to any legal matters arising hereunder) and of Company's performance of and compliance with all agreements and conditions on its part to be performed or complied with under this Agreement and the other Loan Documents including with respect to confirming compliance with environmental, insurance and solvency requirements; (iii) the reasonable fees, expenses and disbursements of counsel to Agents (including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Loan Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Company; (iv) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent on behalf of Lenders pursuant to any Pledge Agreement, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, reasonable fees, expenses and disbursements of counsel to Collateral Agent and of counsel providing any opinions that Collateral Agent or Requisite Lenders may request in respect of the Collateral Documents or the Liens created pursuant thereto; (v) the custody or preservation of any of the Collateral; (vi) all other actual and reasonable costs and expenses incurred by Agents in connection with the syndication of the Commitments; and (vii) after the occurrence of an Event of Default, all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by Agents and Lenders in enforcing any Obligations of or in collecting any payments due from any Loan Party hereunder or under the other Loan Documents by reason of such Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. 10.3. Indemnity In addition to the payment of expenses pursuant to subsection 10.2, whether or not the transactions contemplated hereby shall be consummated, Company agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless Agents and Lenders, and the officers, directors, employees, trustee, agents and affiliates of Agents and Lenders (collectively called the "Indemnitees"), from and against any and all Indemnified Liabilities (as hereinafter defined); provided that Company shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities -101- arise solely from the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court of competent jurisdiction. As used herein, "Indemnified Liabilities" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including Environmental Claims), costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby (including Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds thereof or the issuance of Letters of Credit hereunder or the use or intended use of any thereof, or any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranty) or (ii) the statements contained in the commitment letter delivered by any Lender to Company with respect thereto. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this subsection 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. 10.4. Set-Off In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by Company at any time or from time to time, without notice to Company or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender to or for the credit or the account of Company against and on account of the obligations and liabilities of Company to that Lender under this Agreement, the Letters of Credit and participations therein and the other Loan Documents, including all claims of any nature or description arising out of or connected with this Agreement, the Letters of Credit and participations therein or any other Loan Document, provided that said obligations and liabilities shall then be due and payable (whether by acceleration or otherwise). -102- 10.5. Ratable Sharing Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms of this Agreement), by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts owing to that Lender hereunder or under the other Loan Documents (collectively, the "Aggregate Amounts Owing" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Owing to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Owing to the other Lenders so that all such recoveries of Aggregate Amounts Owing shall be shared by all Lenders in proportion to the Aggregate Amounts Owing to them; provided that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. 10.6. Amendments and Waivers A. No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes, and no consent to any departure by Company therefrom, shall in any event be effective without the written concurrence of Requisite Lenders; provided that any such amendment, modification, termination, waiver or consent which: reduces the principal amount of any of the Loans; changes in any manner the definition of "Pro Rata Share" or the definition of "Requisite Lenders" or the definition of "Majority Facility Lenders"; changes in any manner any provision of this Agreement which, by its terms, expressly requires the approval or concurrence of all Lenders; postpones the scheduled final maturity date of any of the Loans (but not the date of any scheduled installment of principal); postpones the date on which any interest or any fees are payable; decreases the interest rate borne by any of the Loans (other than any waiver of any increase in the interest rate applicable to any of the Loans pursuant to subsection 2.2E) or the amount of any fees payable to the Lenders hereunder; increases the maximum duration of Interest Periods permitted hereunder; extends the required expiration date of any Letter of Credit beyond the Revolving Commitment Termination Date; changes in any manner the -103- obligations of Lenders relating to the purchase of participations in Letters of Credit; releases any Lien granted in favor of Administrative Agent with respect to all or substantially all of the Collateral; releases all or substantially all Subsidiary Guarantors from their respective obligations under the Subsidiary Guaranty, in each case other than in accordance with the terms of the Loan Documents; or changes in any manner the provisions contained in subsection 8.1 or this subsection 10.6 shall be effective only if evidenced by a writing signed by or on behalf of all Lenders; provided, further, that no such amendment, modification, termination, waiver or consent shall increase the Commitments of a Lender over the amount hereof then in effect without the consent of such Lender; provided, further, that if any matter described in this sentence relates only to (a) all Term Loans, the approval of all Term Lenders shall be sufficient, (b) Tranche A Term Loans or Tranche B Term Loans, as the case may be, the approval of all of the Lenders of the affected Term Loan shall be sufficient and (c) a Revolving Loan or Revolving Loan Commitment, the approval of all Revolving Lenders shall be sufficient. In addition, (i) any amendment, modification, termination or waiver of any of the provisions contained in Section 4 with respect to any Revolving Loans or Letters of Credit made or issued after the Closing Date shall be effective only if evidenced by a writing signed by or on behalf of Administrative Agent and Majority Facility Lenders with respect to Revolving Loans, (ii) no amendment, modification, termination or waiver of any provision of any Note shall be effective without the written concurrence of the Lender which is the holder of that Note, (iii) no amendment, modification, termination or waiver of any provision of subsection 2.1A(iii) or of any other provision of this Agreement relating to the Swing Line Loan Commitment or the Swing Line Loans shall be effective without the written concurrence of Swing Line Lender, (iv) no amendment, modification, termination or waiver of any Letter of Credit and no amendment, modification, termination or waiver of Section 3 that changes in any manner the rights and obligations of an Issuing Lender with respect to an outstanding Letter of Credit shall be effective without the written concurrence of the Issuing Lender of such Letter of Credit and, with respect to any reduction of the amount or postponement of the due date of any amount payable in respect of any Letter of Credit, the Majority Facility Lenders with respect to the Revolving Loans, (v) no amendment, modification, termination or waiver of any provision of Section 9 or of any other provision of this Agreement which, by its terms, expressly requires the approval or concurrence of any Agent shall be effective without the written concurrence of such Agent, (vi) any amendment, modification, termination or waiver of any provision of this Agreement that adversely affects the rights of Lenders holding Loans of any Class differently than those holding Loans of any other Class shall not be effective without the written consent of Lenders holding a majority in interest of the outstanding Loans and unused Commitments of each affected Class, (vii) any amendment, modification, termination or waiver of any provision of this Agreement that extends the interim amortization of any Class shall not be effective without the written consent of Lenders holding a majority in interest of the outstanding Loans and unused Commitments of the Class whose interim amortization is so extended and (viii) any amendment which (a) adds a new tranche of term loans to this Agreement, (b) increases the Base Rate Margin or the Eurodollar Rate Margin applicable to any Class or (c) shortens the interim amortization of any Class, shall not be effective without the written consent of Lenders holding a majority in interest of the outstanding Loans and unused Commitments of each Class. Each such amendment, modification, waiver or consent shall indicate with respect -104- to each Lender party thereto whether such Lender is executing in the capacity of a Requisite Lender and/or as a member of a Class. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Company in any case shall entitle Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 10.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by Company, on Company. B. Replacement of Lender. If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by the first proviso contained in the first sentence of subsection 10.6A, the consent of the Requisite Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then Administrative Agent shall have the right with the consent of Company, so long as all non-consenting Lenders whose individual consent is required are treated as described in either clause (A) or (B) below, to either (A) replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to subsection 2.8 so long as at the time of such replacement each outstanding Loan of each such Lender being replaced is repaid in full and so long as each such Replacement Lender consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Lender's Commitments and/or repay in full each outstanding Loan of such Lender, provided that, unless the Commitments that are terminated, and Loans repaid, pursuant to preceding clause (B) are immediately replaced in full at such time through the addition of new Lenders or the increase of the Commitments and/or outstanding Loans of existing Lenders (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Requisite Lenders (determined after giving effect to the proposed action) shall specifically consent thereto; provided, further, that Company shall not have the right to terminate such non-consenting Lender's Commitments and repay in full its outstanding Loans pursuant to clause (B) if, immediately after the termination of such Lender's Revolving Loan Commitment, the Revolving Loan Exposure of all Lenders would exceed the Revolving Loan Commitments of all Lenders; and provided, further, that in any event Administrative Agent shall not have the right to replace a Lender, terminate its Commitments or repay its Loans solely as a result of the exercise of such Lender's rights (and the withholding of any required consent by such Lender) to refuse to increase its Commitment over the amount then in effect pursuant to the second proviso contained in the first sentence of subsection 10.6A. 10.7. Independence of Covenants All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not -105- avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. 10.8. Notices Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided that notices to Agents shall not be effective until received. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or (i) as to Company and any Agent, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to each other party, such other address as shall be designated by such party in a written notice delivered to Administrative Agent. 10.9. Survival of Representations, Warranties and Agreements A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Company set forth in subsections 2.6D, 2.7, 3.5A, 3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections 9.2C, 9.4 and 10.5 shall to the extent set forth therein survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, and the termination of this Agreement. 10.10. Failure or Indulgence Not Waiver; Remedies Cumulative No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 10.11. Marshalling; Payments Set Aside Neither Administrative Agent nor any Lender shall be under any obligation to marshal any assets in favor of Company or any other party or against or in payment of any or all -106- of the Obligations. To the extent that Company makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent for the benefit of Lenders), or Administrative Agent or Lenders enforce any security interests or exercise their rights of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 10.12. Severability In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10.13. Obligations Several; Independent Nature of Lenders' Rights The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 10.14. Headings Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.15. Applicable Law THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. -107- 10.16. Successors and Assigns This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders (it being understood that Lenders' rights of assignment are subject to subsection 10.1). Neither Company's rights or obligations hereunder nor any interest therein may be assigned or delegated by Company without the prior written consent of all Lenders. 10.17. CONSENT TO JURISDICTION AND SERVICE OF PROCESS ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (i) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (ii) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS WITH RESPECT TO ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK; (iii) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8; (iv) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (iii) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (v) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND (vi) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. -108- 10.18. WAIVER OF JURY TRIAL EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 10.19. Confidentiality Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as confidential by Company in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, if applicable, it being understood and agreed by Company that in any event a Lender may make disclosures to the accountants, auditors, attorneys, and Affiliates of such Lender or disclosures reasonably required by any bona fide assignee, transferee or participant or to any actual or prospective contractual counterparty (or its advisor) to any securitization, hedge or other derivative transaction in connection with the contemplated assignment or transfer by such Lender of any Loans or any participations therein or disclosures required or requested by any governmental agency or representative thereof or pursuant to legal process; provided that, in each of the foregoing cases, the Person to which disclosure is to be made is informed of the confidential nature of such information and agrees to maintain its confidentiality; provided, further, that, unless specifically prohibited by applicable law or court order, each Lender shall notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any routine compliance examination or examination of the financial condition of such Lender by such governmental -109- agency) for disclosure of any such non-public information prior to disclosure of such information; and provided, further, that in no event shall any Lender be obligated or required to return any materials furnished by Company or any of its Subsidiaries. Any Person required to maintain the confidentiality of information as provided in this subsection shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such person would accord to its own confidential information. 10.20. Counterparts; Effectiveness This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Signature Pages Follow] S-1 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. COMPANY: EXPRESS SCRIPTS, INC. By: /s/ George Paz ---------------------------------- Name: George Paz Title: President & Chief Financial Officer Notice Address: 13900 Riverport Drive Maryland Heights, Missouri 63043 Attention: Michael Salamone S-2 CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch, as Joint Lead Arranger, Administrative and Collateral Agent By: /s/ Joseph Adipiatro ----------------------------------------- Name: Joseph Adipiatro Title: Director By: /s/ Kingsbury ----------------------------------------- Name: Kingsbury Title: Director Notice Address: Eleven Madison Avenue New York, New York 10010 Attention: Carolyn Tee Telephone: (212) 325-9936 Facsimile: (212) 325-8304 S-3 CITIGROUP GLOBAL MARKETS INC., as Joint Lead Arranger and Syndication Agent By: /s/ Jeffery Nitz ----------------------------------------- Name: Jeffery Nitz Title: Director By: ----------------------------------------- Name: Title: Notice Address: 390 Greenwich Street New York, New York 10013 S-5 BANK ONE, NA as Co-Documentation Agent By: /s/ L.Richard Schiller ---------------------------- Name: L. Richard Schiller Title: Director Notice Address: 1 Bank One Plaza, IL1-0536 Chicago, IL 60670-0536 Attention: Richard Schiller Telephone: (312)325-3206 Facsimile: (312)325-3238 S-7 LENDERS: CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch, as a Lender By: /s/ Joseph Adipietro ---------------------------- Name: JOSEPH ADIPIETRO Title: DIRECTOR By: /s/ KINGSBURY ---------------------------- Name: KINGSBURY Title: DIRECTOR Notice Address: Eleven Madison Avenue New York, New York 10010 Attention: Carolyn Tee Telephone: (212) 325-9936 Facsimile: (212) 325-8304 S-8 CITICORP NORTH AMERICA, INC., as a Lender By: /s/ Jeffrey Nitz ---------------------------- Name: JEFFREY NITZ Title: VP By: ____________________________ Name: Title: Notice Address: 390 Greenwich Street First Floor New York, New York 10013 Attention: Allen Fisher Telephone: (212)723-6708 Facsimile: (212)723-8547 S-6 U.S. BANK NATIONAL ASSOCIATION, as Co-Documentation Agent By: /s/ Christian E. Stein III ---------------------------- Name: Christian E. Stein III Title: Vice President Notice Address: One U.S. Bank Plaza 7th & Washington St. Louis, MO 63101 Attention: Katherine Miller Telephone: (314)418-8648 Facsimile: (314)418-3571 S-2 BANK OF AMERICA, N.A. as Co-Documentation Agent By: /s/ James W. Ford ---------------------------- Name: James W. Ford Title: Managing Director Bank of America, Credit Services Attn: Lynne Famularcano 1850 Gateway Boulevard Concord, CA 94520 Ph: 925/675-7659 Fx: 888/969-9230 S-9 UNION BANK OF CALIFORNIA, N. A. as a Lender (please type) By: /s/ Mehmet Mumcuoglu ---------------------------- Name: Mehmet Mumcuoglu Title: Vice President By: ____________________________ Name: Title: Notice Address: 445 S. Figueroa St. 16th Floor Los Angeles, CA 90071 Attention: Mehmet Mumcuoglu Telephone: (213)236-5273 Facsimile: (213)236-7636 S-9 KEYBANK NATIONAL ASSOCIATION, as a Lender By: /s/ Christopher A. Swindell ----------------------------- Name: Christopher A. Swindell Title: Portfolio Manager Notice Address: 1211 SW 5th Avenue Suite 400 Portland, OR 97204 Attention: Chris Swindell Telephone: (503) 790-7570 Facsimile: (503) 790-7574 S-9 The Bank of Nova Scotia, as a Lender By: /s/ Meredith D. Smith ---------------------------- Name: Meredith D. Smith Title: Agent - Operations Notice Address: 600 Peachtree St. NE Suite 2700 Atlanta, Georgia 30308 Attention: Robert Gass Telephone: (404)877-1571 Facsimile: (404) 888-8998 S-9 Commerzbank AG, New York and Grand Cayman Branches, as a Lender By: /s/ Douglas I. Glickman ------------------------------- Name: Douglas I. Glickman Title:Vice President By: /s/ Isabel S. Zeissig ------------------------------- Name: Isabel S. Zeissig Title: Assistant Vice President Notice Address: 2 World Financial Center, 32nd FL New York, NY 10281 Attention: Victoria Montero Telephone: (212)266-7441 Facsimile: (212)266-7591 S-9 SUNTRUST BANK, as a Lender By: /s/ William D. Priester ---------------------------- Name: William D. Priester Title: Director Notice Address: 201 Fourth Avenue North Third Floor Nashville, TN 37219 Attention: William D. Priester Telephone: (615)748-5969 Facsimile: (615)748-5259 S-9 PNC BANK, NATIONAL ASSOCIATION, as a Lender By: /s/ Bruce A. Kintner ---------------------------- Name: Bruce A. Kintner Title: Vice President Notice Address: 201 East Fifth Street Third Floor Cincinnati, OH 45202 Attention: Jeffrey L. Stein Telephone: (513)651-8692 Facsimile: (513)651-8951 S-9 CREDIT LYONNAIS NEW YORK BRANCH, By: /s/ Charles Heidsieck ------------------------------ Name: Charles Heidsieck Title: Senior Vice President Notice Address: Credit Lyonnais (Healthcare Group) 1301 Avenue of the Americas New York, NY 10019 Attention: Douglas Weir Telephone: (212)-261-3886 Facsimile: (212)261-3440 S-9 THE BANK OF NEW YORK, as a Lender By: /s/ Patrick Vatel ---------------------------- Name: Patrick Vatel Title: Vice President Notice Address: One Wall Street 8th Floor New York, New York 10286 Attention: Patrick Vatel Telephone: (212) 635-7882 Facsimile: (212)635-1481 S-9 BAYERISCHE HYPO- UND VEREINSBANK, NEW YORK BRANCH as a Lender By: /s/ Marianne Weinzinger ----------------------------- Name: Marianne Weinzinger Title: Director By: /s/ Hetal Selarka ----------------------------- Name: Hetal Selarka Title: Assistant Director Notice Address: 150 East 42nd Street 31st Floor New York, NY 10017 Attention: Marianne Weinzinger Telephone: (212) 672-5352 Fascimile: (212) 672-5530 S-9 ----------------------------------- Allied Irish Banks plc By: /s/ Rima Terradista ------------------------------- Name: Rima Terradista Title: Senior Vice President By: /s/ Aidan Lanigan ------------------------------- Name: AIDAN LANIGAN Title: Assistant Vice President Notice Address: Attention: S-9 UNITED OVERSEAS BANK LTD., NEW YORK AGENCY as a Lender By: /s/ Kwong Yew Wong ---------------------------------- Name: Kwong Yew Wong Title: Agent & General Manager By: /s/ Philip Cheong ---------------------------------- Name: Philip Cheong Title: VP & Deputy General Manager Notice Address: 592 Fifth Avenue 10th Floor New York, New York 10036 Attention: John Rowland Telephone: (212) 840-1302 Facsimile: (212)382-1881 S-9 GENERAL ELECTRIC CAPITAL CORPORATION. as a Lender By: /s/ Brian Schwinn ---------------------------------- Name: Brian Schwinn Title: Duly Authorized Signatory Notice Address: GE Corporate Financial Services 201 Merritt 7 P.O. Box 5201 Norwalk, CT 06851 FedEx: GE Corporate Financial Services 201 Merritt 7 Norwalk, CT 06851 Attention: Joice Soendjojo S-9 National City Bank of Michigan/Illinois --------------------------------------- as a Lender By: /s/ Andrew Walshaw ----------------------------------- Name: Andrew Walshaw Title: Senior Vice President By: ---------------------------------- Name: Title: Notice Address: 10401 Clayton Road St. Louis, MO. 63131 Attention: S-9 FLEET NATIONAL BANK as a Lender (please type) By: /s/ G. Stolzenthaler ---------------------------- Name: G. STOLZENTHALER Title: Managing Director Notice Address: 100 Federal Street Mail Stop: MA DE 10009A Boston, MA 02110 Attention: Ginger Stolzenthaler, Managing Director Tel: 617-434-3925 Fax: 617-434-0819 S-9 SUMITOMO MITSUI BANKING CORPORATION. as a Lender By: /s/ Peter R.C. Knight ---------------------------- Name: Peter R.C. Knight Title: Joint General Manager Notice Address: 277 Park Avenue, 6th Flr. New York, N.Y. 10172 Attention: Eric Seeley Telephone: (212)224-4171 Facsimile: (212)224-4384 S-17 UFJ Bank, as a Lender (please type) By: /s/ Harris Frommer ---------------------------- Name: Harris Frommer Title: Vice President Notice Address: U.S. Corporate Finance UFJ Bank 55 East 52nd Street New York, NY 10055 Attention: Harris Frommer S-9 Citizens Bank of Pennsylvania, as a Lender: By: /s/ Megan L. Soltys ------------------------------- Name: Megan L. Soltys Title: Vice President By: ------------------------------- Name: Title: Notice Address: 3025 Chemical Road, Suite 300 Plymouth Meeting, PA 19462 Attention: Megan L. Soltys S-9 DEUTSCHE BANK TRUST COMPANY AMERICAS, as a Lender (please type) By: /s/ Carin Keegan ---------------------------- Name: Carin Keegan Title: Vice President Notice Address: Deutsche Bank 60 Wall Street MS NYC60-4301 New York, NY 1005 Telephone: 212-250-6083 Facsimile: 212-797-5690 Attention: Carin M. Keegan S-9 FIFTH THIRD BANK (SOUTHERN INDIANA), as a Lender By: /s/ Robert M. Sander -------------------------------- Robert M. Sander Vice President Notice Address: 8000 Maryland Ave., Suite 1400 St. Louis, MO 63105 Attention: Bob Sander Telephone: (314)889-3389 Facsimile: (314)889-3377 S-9 Mizuho Corporate Bank, Ltd, as a Lender By: /s/ Raymond Ventura --------------------------------- Name: Raymond Ventura Title: Senior Vice President Notice Address: 1251 Avenue of the Americas 32 Floor New York, NY 10020 Attention: Victoria Nektalov Greg Bothson 212-282-4955 phone 212-282-3583 phone 212-282-4488 fax 212-282-4488 fax S-9 The Norinchukin Bank, New York, as a Lender By: /s/ Masanori Shoji ----------------------------------- Name: Masanori Shoji Title: Joint General Manager Notice Address: 245 Park Av. 29th Floor, New York, NY, 10167-0104 TEL 212-697-1717 E-MAIL jmorishita@nochubank.or.jp Attention: Junya Morishita S-9 SOCIETE GENERALE, as a Lender By: /s/ Michael Nitka ---------------------------- Name: Michael Nitka Title: Director Notice Address: 1221 Avenue of the Americas 7th Floor New York, NY 10020 Attention: Michael Nitka Telephone: (212) 278-4413 Facsimile: (212)278-4444 S-9 BNP Paribas, as a Lender (please type) By: /s/ Dennis Zinkand -------------------------------- Name: Dennis Zinkand Title: Director By: /s/ PJ de Filippis -------------------------------- Name: PJ de Filippis Title: Managing Director Notice Address: 787 Seventh Avenue, 32nd Floor New York, NY 10019 Attention: Lisa Bowman 212-841-3398 (phone) 212-841-2896 (facsimile) S-9 BANK OF HAWAII, as a Lender By: /s/ John McKenna ---------------------------- Name: John McKenna Title: Vice President Notice Address: 130 Merchant Street 20th Floor Honolulu, Hawaii 96822 Attention: John McKenna Telephone: (808) 537-8560 Facsimile: (808) 537-8301 S-9 COMMERCE BANK, NATIONAL ASSOCIATION, as a Lender (please type) By: /s/ Mary Ann Lemonds -------------------------------- Name: Mary Ann Lemonds Title: Vice President By: -------------------------------- Name: Title: Notice Address: 8000 Forsyth Blvd. St. Louis, MO 63105 Attention: Mary Ann Lemonds S-9 IKB CAPITAL CORPORATION as a Lender By: /s/ David Snyder ---------------------------- Name: DAVID SNYDER Title: PRESIDENT Notice Address: IKB CAPITAL CORPORATION 555 Madison Avenue 24th Floor New York, NY 10022 Attention: Wolfgang Boeker Telephone: (212) 485 3620 Facsimile: (212) 583 8820 STONE TOWER CLO LTD, as a Lender By: Stone Tower Debt Advisors LLC, as its Collateral Manager /s/ William J. Sheoris -------------------------------- Name: William J. Sheoris Authorized Signatory S-9 WEBSTER BANK as a Lender By: /s/ Juliana B. Dalton ---------------------------- Name: Juliana B. Dalton Title: Vice President Notice Address: 185 Asylum Street - 3rd Floor Hartford, CT 06103 Attention: Juliana B. Dalton Telephone: (860) 692-1340 Facsimile: (860)947-1873 Bank Leumi USA as a Lender By: /s/ Joung Hee Hong ---------------------------- Name: Joung Hee Hong Title: Vice President Notice Address: Bank Leumi USA 562 Fifth Avenue, 9 floor New York, NY 10036 Attention: Joung Hee Hong, Vice President S-9 ERSTE BANK as a Lender By: /s/ Paul Judicke ---------------------------- Name: Paul Judicke Title: Director By: /s/ Bryan Lynch ---------------------------- Name: Bryan Lynch Title: First Vice President Notice Address: Erste Bank 280 Park Avenue; 32-W New York, NY 10017 Attention: Paul Judicke EX-10.35 5 c83158exv10w35.txt SUBSIDIARY GUARANTY EXHIBIT 10.35 SUBSIDIARY GUARANTY This SUBSIDIARY GUARANTY is entered into as of February 13, 2004 by THE UNDERSIGNED (each a "Guarantor" and collectively, "Guarantors") in favor of and for the benefit of Credit Suisse First Boston as Collateral Agent for and representative of (in such capacity herein called "Guarantied Party") the Agents (as hereinafter defined) and the financial institutions party to the Credit Agreement ("Lenders") referred to below, and, subject to subsection 3.12, for the benefit of the other Beneficiaries (as hereinafter defined). RECITALS A. Express Scripts, Inc., a Delaware corporation ("Company"), has entered into that certain Credit Agreement dated as of February 13, 2004 with the financial institutions listed therein as Lenders, Credit Suisse First Boston, and Citigroup Global Markets Inc., as Joint Lead Arrangers, Credit Suisse First Boston, as Administrative Agent and Collateral Agent, Citigroup Global Markets Inc., as Syndication Agent and Bank of America, Bank One, N.A. and U.S. Bank National Association, as Co-Documentation Agent (collectively "Agents") and Lenders (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"; capitalized terms defined therein and not otherwise defined herein being used herein as therein defined). B. A portion of the proceeds of the Loans may be advanced to Guarantors and thus the Guarantied Obligations (as hereinafter defined) are being incurred for and will inure to the benefit of Guarantors (which benefits are hereby acknowledged). C. It is a condition precedent to the making of the initial Loans under the Credit Agreement that Company's obligations thereunder be guarantied by Guarantors. D. Guarantors are willing irrevocably and unconditionally to guaranty such obligations of Company. NOW, THEREFORE, based upon the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce Lenders and Guarantied Party to enter into the Credit Agreement and to make Loans and other extensions of credit thereunder, Guarantors hereby agree as follows: SECTION 1. DEFINITIONS 1.1 CERTAIN DEFINED TERMS. As used in this Guaranty, the following terms shall have the following meanings unless the context otherwise requires: "Beneficiaries" means Guarantied Party, Agents and Lenders. "Guarantied Obligations" has the meaning assigned to that term in subsection 2.1. "Guaranty" means this Subsidiary Guaranty, as it may be amended, supplemented or otherwise modified from time to time. "payment in full", "paid in full" or any similar term means payment in full of the Guarantied Obligations, including all principal, interest, costs, fees and expenses (including reasonable legal fees and expenses) of Beneficiaries as required under the Loan Documents. 1.2 INTERPRETATION. (a) References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Guaranty unless otherwise specifically provided. (b) In the event of any conflict or inconsistency between the terms, conditions and provisions of this Guaranty and the terms, conditions and provisions of the Credit Agreement, the terms, conditions and provisions of this Guaranty shall prevail. SECTION 2. THE GUARANTY 2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Subject to the provisions of subsection 2.2(a), Guarantors jointly and severally hereby irrevocably and unconditionally guaranty the due and punctual payment in full of all Guarantied Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)). The term "Guarantied Obligations" is used herein in its most comprehensive sense and includes: (a) any and all Obligations of Company, in each case now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, whether due or not due, and however arising under or in connection with the Credit Agreement and the other Loan Documents, including those arising under successive borrowing transactions under the Credit Agreement which shall either continue the Obligations of Company or from time to time renew them after they have been satisfied and including interest which, but for the filing of a petition in bankruptcy with respect to Company, would have accrued on any Guarantied Obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy proceeding; and (b) those expenses set forth in subsection 2.8 hereof. 2.2 LIMITATION ON AMOUNT GUARANTIED; CONTRIBUTION BY GUARANTORS. (a) Anything contained in this Guaranty to the contrary notwithstanding, if any Fraudulent Transfer Law (as hereinafter defined) is determined by a court of competent jurisdiction to be applicable to the obligations of any Guarantor under this Guaranty, such obligations of such Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of such Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of -2- such Guarantor (x) in respect of intercompany indebtedness to Company or other affiliates of Company to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Guarantor hereunder and (y) under any guaranty of Subordinated Indebtedness which guaranty contains a limitation as to maximum amount similar to that set forth in this subsection 2.2(a), pursuant to which the liability of such Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, reimbursement, indemnification or contribution of such Guarantor pursuant to applicable law or pursuant to the terms of any agreement (including any such right of contribution under subsection 2.2(b). (b) Guarantors under this Guaranty together desire to allocate among themselves in a fair and equitable manner, their obligations arising under this Guaranty. Accordingly, in the event any payment or distribution is made on any date by any Guarantor under this Guaranty (a "Funding Guarantor") that exceeds its Fair Share (as defined below) as of such date, that Funding Guarantor shall be entitled to a contribution from each of the other Guarantors in the amount of such other Guarantor's Fair Share Shortfall (as defined below) as of such date, with the result that all such contributions will cause each Guarantor's Aggregate Payments (as defined below) to equal its Fair Share as of such date. "Fair Share" means, with respect to a Guarantor as of any date of determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to such Guarantor to (y) the aggregate of the Adjusted Maximum Amounts with respect to all Guarantors multiplied by (ii) the aggregate amount paid or distributed on or before such date by all Funding Guarantors under this Guaranty in respect of the obligations guarantied. "Fair Share Shortfall" means, with respect to a Guarantor as of any date of determination, the excess, if any, of the Fair Share of such Guarantor over the Aggregate Payments of such Guarantor. "Adjusted Maximum Amount" means, with respect to a Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Guarantor under this Guaranty determined as of such date, in the case of any Guarantor, in accordance with subsection 2.2(a); provided that, solely for purposes of calculating the "Adjusted Maximum Amount" with respect to any Guarantor for purposes of this subsection 2.2(b), any assets or liabilities of such Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Guarantor. "Aggregate Payments" means, with respect to a Guarantor as of any date of determination, an amount equal to (i) the aggregate amount of all payments and distributions made on or before such date by such Guarantor in respect of this Guaranty (including in respect of this subsection 2.2(b)) minus (ii) the aggregate amount of all payments received on or before such date by such Guarantor from the other Guarantors as contributions under this subsection 2.2(b). The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Guarantor. The allocation among Guarantors of their obligations as set forth in this subsection 2.2(b) shall not be construed in any way to limit the liability of any Guarantor hereunder. 2.3 PAYMENT BY GUARANTORS; APPLICATION OF PAYMENTS. Subject to the provisions of subsection 2.2(a), Guarantors hereby jointly and severally agree, in furtherance of -3- the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of Company to pay any of the Guarantied Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), Guarantors will upon demand pay, or cause to be paid, in cash, to Guarantied Party for the ratable benefit of Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guarantied Obligations then due as aforesaid, accrued and unpaid interest on such Guarantied Obligations (including interest which, but for the filing of a petition in bankruptcy with respect to Company, would have accrued on such Guarantied Obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy proceeding) and all other Guarantied Obligations then owed to Beneficiaries as aforesaid. All such payments shall be applied promptly from time to time by Guarantied Party as provided in subsection 2.4D of the Credit Agreement. 2.4 LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guarantied Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows: (a) This Guaranty is a guaranty of payment when due and not of collectibility. (b) Guarantied Party may enforce this Guaranty upon the occurrence of an Event of Default under the Credit Agreement notwithstanding the existence of any dispute between Company and any Beneficiary with respect to the existence of such Event of Default. (c) The obligations of each Guarantor hereunder are independent of the obligations of Company under the Loan Documents and the obligations of any other guarantor (including any other Guarantor) of the obligations of Company under the Loan Documents, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Company or any of such other guarantors and whether or not Company is joined in any such action or actions. (d) Payment by any Guarantor of a portion, but not all, of the Guarantied Obligations shall in no way limit, affect, modify or abridge any Guarantor's liability for any portion of the Guarantied Obligations which has not been paid. Without limiting the generality of the foregoing, if Guarantied Party is awarded a judgment in any suit brought to enforce any Guarantor's covenant to pay a portion of the Guarantied Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guarantied Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor's liability hereunder in respect of the Guarantied Obligations. -4- (e) Any Beneficiary, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability of this Guaranty or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guarantied Obligations, (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guarantied Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guarantied Obligations and take and hold security for the payment of this Guaranty or the Guarantied Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guarantied Obligations, any other guaranties of the Guarantied Obligations, or any other obligation of any Person (including any other Guarantor) with respect to the Guarantied Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of such Beneficiary in respect of this Guaranty or the Guarantied Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that such Beneficiary may have against any such security, in each case as such Beneficiary in its discretion may determine consistent with the Credit Agreement and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against Company or any security for the Guarantied Obligations; and (vi) exercise any other rights available to it under the Loan Documents. (f) This Guaranty and the obligations of Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guarantied Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents, at law, in equity or otherwise) with respect to the Guarantied Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guarantied Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) of the Credit Agreement, any of the other Loan Documents or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guarantied Obligations, in each case whether or not in accordance with the terms of the Credit Agreement or such Loan Document or any agreement relating to such other guaranty or security; (iii) the Guarantied Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received -5- from any source (other than payments received pursuant to the other Loan Documents or from the proceeds of any security for the Guarantied Obligations) to the payment of indebtedness other than the Guarantied Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guarantied Obligations; (v) any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of Company or any of its Subsidiaries and to any corresponding restructuring of the Guarantied Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guarantied Obligations; (vii) any defenses, set-offs or counterclaims which Company may allege or assert against any Beneficiary in respect of the Guarantied Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guarantied Obligations. 2.5 WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the benefit of Beneficiaries: (a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Company, any other guarantor (including any other Guarantor) of the Guarantied Obligations or any other Person, (ii) proceed against or exhaust any security held from Company, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of any Beneficiary in favor of Company or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Company including any defense based on or arising out of the lack of validity or the unenforceability of the Guarantied Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Company from any cause other than payment in full of the Guarantied Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon any Beneficiary's errors or omissions in the administration of the Guarantied Obligations, except behavior which amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any -6- requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Guaranty, notices of default under the Credit Agreement or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guarantied Obligations or any agreement related thereto, notices of any extension of credit to Company and notices of any of the matters referred to in subsection 2.4 and any right to consent to any thereof; and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of this Guaranty. 2.6 GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Each Guarantor hereby waives, until the Guarantied Obligations shall have been indefeasibly paid in full and the Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Company or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute under common law or otherwise and including (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against Company, (b) any right to enforce, or to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Company, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary. In addition, until the Guarantied Obligations shall have been indefeasibly paid in full and the Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guarantied Obligations (including any such right of contribution under subsection 2.2(b)). Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against Company or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights any Beneficiary may have against Company, to all right, title and interest any Beneficiary may have in any such collateral or security, and to any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guarantied Obligations shall not have been paid in full, such amount shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to be credited and applied against the Guarantied Obligations, whether matured or unmatured, in accordance with the terms hereof. -7- 2.7 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company or any Guarantor now or hereafter held by any Guarantor (the "Obligee Guarantor") is hereby subordinated in right of payment to the Guarantied Obligations, and any such indebtedness collected or received by the Obligee Guarantor after an Event of Default has occurred and is continuing shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to be credited and applied against the Guarantied Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision of this Guaranty. 2.8 EXPENSES. Guarantors jointly and severally agree to pay, or cause to be paid, on demand, and to save Beneficiaries harmless against liability for, any and all costs and expenses (including reasonable fees and disbursements of counsel and reasonable allocated costs of internal counsel) incurred or expended by any Beneficiary in connection with the enforcement of or preservation of any rights under this Guaranty. 2.9 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall remain in effect until all of the Guarantied Obligations shall have been paid in full and the Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled. Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guarantied Obligations. 2.10 RIGHTS CUMULATIVE. The rights, powers and remedies given to Beneficiaries by this Guaranty are cumulative and shall be in addition to and independent of all rights, powers and remedies given to Beneficiaries by virtue of any statute or rule of law or in any of the other Loan Documents or any agreement between any Guarantor and any Beneficiary or Beneficiaries or between Company and any Beneficiary or Beneficiaries. Any forbearance or failure to exercise, and any delay by any Beneficiary in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. 2.11 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY. (a) So long as any Guarantied Obligations remain outstanding, no Guarantor shall, without the prior written consent of Guarantied Party acting pursuant to the instructions of Requisite Lenders, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency proceedings of or against Company. The obligations of Guarantors under this Guaranty shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Company or by any defense which Company may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. (b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guarantied Obligations which accrues after the commencement of any proceeding referred to in clause (a) above (or, if interest on any portion of the Guarantied Obligations ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on such portion of the Guarantied Obligations if said proceedings had not -8- been commenced) shall be included in the Guarantied Obligations because it is the intention of Guarantors and Beneficiaries that the Guarantied Obligations which are guarantied by Guarantors pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve Company of any portion of such Guarantied Obligations. Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Guarantied Party, or allow the claim of Guarantied Party in respect of, any such interest accruing after the date on which such proceeding is commenced. (c) In the event that all or any portion of the Guarantied Obligations are paid by Company, the obligations of Guarantors hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guarantied Obligations for all purposes under this Guaranty. 2.12 NOTICE OF EVENTS. As soon as Guarantor obtains knowledge thereof, Guarantor shall give Guarantied Party written notice of any condition or event which has resulted in (a) a material adverse change in the financial condition of Guarantor or Company or (b) any Event of Default or Potential Event of Default. 2.13 SET OFF. In addition to any other rights any Beneficiary may have under law or under this Guaranty, such Beneficiary is authorized at any time or from time to time while an Event of Default has occurred and is continuing, without notice (any such notice being hereby expressly waived), to set off and to appropriate and to apply any and all deposits (general or special, including indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness of such Beneficiary owing to Guarantor and any other property of Guarantor held by any Beneficiary to or for the credit or the account of Guarantor against and on account of the Guarantied Obligations and liabilities of Guarantor to any Beneficiary under this Guaranty. SECTION 3. MISCELLANEOUS 3.1 SURVIVAL OF WARRANTIES. All agreements, representations and warranties made herein shall survive the execution and delivery of this Guaranty and the other Loan Documents and any increase in the Commitments under the Credit Agreement. 3.2 NOTICES. Any communications between Guarantied Party and any Guarantor and any notices or requests provided herein to be given may be given by mailing the same, postage prepaid, or by telex, facsimile transmission or cable to each such party at its address set forth in the Credit Agreement, on the signature pages hereof or to such other addresses as each such party may in writing hereafter indicate. Any notice, request or demand to or upon Guarantied Party or any Guarantor shall not be effective until received. 3.3 SEVERABILITY. In case any provision in or obligation under this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and -9- enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 3.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or waiver of any provision of this Guaranty, and no consent to any departure by any Guarantor therefrom, shall in any event be effective without the written concurrence of Guarantied Party and, in the case of any such amendment or modification, each Guarantor against whom enforcement of such amendment or modification is sought. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. 3.5 HEADINGS. Section and subsection headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect. 3.6 APPLICABLE LAW; RULES OF CONSTRUCTION. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF GUARANTORS AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. The rules of construction set forth in subsection 1.3 of the Credit Agreement shall be applicable to this Guaranty mutatis mutandis. 3.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty and shall be binding upon each Guarantor and its respective successors and assigns. This Guaranty shall inure to the benefit of Beneficiaries and their respective successors and assigns. No Guarantor shall assign this Guaranty or any of the rights or obligations of such Guarantor hereunder without the prior written consent of all Lenders. Any Beneficiary may, without notice or consent, assign its interest in this Guaranty in whole or in part. The terms and provisions of this Guaranty shall inure to the benefit of any transferee or assignee of any Loan, and in the event of such transfer or assignment the rights and privileges herein conferred upon such Beneficiary shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. 3.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR RELATING TO THIS GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GUARANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS WITH RESPECT TO ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK; -10- (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 3.2; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GUARANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 3.8 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 3.9 WAIVER OF TRIAL BY JURY. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF, EACH BENEFICIARY EACH HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each Guarantor and, by its acceptance of the benefits hereof, each Beneficiary, each (i) acknowledges that this waiver is a material inducement for such Guarantor and Beneficiaries to enter into a business relationship, that such Guarantor and Beneficiaries have already relied on this waiver in entering into this Guaranty or accepting the benefits thereof, as the case may be, and that each will continue to rely on this waiver in their related future dealings and (ii) further warrants and represents that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 3.9 AND EXECUTED BY GUARANTIED PARTY AND EACH GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court. 3.10 NO OTHER WRITING. This writing is intended by Guarantors and Beneficiaries as the final expression of this Guaranty and is also intended as a complete and -11- exclusive statement of the terms of their agreement with respect to the matters covered hereby. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Guaranty. There are no conditions to the full effectiveness of this Guaranty. 3.11 FURTHER ASSURANCES. At any time or from time to time, upon the request of Guarantied Party, Guarantors shall execute and deliver such further documents and do such other acts and things as Guarantied Party may reasonably request in order to effect fully the purposes of this Guaranty. 3.12 ADDITIONAL GUARANTORS. The initial Guarantors hereunder shall be such of the Subsidiaries of Company as are signatories hereto on the date hereof. From time to time subsequent to the date hereof, additional Subsidiaries of Company may become parties hereto, as additional Guarantors (each an "Additional Guarantor"), by executing a counterpart of this Guaranty. Upon delivery of any such counterpart to Administrative Agent, notice of which is hereby waived by Guarantors, each such Additional Guarantor shall be a Guarantor and shall be as fully a party hereto as if such Additional Guarantor were an original signatory hereof. Each Guarantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Guarantor hereunder, nor by any election of Administrative Agent not to cause any Subsidiary of Company to become an Additional Guarantor hereunder. This Guaranty shall be fully effective as to any Guarantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Guarantor hereunder. 3.13 COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original for all purposes; but all such counterparts together shall constitute but one and the same instrument. This Guaranty shall become effective as to each Guarantor upon the execution of a counterpart hereof by such Guarantor (whether or not a counterpart hereof shall have been executed by any other Guarantor) and receipt by Guarantied Party of written or telephonic notification of such execution and authorization of delivery thereof. 3.14 GUARANTIED PARTY AS AGENT. (a) Guarantied Party has been appointed to act as Guarantied Party hereunder by Lenders. Guarantied Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action, solely in accordance with this Guaranty and the Credit Agreement; provided that Guarantied Party shall exercise, or refrain from exercising, any remedies hereunder in accordance with the instructions of Requisite Lenders. (b) Guarantied Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Guarantied Party under this Guaranty; removal of Administrative Agent -12- pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Guarantied Party under this Guaranty; and appointment of a successor Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Guarantied Party under this Guaranty. Upon the acceptance of any appointment as Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Guarantied Party under this Guaranty, and the retiring or removed Guarantied Party under this Guaranty shall promptly (i) transfer to such successor Guarantied Party all sums held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Guarantied Party under this Guaranty, and (ii) take such other actions as may be necessary or appropriate in connection with the assignment to such successor Guarantied Party of the rights created hereunder, whereupon such retiring or removed Guarantied Party shall be discharged from its duties and obligations under this Guaranty. After any retiring or removed Guarantied Party's resignation or removal hereunder as Guarantied Party, the provisions of this Guaranty shall inure to its benefit as to any actions taken or omitted to be taken by it under this Guaranty while it was Guarantied Party hereunder. [Remainder of page intentionally left blank] -13- IN WITNESS WHEREOF, each of the undersigned Guarantors has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. CENTRAL FILL, INC. CFI OF NEW JERSEY, INC. CURASCRIPT PHARMACY, INC. CURASCRIPT PBM SERVICES, INC. DIVERSIFIED PHARMACEUTICAL SERVICES, INC. EXPRESS SCRIPTS SALES DEVELOPMENT CO. IBIOLOGIC, INC. IVTX, INC. VALUE HEALTH, INC. ESI MAIL PHARMACY SERVICE, INC. EXPRESS SCRIPTS UTILIZATION MANAGEMENT CO. EXPRESS SCRIPTS SPECIALTY DISTRIBUTION SERVICES, INC. ESI AIRPORT PROPERTIES, LLC ESI CLAIMS, INC. ESI ENTERPRISES, LLC ESI PARTNERSHIP ESI REALTY, LLC NATIONAL PRESCRIPTION ADMINISTRATORS, INC. PHOENIX MARKETING GROUP, L.L.C. EXPRESS SCRIPTS CANADA HOLDING CO. YOURPHARMACY.COM, INC. By: /s/ George Paz -------------------------------------- Name: George Paz Title: Vice President ESI RESOURCES, INC. ESI-GP HOLDINGS, INC. By: /s/ Thomas L. Schaefer -------------------------------------- Name: Thomas L. Schaefer Title: President IN WITNESS WHEREOF, the undersigned Additional Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of ______________, ____. S __________________________________________ (Name of Additional Guarantor) By: ___________________________________ Title: ___________________________________ Address: _________________________________ ___________________________________ ___________________________________ ___________________________________ EX-10.36 6 c83158exv10w36.txt COMPANY PLEDGE AGREEMENT EXHIBIT 10.36 COMPANY PLEDGE AGREEMENT This COMPANY PLEDGE AGREEMENT (this "Agreement") is dated as of February 13, 2004 and entered into by and between Express Scripts, Inc., a Delaware corporation ("Pledgor"), and Credit Suisse First Boston, as Collateral Agent for and representative of (in such capacity herein called "Secured Party") the financial institutions ("Lenders") and agents ("Agents") party to the Credit Agreement referred to below. PRELIMINARY STATEMENTS A. Pledgor is the legal and beneficial owner of the shares of stock (the "Pledged Shares") described in Part A of Schedule I annexed hereto and issued by the corporations named therein. B. Secured Party, Agents and Lenders have entered into a Credit Agreement dated as of February 13, 2004 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with Pledgor pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Pledgor. C. It is a condition precedent to the initial extensions of credit by Lenders under the Credit Agreement that Pledgor shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and other extensions of credit under the Credit Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured Party as follows: SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges and assigns to Secured Party, and hereby grants to Secured Party a security interest in, all of Pledgor's right, title and interest in and to the following (the "Pledged Collateral"): (a) the Pledged Shares and the certificates representing the Pledged Shares and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to the Pledged Shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any issuer of the Pledged Shares from time to time acquired by Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such additional shares, securities, warrants, options or other rights and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to such additional shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, securities, warrants, options or other rights; (c) all shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary of Pledgor (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such shares, securities, warrants, options or other rights and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to such shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, securities, warrants, options or other rights; (d) to the extent not covered by clauses (a) through (c) above, all proceeds of any or all of the foregoing Pledged Collateral. For purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from time to time with respect to any of the Pledged Collateral. SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the Pledged Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all obligations and liabilities of every nature of Pledgor now or hereafter existing under or arising out of or in connection with the Credit Agreement and the other Loan Documents and all extensions or renewals thereof, whether for principal, interest (including interest that, but for the filing of a petition in bankruptcy with respect to Pledgor, would accrue on such obligations), reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party or any Lender as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Pledgor now or hereafter existing under this Agreement (all such obligations of Pledgor being the "Secured Obligations"). SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Secured Party pursuant hereto and shall be in suitable form for transfer by delivery or, as applicable, shall be accompanied by Pledgor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance -2- satisfactory to Secured Party. Upon the occurrence and during the continuance of an Event of Default (as defined in the Credit Agreement), Secured Party shall have the right to transfer to or to register in the name of Secured Party or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 7(a); provided that, except in the case of a bankruptcy default or an acceleration of the Loans, no such transfer or registration shall be made without notice to Pledgor. In addition, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants as follows: (a) Due Authorization, etc. of Pledged Collateral. All of the Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable. (b) Description of Pledged Collateral. The Pledged Shares constitute all of the issued and outstanding shares of stock of each issuer thereof organized under the laws of a state of the United States (each a "U.S. Issuer") and 65% of the issued and outstanding shares of stock of each other issuer thereof (each a "Non-U.S. Issuer") and there are no outstanding warrants, options or other rights to purchase, or other agreements outstanding with respect to, or property that is now or hereafter convertible into, or that requires the issuance or sale of, any Pledged Shares or other equity interests of the issuer of Pledged Shares. (c) Ownership of Pledged Collateral. Pledgor is the legal, record and beneficial owner of the Pledged Collateral free and clear of any Lien except for the security interest created by this Agreement. SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC. Pledgor shall: (a) not, except as expressly permitted by the Credit Agreement, (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, (ii) create or suffer to exist any Lien upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement, or (iii) permit any issuer of Pledged Shares to merge or consolidate unless all the outstanding capital stock of the surviving or resulting corporation is, upon such merger or consolidation, pledged hereunder and no cash, securities or other property is distributed in respect of the outstanding shares of any other constituent corporation; provided that in the event Pledgor makes an Asset Sale permitted by the Credit Agreement and the assets subject to such Asset Sale are Pledged Shares, Secured Party shall release the Pledged Shares that are the subject of such Asset Sale to Pledgor free and clear of the lien and security interest under this Agreement concurrently with the consummation of such Asset Sale; provided, further that, as a condition precedent to such release, Secured Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Secured Party of the -3- Net Asset Sale Proceeds of such Asset Sale; if required by, and in accordance with the provisions of, the Credit Agreement. (b) (i) cause each issuer of Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of Pledged Shares except to the extent that such pledge would result in the pledge of more than 65% of the stock of a Non-U.S. Issuer, and (iii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all shares of stock of any Person (other than any Exempt Subsidiary) that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary of Pledgor, unless such Subsidiary is a Non-U.S. Issuer, in which case, 65% of such shares of stock shall be pledged hereunder; (c) promptly deliver to Secured Party all written notices received by it with respect to the Pledged Collateral; and (d) pay promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims against, the Pledged Collateral, except to the extent the validity thereof is being contested in good faith; provided that Pledgor shall in any event pay such taxes, assessments, charges, levies or claims not later than five days prior to the date of any proposed sale of the Pledged Collateral under any judgment, writ or warrant of attachment entered or filed against Pledgor or any of the Pledged Collateral as a result of the failure to make such payment. SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS. (a) Pledgor agrees that from time to time, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. Without limiting the generality of the foregoing, Pledgor will: (i) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby and (ii) at Secured Party's reasonable request, appear in and defend any action or proceeding that may affect Pledgor's title to or Secured Party's security interest in all or any part of the Pledged Collateral. (b) Pledgor further agrees that it will, upon obtaining any additional shares of stock or other securities required to be pledged hereunder as provided in Section 5(b) or (c), promptly (and in any event within 30 days) deliver to Secured Party a Pledge Amendment, duly executed by Pledgor, in substantially the form of Exhibit I annexed hereto (a "Pledge Amendment"), in respect of the additional Pledged Shares to be pledged pursuant -4- to this Agreement. Pledgor hereby authorizes Secured Party to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on any Pledge Amendment delivered to Secured Party shall for all purposes hereunder be considered Pledged Collateral; provided that the failure of Pledgor to execute a Pledge Amendment with respect to any additional Pledged Shares pledged pursuant to this Agreement shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto. SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC. (a) So long as no Event of Default shall have occurred and be continuing: (i) Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement in a manner which would not have a material adverse effect on the value of the Pledged Collateral or any part thereof. It is understood, however, that neither (A) the voting by Pledgor of any Pledged Shares for or Pledgor's consent to the election of directors at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting nor (B) Pledgor's consent to or approval of any action otherwise permitted under this Agreement and the Credit Agreement shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section 7(a)(i). (ii) Pledgor shall be entitled to receive and retain, and to utilize free and clear of the lien of this Agreement, any and all dividends paid in respect of the Pledged Collateral; provided, however, that any and all (A) dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in exchange for any Pledged Collateral, shall be, and shall forthwith be delivered to Secured Party to hold as, Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of Secured Party, be segregated from the other property or funds of Pledgor and be forthwith delivered to Secured Party as Pledged Collateral in the same form as so received (with all necessary endorsements); and -5- (iii) Secured Party shall promptly execute and deliver (or cause to be executed and delivered) to Pledgor all such dividend payment orders and other instruments as Pledgor may from time to time reasonably request for the purpose of enabling Pledgor to receive the dividends payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuation of an Event of Default: (i) upon written notice from Secured Party to Pledgor, all rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 7(a)(i) shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting and other consensual rights; (ii) upon written notice from Secured Party to Pledgor, all rights of Pledgor to receive the dividends which it would otherwise be authorized to receive and retain pursuant to Section 7(a)(ii) shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends; and (iii) upon written notice from Secured Party to Pledgor, all dividends which are received by Pledgor contrary to the provisions of paragraph (ii) of this Section 7(b) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Pledgor and shall forthwith be paid over to Secured Party as Pledged Collateral in the same form as so received (with any necessary endorsements). (c) In order to permit Secured Party to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to Section 7(b)(i) and to receive all dividends and other distributions which it may be entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) Pledgor shall promptly execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies, dividend payment orders and other instruments as Secured Party may from time to time reasonably request and (ii) without limiting the effect of the immediately preceding clause (i), Pledgor hereby grants to Secured Party an irrevocable proxy to vote the Pledged Shares and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Shares would be entitled (including giving or withholding written consents of shareholders, calling special meetings of shareholders and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Shares on the record books of the issuer thereof) by any other Person (including the issuer of the Pledged Shares or any officer or agent thereof), upon the occurrence of an Event of Default and the continuance thereof and which proxy shall only terminate upon the payment in full of the Secured Obligations. -6- SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including filing one or more financing or continuation statements, or amendments thereto, relative to all or any part of the Pledged Collateral without the signature of Pledgor; provided, that unless an Event of Default has occurred and is continuing, Secured Party may not (i) receive, endorse and collect any instruments made payable to Pledgor representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof; or (ii) file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Pledged Collateral. SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform any agreement contained herein, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Pledgor under the terms of the Credit Agreement. SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Pledged Collateral, it being understood that Secured Party shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, (b) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Pledged Collateral) to preserve rights against any parties with respect to any Pledged Collateral, (c) taking any necessary steps to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Pledged Collateral, or (d) initiating any action to protect the Pledged Collateral against the possibility of a decline in market value. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which Secured Party accords its own property consisting of negotiable securities. SECTION 11. REMEDIES. (a) If any Event of Default shall have occurred and be continuing, Secured Party may exercise in respect of the Pledged Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant -7- jurisdiction (the "Code") (whether or not the Code applies to the affected Pledged Collateral), and Secured Party may also in its sole discretion, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. Secured Party or any Lender may be the purchaser of any or all of the Pledged Collateral at any such sale and Secured Party, as agent for and representative of Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Pledged Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten Business Days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Pledgor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Collateral are insufficient to pay all the Secured Obligations, Pledgor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. (b) Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Pledged Collateral conducted without prior registration or qualification of such Pledged Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges that any such private sales may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, Pledgor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in public sales and no obligation to delay the -8- sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. (c) If Secured Party determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, Pledgor shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to Secured Party all such information as Secured Party may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by Secured Party in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. SECTION 12. APPLICATION OF PROCEEDS. All proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied as provided in subsection 2.4D of the Credit Agreement. SECTION 13. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to Pledgor. Upon any such termination Secured Party will, at Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination and Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Secured Party, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. SECTION 14. SECURED PARTY AS AGENT. (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including the release or substitution of Pledged Collateral), solely in accordance with this Agreement and the Credit Agreement; provided that Secured -9- Party shall exercise, or refrain from exercising, any remedies provided for in Section 11 in accordance with the instructions of the Requisite Lenders. (b) Secured Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. SECTION 15. AMENDMENTS; ETC. No amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by Pledgor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Pledgor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 16. NOTICES. Any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as provided in subsection 10.8 of the Credit Agreement. SECTION 17. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of Secured Party in the exercise of any power, right or -10- privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 18. SEVERABILITY. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 19. HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 20. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. SECTION 21. COUNTERPARTS. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [Remainder of page intentionally left blank] -11- IN WITNESS WHEREOF, Pledgor and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. EXPRESS SCRIPTS, INC., as Pledgor By: /s/ George Paz ------------------------------------- Name: George Paz Title: President & CFO CREDIT SUISSE FIRST BOSTON, as Secured Party By: /s/ Joseph Adipietro ------------------------------------- Name: Joseph Adipietro Title: Director By: /s/ Kingsbury ------------------------------------- Name: Kingsbury Title: Director Notice Address: Eleven Madison Avenue New York, New York 10010 Attention: SCHEDULE I Attached to and forming a part of the Pledge Agreement dated as of February 13, 2004 between Express Scripts, Inc., as Pledgor, and Credit Suisse First Boston, as Secured Party. PART A
Stock Certificate Number of Stock Issuer Class of Stock Nos. Par Value Shares - ------------------------------ -------------- ----------------- --------- ------------- CuraScript Pharmacy, Inc. Common C-3 $0.01 1029.92 CuraScript PBM Services, Inc. Common C-2 $0.01 1000 Diversified Pharmaceutical Common 4 $0.01 100 Services, Inc. ESI Airport Properties, LLC Membership N/A N/A 100% Interest Interest ESI Claims, Inc. Common 1 $1.00 100 ESI Enterprises, LLC Membership N/A N/A 30% Interest Interest ESI Mail Pharmacy Service, Inc. Common 1 $1.00 100 ESI Partnership General N/A N/A 82% Partnership Interest Interest ESI Realty, LLC Membership N/A N/A 100% Interest Interest ESI-GP Holdings, Inc. Common 1 $1.00 100 Express Scripts Canada Holding Common 1 $1.00 100 Co.

Stock Certificate Number of Stock Issuer Class of Stock Nos. Par Value Shares - ------------------------------ -------------- ----------------- --------- ------------- Express Scripts Sales Common 2 $0.01 1 Development Co. Express Scripts Specialty Common 1 $1.00 100 Distribution Services, Inc. Express Scripts Utilization Common 1 $1.00 500 Management Co. IVTx, Inc. Common 2 $0.01 1 National Prescription Common 13 No Par Value 1,470 Administrators, Inc. Phoenix Marketing Membership N/A N/A 100% Group, LLC Interest Interest Value Health, Inc. Common A4 $0.01 1,000 YourPharmacy.com, Inc. Common 2 $0.01 1
EXHIBIT I PLEDGE AMENDMENT This Pledge Amendment, dated __________, ____, is delivered pursuant to Section 6(b) of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement dated February 13, 2004, between the undersigned and Credit Suisse First Boston, as Secured Party (the "Pledge Agreement," capitalized terms defined therein being used herein as therein defined), and that the Pledged Shares listed on this Pledge Amendment shall be deemed to be part of the Pledged Shares and shall become part of the Pledged Collateral and shall secure all Secured Obligations. EXPRESS SCRIPTS, INC. By:_____________________________________ Title:__________________________________
Stock Certificate Number of Stock Issuer Class of Stock Nos. Par Value Shares - ------------ -------------- ----------------- --------- ---------
EX-10.37 7 c83158exv10w37.txt SUBSIDIARY PLEDGE AGREEMENT EXHIBIT 10.37 SUBSIDIARY PLEDGE AGREEMENT This SUBSIDIARY PLEDGE AGREEMENT (this "Agreement") is dated as of February 13, 2004 and entered into by and between all Subsidiaries of the Company that are signatories hereto (each as a "Pledgor" and collectively all "Pledgors") and Credit Suisse First Boston as Collateral Agent for and representative of (in such capacity herein called "Secured Party"), the financial institutions ("Lenders") and agents ("Agents") party to the Credit Agreement referred to below. PRELIMINARY STATEMENTS A. Each Pledgor is the legal and beneficial owner of the shares of stock (the "Pledged Shares") described in Part A of Schedule I annexed hereto and issued by the corporations named therein. B. Secured Party, Agents and Lenders have entered into a Credit Agreement dated as of February 13, 2004 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement," the terms defined therein and not otherwise defined herein being used herein as therein defined) with Express Scripts, Inc., a Delaware corporation ("Company"), pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Company. C. Pledgor has executed and delivered that certain Subsidiary Guaranty dated as of February 13, 2004 (as amended, supplemented or otherwise modified from time to time, the "Guaranty") in favor of Secured Party for the benefit of Lenders pursuant to which Pledgor has guarantied the prompt payment and performance when due of all obligations of Company under the Credit Agreement. D. It is a condition precedent to the initial extensions of credit by Lenders under the Credit Agreement that Pledgor shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and other extensions of credit under the Credit Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured Party as follows: SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges and assigns to Secured Party, and hereby grants to Secured Party a security interest in, all of Pledgor's right, title and interest in and to the following (the "Pledged Collateral"): (a) the Pledged Shares and the certificates representing the Pledged Shares and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to the Pledged Shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any issuer of the Pledged Shares from time to time acquired by Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such additional shares, securities, warrants, options or other rights and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to such additional shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, securities, warrants, options or other rights; (c) all shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary of Pledgor (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such shares, securities, warrants, options or other rights and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to such shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, securities, warrants, options or other rights; (d) to the extent not covered by clauses (a) through (d) above, all proceeds of any or all of the foregoing Pledged Collateral. For purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from time to time with respect to any of the Pledged Collateral. SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the Pledged Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of all obligations and liabilities of every nature of Pledgor now or hereafter existing under or arising out of or in connection with the Guaranty and all extensions or renewals thereof, whether for principal, interest (including interest that, but for the filing of a petition in bankruptcy with respect to Company, would accrue on such obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party or any Lender as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Pledgor now or hereafter existing under this Agreement (all such obligations of Pledgor being the "Secured Obligations"). 2 SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Secured Party pursuant hereto and shall be in suitable form for transfer by delivery or, as applicable, shall be accompanied by Pledgor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party. Upon the occurrence and during the continuation of an Event of Default (as defined in the Credit Agreement), Secured Party shall have the right to transfer to or to register in the name of Secured Party or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 7(a); provided that, except in the case of a bankruptcy default or an acceleration of the Loan, no such transfer or registration shall be made without notice to Pledgor. In addition, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants as follows: (a) Due Authorization, etc. of Pledged Collateral. All of the Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable. (b) Description of Pledged Collateral. The Pledged Shares constitute all of the issued and outstanding shares of stock of each issuer thereof organized under the laws of a state of the United States (each a "U.S. Issuer") and 65% of the issued and outstanding shares of stock of each other issuer thereof (each a "Non-U.S. Issuer"), and there are no outstanding warrants, options or other rights to purchase, or other agreements outstanding with respect to, or property that is now or hereafter convertible into, or that requires the issuance or sale of, any Pledged Shares. (c) Ownership of Pledged Collateral. Pledgor is the legal, record and beneficial owner of the Pledged Collateral free and clear of any Lien except for the security interest created by this Agreement. SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; ETC. Pledgor shall: (a) not, except as expressly permitted by the Credit Agreement, (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, (ii) create or suffer to exist any Lien upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement, or (iii) permit any issuer of Pledged Shares to merge or consolidate unless all the outstanding capital stock of the surviving or resulting corporation is, upon such merger or consolidation, pledged hereunder and no cash, securities or other property is distributed in respect of the outstanding shares of any other constituent corporation; provided that in the event Pledgor makes an Asset Sale permitted by the Credit Agreement and the assets subject to such Asset Sale are Pledged Shares, Secured Party shall release the Pledged Shares that are the subject of such Asset Sale to Pledgor free and clear of the lien and security interest under this Agreement concurrently with the consummation 3 of such Asset Sale; provided, further that, as a condition precedent to such release, Secured Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Secured Party of the Net Asset Sale Proceeds of such Asset Sale; (b) (i) cause each issuer of Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of Pledged Shares except to the extent that such pledge would result in the pledge of more than 65% of the stock of a Non-U.S. Issuer, and (iii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all shares of stock of any Person (other than any Exempt Subsidiary) that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary of Pledgor, unless such subsidiary is a Non-U.S. Issuer, in which case no more than 65% of such shares of stock shall be pledged hereunder; (c) promptly deliver to Secured Party all written notices received by it with respect to the Pledged Collateral; and (d) pay promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims against, the Pledged Collateral, except to the extent the validity thereof is being contested in good faith; provided that Pledgor shall in any event pay such taxes, assessments, charges, levies or claims not later than five days prior to the date of any proposed sale of the Pledged Collateral under any judgment, writ or warrant of attachment entered or filed against Pledgor or any of the Pledged Collateral as a result of the failure to make such payment. SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS. (a) Pledgor agrees that from time to time, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. Without limiting the generality of the foregoing, Pledgor will: (i) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby and (ii) at Secured Party's reasonable request, appear in and defend any action or proceeding that may affect Pledgor's title to or Secured Party's security interest in all or any part of the Pledged Collateral. (b) Pledgor further agrees that it will, upon obtaining any additional shares of stock or other securities required to be pledged hereunder as provided in Section 5(b) or (c), promptly (and in any event within 30 days) deliver to Secured Party a Pledge Amendment, duly executed by Pledgor, in substantially the form of Exhibit I annexed hereto (a "Pledge Amendment"), in respect of the additional Pledged Shares to be pledged pursuant to this 4 Agreement. Pledgor hereby authorizes Secured Party to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares listed on any Pledge Amendment delivered to Secured Party shall for all purposes hereunder be considered Pledged Collateral; provided that the failure of Pledgor to execute a Pledge Amendment with respect to any additional Pledged Shares pledged pursuant to this Agreement shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto. SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC. (a) So long as no Event of Default shall have occurred and be continuing: (i) Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement in a manner which would not have a material adverse effect on the value of the Pledged Collateral or any part thereof. It is understood, however, that neither (A) the voting by Pledgor of any Pledged Shares for or Pledgor's consent to the election of directors at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting nor (B) Pledgor's consent to or approval of any action otherwise permitted under this Agreement and the Credit Agreement shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section 7(a)(i). (ii) Pledgor shall be entitled to receive and retain, and to utilize free and clear of the lien of this Agreement, any and all dividends paid in respect of the Pledged Collateral; provided, however, that any and all (A) dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in exchange for any Pledged Collateral, shall be, and shall forthwith be delivered to Secured Party to hold as, Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of Secured Party, be segregated from the other property or funds of Pledgor and be forthwith delivered to Secured Party as Pledged Collateral in the same form as so received (with all necessary endorsements); and 5 (iii) Secured Party shall promptly execute and deliver (or cause to be executed and delivered) to Pledgor all such dividend payment orders and other instruments as Pledgor may from time to time reasonably request for the purpose of enabling Pledgor to receive the dividends which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuation of an Event of Default: (i) upon written notice from Secured Party to Pledgor, all rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 7(a)(i) shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting and other consensual rights; (ii) upon written notice from Secured Party to Pledgor, all rights of Pledgor to receive the dividends which it would otherwise be authorized to receive and retain pursuant to Section 7(a)(ii) shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends; and (iii) upon written notice from Secured Party to Pledgor, all dividends which are received by Pledgor contrary to the provisions of paragraph (ii) of this Section 7(b) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Pledgor and shall forthwith be paid over to Secured Party as Pledged Collateral in the same form as so received (with any necessary endorsements). (c) In order to permit Secured Party to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to Section 7(b)(i) and to receive all dividends and other distributions which it may be entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) Pledgor shall promptly execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies, dividend payment orders and other instruments as Secured Party may from time to time reasonably request and (ii) without limiting the effect of the immediately preceding clause (i), Pledgor hereby grants to Secured Party an irrevocable proxy to vote the Pledged Shares and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Shares would be entitled (including giving or withholding written consents of shareholders, calling special meetings of shareholders and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Shares on the record books of the issuer thereof) by any other Person (including the issuer of the Pledged Shares or any officer or agent thereof), upon the occurrence of an Event of Default and during the continuance thereof and which proxy shall only terminate upon the payment in full of the Secured Obligations. SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that Secured Party 6 may deem necessary or advisable to accomplish the purposes of this Agreement, including filing one or more financing or continuation statements, or amendments thereto, relative to all or any part of the Pledged Collateral without the signature of Pledgor; provided, that unless an Event of Default has occurred and is continuing, Secured Party may not (i) receive, endorse and collect any instruments made payable to Pledgor representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof; or (ii) file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Pledged Collateral. SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform any agreement contained herein, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Pledgor under Section 13(b). SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Pledged Collateral, it being understood that Secured Party shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, (b) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Pledged Collateral) to preserve rights against any parties with respect to any Pledged Collateral, (c) taking any necessary steps to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Pledged Collateral, or (d) initiating any action to protect the Pledged Collateral against the possibility of a decline in market value. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which Secured Party accords its own property consisting of negotiable securities. SECTION 11. REMEDIES. (a) If any Event of Default shall have occurred and be continuing, Secured Party may exercise in respect of the Pledged Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the "Code") (whether or not the Code applies to the affected Pledged Collateral), and Secured Party may also in its sole discretion, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. Secured Party or any Lender may be the purchaser of any 7 or all of the Pledged Collateral at any such sale and Secured Party, as agent for and representative of Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Pledged Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten Business Days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Pledgor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Collateral are insufficient to pay all the Secured Obligations, Pledgor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. (b) Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Pledged Collateral conducted without prior registration or qualification of such Pledged Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges that any such private sales may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, Pledgor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. (c) If Secured Party determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, Pledgor shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to Secured Party all such information as Secured Party may request in order to determine the number of shares and other 8 instruments included in the Pledged Collateral which may be sold by Secured Party in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. SECTION 12. APPLICATION OF PROCEEDS. All proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied as provided in subsection 2.4D of the Credit Agreement. SECTION 13. INDEMNITY AND EXPENSES. (a) Pledgor agrees to indemnify Secured Party and each Lender for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including reasonable counsel fees and disbursements) or disbursements of any kind or nature whatsoever in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's or such Lender's gross negligence or willful misconduct. (b) Pledgor shall pay to Secured Party upon demand the amount of any and all actual and reasonable costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Pledgor to perform or observe any of the provisions hereof. SECTION 14. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to Pledgor. Upon any such termination Secured Party will, at Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination and Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Secured Party, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. 9 SECTION 15. SECURED PARTY AS AGENT. (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including the release or substitution of Pledged Collateral), solely in accordance with this Agreement and the Credit Agreement; provided that Secured Party shall exercise, or refrain from exercising, any remedies provided for in Section 11 in accordance with the instructions of Requisite Lenders. (b) Secured Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. SECTION 16. AMENDMENTS; ETC. No amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by Pledgor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Pledgor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 17. NOTICES. Any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as set forth under 10 such party's name on the signature pages hereof or, as to either party, such other address as shall be designated by such party in a written notice delivered to the other party hereto. SECTION 18. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 19. SEVERABILITY. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 20. HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 21. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. The rules of construction set forth in subsection 1.3 of the Credit Agreement shall be applicable to this Agreement mutatis mutandis. SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, PLEDGOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS WITH RESPECT TO ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR 11 CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO PLEDGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 18; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER PLEDGOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SECTION 23 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. SECTION 23. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Pledgor and Secured Party each acknowledge that this waiver is a material inducement for Pledgor and Secured Party to enter into a business relationship, that Pledgor and Secured Party have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Pledgor and Secured Party further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 24 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 24. COUNTERPARTS. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 12 [Remainder of page intentionally left blank] 13 IN WITNESS WHEREOF, Pledgors and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. CENTRAL FILL, INC. CFI OF NEW JERSEY, INC. CURASCRIPT PHARMACY, INC. CURASCRIPT PBM SERVICES, INC. DIVERSIFIED PHARMACEUTICAL SERVICES, INC. EXPRESS SCRIPTS SALES DEVELOPMENT CO. IBIOLOGIC, INC. IVTX, INC. VALUE HEALTH, INC. ESI MAIL PHARMACY SERVICE, INC. EXPRESS SCRIPTS UTILIZATION MANAGEMENT CO. EXPRESS SCRIPTS SPECIALTY DISTRIBUTION SERVICES, INC. ESI AIRPORT PROPERTIES, LLC ESI CLAIMS, INC. ESI ENTERPRISES, LLC ESI PARTNERSHIP ESI REALTY, LLC NATIONAL PRESCRIPTION ADMINISTRATORS, INC. PHOENIX MARKETING GROUP, L.L.C. EXPRESS SCRIPTS CANADA HOLDING CO. YOURPHARMACY.COM, INC. Each as a Pledgor By: /s/ George Paz ------------------------------------- Name: George Paz Title: Vice President ESI RESOURCES, INC. ESI-GP HOLDINGS, INC. Each as a Pledgor By: /s/ Thomas L. Schaefer ------------------------------------- 14 Name: Thomas L. Schaefer Title: President Notice Address: 13900 Riverport Drive Maryland Heights, Missouri 63043 Attention: Michael Salamone 15 CREDIT SUISSE FIRST BOSTON, as Secured Party By: /s/ Joseph Adipietro ------------------------------------- Name: Joseph Adipietro Title: Director By: /s/ Kingsbury ------------------------------------- Name: Kingsbury Title: Director Notice Address: Eleven Madison Avenue New York, New York 10010 Attention: 16 SCHEDULE I Attached to and forming a part of the Pledge Agreement dated as of February 13, 2004 between each of the Pledgors party thereto, and Credit Suisse First Boston, as Secured Party. PART A Pledgor: CURASCRIPT PBM SERVICES, INC.
Stock Certificate Number of Stock Issuer Class of Stock Nos. Par Value Shares - --------------- -------------- ----------------- --------- --------- ~~iBIOLogic, Inc. Common C1 $.01 1,000~~
Pledgor: ESI MAIL PHARMACY SERVICE, INC.
Stock Certificate Number of Stock Issuer Class of Stock Nos. Par Value Shares - ---------------------- -------------- ----------------- --------- --------- Central Fill, Inc. Common 10 $1.00 3,000 CFI of New Jersey, Inc. Common CA11 No Par Value 2,004 Common C19 No Par Value 996 ESI Enterprises, LLC Membership N/A N/A 49% Interest
Pledgor: ESI PARTNERSHIP
Stock Certificate Number of Stock Issuer Class of Stock Nos. Par Value Shares - ---------------------- -------------- ----------------- --------- --------- ~~ESI Resources, Inc. Common 1 $1.00 1,000~~
Pledgor: ESI-GP HOLDINGS, INC.
Stock Certificate Number of Stock Issuer Class of Stock Nos. Par Value Shares - ---------------------- -------------- ----------------- --------- --------- ESI Partnership General N/A N/A 18% Interest Partnership Interest ESI Enterprises, LLC Membership N/A N/A 1% Interest
17 Pledgor: EXPRESS SCRIPTS SPECIALTY DISTRIBUTION SERVICES, INC.
Stock Certificate Number of Stock Issuer Class of Stock Nos. Par Value Shares - ---------------------- -------------- ----------------- --------- --------- ~~ESI Enterprises, LLC Membership N/A N/A 20% Interest~~
The following Pledgors do not have Pledged Shares or Pledged Collateral: Central Fill, Inc. CFI of New Jersey, Inc. CuraScript Pharmacy, Inc. Diversified Pharmaceutical Services, Inc. ESI Airport Properties, L.L.C. ESI Claims, Inc. ESI Enterprises, LLC ESI Realty, L.L.C. ESI Resources, Inc. Express Scripts Canada Holding Co. Express Scripts Sales Development Co. Express Scripts Utilization Management Co. iBIOLogic, Inc. IVTx, Inc. National Prescription Administrators, Inc. Phoenix Marketing Group, L.L.C. Value Health, Inc. YourPharmacy, Inc. 18 EXHIBIT I PLEDGE AMENDMENT This Pledge Amendment, dated __________, ____, is delivered pursuant to Section 6(b) of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement dated February 13, 2004, between the Pledgors party thereto and Credit Suisse First Boston, as Secured Party (the "Pledge Agreement," capitalized terms defined therein being used herein as therein defined), and that the Pledged Shares listed on this Pledge Amendment shall be deemed to be part of the Pledged Shares and shall become part of the Pledged Collateral and shall secure all Secured Obligations. [NAME OF PLEDGOR] By: ___________________________________ Title:__________________________________
Stock Certificate Number of Stock Issuer Class of Stock Nos. Par Value Shares - ------------ ------------- ----------------- --------- ---------
19 EX-12.1 8 c83158exv12w1.txt COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 EXPRESS SCRIPTS, INC. STATEMENT OF RATIOS OF EARNINGS TO FIXED CHARGES YEARS ENDED DECEMBER 31, 2003, 2002, 2001, 2000, AND 1999
Year Ended December 31, ---------------------------------------------------------- (in thousands) 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- Fixed charges: Interest expense (1) (3) $ 41,417 $ 43,890 $ 34,821 $ 49,693 $ 71,652 Interest portion of rental expense 6,095 5,424 4,885 4,014 3,716 ========== ========== ========== ========== ========== Total fixed charges 47,512 49,314 39,706 53,707 75,368 Earnings: Income before income taxes and extraordinary items (2) (3) 405,302 328,003 207,642 (6,258) 253,824 ---------- ---------- ---------- ---------- ---------- Total adjusted earnings $ 452,814 $ 377,317 $ 247,348 $ 47,449 $ 329,192 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges 9.53 7.65 6.23 0.88 4.37 ========== ========== ========== ========== ==========
(1) Interest expense includes the amortization on our deferred financing fees. (2) Income before income taxes and extraordinary items includes a non-cash write-off of our investment in marketable securities, non-recurring charges and a one-time gain on sale of assets. (3) As a result of our implementation of Financial Accounting Standards Board Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("FAS 145") the write-off of deferred financing fees is now included in interest expense and in income before income taxes and extraordinary items. The amounts above reflect reclassifications made to conform to presentation required by FAS 145. EX-21.1 9 c83158exv21w1.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 The following is a list of all of the Company's subsidiaries, regardless of the materiality of their operations. Each of these subsidiaries is included in the Company's Consolidated Financial Statements; provided, however that CuraScript Pharmacy, Inc., CuraScript PBM Services, Inc., and iBIOLogic, Inc. were each acquired after December 31, 2003, and, as a result, they are not included in the Company's Consolidated Financial Statements for the period ending December 31, 2003.
SUBSIDIARY STATE OF ORGANIZATION D/B/A - ---------- --------------------- ----- Central Fill, Inc. Pennsylvania None CFI New Jersey, Inc. New Jersey None CuraScript PBM Services, Inc. Delaware CuraScript CuraScript Pharmacy, Inc. Delaware CuraScript Diversified NY IPA, Inc. New York None Diversified Pharmaceutical Services (Puerto Rico), Inc. Puerto Rico None Diversified Pharmaceutical Services, Inc. Minnesota None ESI Airport Properties, LLC Delaware None ESI Canada Ontario, Canada None ESI Claims, Inc. Delaware None ESI Enterprises, LLC Delaware None ESI-GP Canada, ULC Nova Scotia, Canada None ESI-GP Holdings, Inc. Delaware None ESI Mail Pharmacy Service, Inc. Delaware None ESI Partnership Delaware None ESI Realty, LLC Delaware None ESI Resources, Inc. Minnesota None Express Access Pharmacy, Inc. Delaware None Express Scripts Canada Co. Nova Scotia, Canada None Express Scripts Canada Holding, Co. Delaware None Express Scripts Sales Development Co. Delaware None Express Scripts Specialty Distribution Services, Inc. Delaware None Express Scripts Utilization Management Co. Delaware None iBIOLogic, Inc. Delaware None Intecare Pharmacies, Ltd. Ontario, Canada None IVTx, Inc. Delaware None Great Plains Reinsurance Company Arizona None National Prescription Administrators, Inc. New Jersey NPA NPA of New York IPA, Inc. New York None Phoenix Marketing Group, LLC Delaware Phoenix Value Health, Inc. Delaware None ValueRx of Michigan, Inc. Michigan None YourPharmacy.com, Inc. Delaware None
EX-23.1 10 c83158exv23w1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-110573, 333-43336, 333-80255, 333-72441, 333-69855, 333-48779, 333-48767, 333-48765, 333-27983, 333-04291, 33-64094, 33-64278, 33-93106) of Express Scripts, Inc. of our report dated February 20, 2004, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP St. Louis, Missouri February 24, 2004 EX-31.1 11 c83158exv31w1.txt CERTIFICATION EXHIBIT 31.1 I, Barrett A. Toan, certify that: 1. I have reviewed this annual report of Express Scripts, Inc.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 15d-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 annual report is being prepared; b) [Reserved] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual 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 d) disclosed in this annual report any change 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 reasonably 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 registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably 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: February 24, 2004 /s/ Barrett A. Toan ------------------------------------------ Barrett A. Toan, Chairman of the Board and Chief Executive Officer EX-31.2 12 c83158exv31w2.txt CERTIFICATION EXHIBIT 31.2 I, George Paz, certify that: 1. I have reviewed this annual report of Express Scripts, Inc.; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 15d-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 annual report is being prepared; b) [Reserved] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual 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 d) disclosed in this annual report any change 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 reasonably 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 registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably 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: February 24, 2004 /s/ George Paz ----------------------------------- George Paz, President and Chief Financial Officer EX-32.1 13 c83158exv32w1.txt CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AND EXCHANGE ACT RULE 13a-14(b) In connection with the accompanying Form 10-K (the "Report") of Express Scripts, Inc. (the "Company") for the period ended December 31, 2003, I, Barrett A. Toan, Chairman of the Board of Directors and Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Exchange Act Rule 13a-14(b) that: (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 results of operations of the Company. Date: February 24, 2004 BY: /s/ Barrett A. Toan ------------------------------- Barrett A. Toan Chairman of the Board and Chief Executive Officer Express Scripts, Inc. A signed original of this written statement required by Section 906 has been provided to Express Scripts, Inc. and will be retained by Express Scripts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 14 c83158exv32w2.txt CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AND EXCHANGE ACT RULE 13a-14(b) In connection with the accompanying Form 10-K (the "Report") of Express Scripts, Inc. (the "Company") for the period ended December 31, 2003, I, George Paz, President and Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Exchange Act Rule 13a-14(b) that: (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 results of operations of the Company. Date: February 24, 2004 BY: /s/ George Paz -------------------------------------- George Paz President and Chief Financial Officer Express Scripts, Inc. A signed original of this written statement required by Section 906 has been provided to Express Scripts, Inc. and will be retained by Express Scripts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----


x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
		FISCAL YEAR ENDED DECEMBER 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 .


PART I
	Item 1 — Business
	Item 2 — Properties
	Item 3 — Legal Proceedings
	Item 4 — Submission of Matters to a Vote of Security Holders
PART II
	Item 5 — Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6 – Selected Financial Data
	Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8 — Consolidated Financial Statements and Supplementary Data
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENT OF OPERATIONS
		CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
		CONSOLIDATED STATEMENT OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 9A — Controls and Procedures
PART III
	Item 10 — Directors and Executive Officers of the Registrant
	Item 11 — Executive Compensation
	Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13 — Certain Relationships and Related Party Transactions
	Item 14 — Principal Accountant Fees and Services
PART IV
	Item 15 — Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
Letter Agreement
Credit Agreement
Subsidiary Guaranty
Company Pledge Agreement
Subsidiary Pledge Agreement
Computation of Ratios of Earnings to Fixed Charges
List of Subsidiaries
Consent of PricewaterhouseCoopers LLP
Certification
Certification
Certification
Certification


PBM Facilities		Non-PBM Facilities

Maryland Heights, Missouri (six facilities)		Maryland Heights, Missouri
Tempe, Arizona (three facilities)		Lincoln Park, New Jersey (three facilities)
Bloomington, Minnesota (two facilities)		Montville, New Jersey
Bensalem, Pennsylvania (two facilities)
Troy, New York
Farmington Hills, Michigan(1)
Albuquerque, New Mexico
Horsham, Pennsylvania
Montreal, Quebec
Mississauga, Ontario
East Hanover, New Jersey
Swatara, Pennsylvania


		Fiscal Year 2003				Fiscal Year 2002
		High		Low		High		Low
Common Stock
	First Quarter	$	57.50	$	46.33	$	57.98	$	42.20
	Second Quarter		75.25		52.80		65.90		46.50
	Third Quarter		75.45		57.63		56.20		38.65
	Fourth Quarter		67.40		52.03		58.75		45.83


(in thousands, except per share data)			2003			2002⁽²⁾			2001⁽³⁾			2000⁽⁴⁾			1999⁽⁵⁾

Statement of Operations Data (for the Year Ended December 31):
Revenues:
		Revenues	$	13,294,517		$	12,270,513		$	8,588,000		$	6,090,633		$	3,795,954
		Other revenues		—			—			—			10,423			3,000

				13,294,517			12,270,513			8,588,000			6,101,056			3,798,954
Cost of revenues				12,428,179			11,447,095			7,992,132			5,562,089			3,337,755

				866,338			823,418			595,868			538,967			461,199
		Selling, general and administrative		417,213			451,692			358,691			338,755			294,194
		Non-recurring charges		—			—			—			—			30,221

Operating income				449,125			371,726			237,177			200,212			136,784
Other (expense) income, net				(43,823	)		(43,723	)		(29,535	)		(206,470	)		117,040

Income (loss) before income taxes				405,302			328,003			207,642			(6,258	)		253,824
Provision for income taxes				154,674			125,167			82,942			2,868			103,606

Income (loss) before cumulative effect of accounting change				250,628			202,836			124,700			(9,126	)		150,218
Cumulative effect of accounting change, net of tax				(1,028	)		—			—			—			—

Net income (loss)			$	249,600		$	202,836		$	124,700		$	(9,126	)	$	150,218

Basic earnings (loss) per share:⁽¹⁾
	Before cumulative effect of accounting change		$	3.22		$	2.60		$	1.60		$	(0.12	)	$	2.08
	Cumulative effect of accounting change			(0.01	)		—			—			—			—

	Net income (loss)		$	3.21		$	2.60		$	1.60		$	(0.12	)	$	2.08

Diluted earnings (loss) per share:⁽¹⁾
	Before cumulative effect of accounting change		$	3.17		$	2.55		$	1.56		$	(0.12	)	$	2.03
	Cumulative effect of accounting change			(0.01	)		—			—			—			—

	Net income (loss)		$	3.16		$	2.55		$	1.56		$	(0.12	)	$	2.03

Weighted average shares outstanding:⁽¹⁾
		Basic		77,830			77,866			77,857			76,392			72,190
		Diluted⁽⁶⁾		78,928			79,667			79,827			76,392			74,066
Balance Sheet Data (as of December 31):
Cash and cash equivalents			$	396,040		$	190,654		$	177,715		$	53,204		$	132,630
Working capital				(66,273	)		(149,936	)		(32,414	)		(117,775	)		(34,003	)
Total assets				3,409,174			3,206,992			2,500,245			2,276,664			2,487,311
Debt:
		Short-term debt		—			3,250			—			—			—
		Long-term debt		455,018			562,556			346,119			396,441			635,873
Stockholders’ equity				1,193,993			1,002,855			831,997			705,244			699,482
Selected Data (for the Year Ended December 31):
Network pharmacy claims processed				378,927			354,880			293,996			299,584			273,909
Mail pharmacy prescriptions filled				32,337			27,170			20,493			15,183			10,608
Specialty distribution prescriptions filled				3,610			3,082			1,889			1,120			604
Cash flows provided by operating activities			$	457,924		$	425,970		$	280,990		$	245,910		$	214,059
Cash flows used in investing activities				(42,848	)		(548,728	)		(76,719	)		(73,578	)		(759,576	)
Cash flows (used in) provided by financing activities				(212,468	)		135,623			(79,549	)		(251,627	)		555,450
EBITDA⁽⁷⁾				503,155			453,764			315,358			278,250			208,651


Delaware (State or other jurisdiction of incorporation or organization)		43-1420563 (I.R.S. employer identification no.)


13900 Riverport Dr., Maryland Heights, Missouri (Address of principal executive offices)		63043 (Zip Code)

	•		financial incentives and reimbursement limitations on the drugs covered by the plan, including drug formularies, tiered co-payments, deductibles or annual benefit maximums

	•		generic drug utilization incentives

	•		incentives or requirements to use only network pharmacies or to order certain maintenance drugs (i.e. therapies for diabetes, high blood pressure, etc.) only by mail

	•		reimbursement limitations on the amount of a drug that can be obtained in a specific period

	•		by restricting the formulary through plan design features, such as tiered co-payments, which require the member to pay a higher amount for a non-formulary drug

	•		through prescriber education programs, in which we or the client actively seek to educate the prescribers about formulary drugs

	•		through our drug choice management program, which actively promotes lower cost therapeutic and generic interchanges to clinically appropriate cost-effective products


Name	Age		Position

Barrett A. Toan		56	Chairman of the Board and Chief Executive Officer

George Paz		48	President and Chief Financial Officer

David A. Lowenberg		54	Chief Operating Officer

Thomas M. Boudreau		52	Senior Vice President, General Counsel and Secretary

C. K. Casteel		53	Senior Vice President – Supply Chain Management

Edward Ignaczak		38	Senior Vice President – Sales and Account Management

Domenic A. Meffe		39	Senior Vice President – Specialty Pharmacy Services

Douglas Porter		45	Senior Vice President – Client Services

Agnes Rey-Giraud		39	Senior Vice President – Product Management

Edward J. Tenholder		52	Senior Vice President, Chief Administration Officer and Chief Information Systems Officer

Darryl E. Weinrich		38	Vice President, Chief Accounting Officer and Controller


(1)		Earnings per share and weighted average shares outstanding have been restated to reflect the two-for-one stock split effective June 22, 2001.

(2)		Includes the acquisition of Phoenix Marketing Group effective February 25, 2002, National Prescription Administrators and certain related entities effective April 12, 2002 and Managed Pharmacy Benefits, Inc. effective December 20, 2002.

(3)		Includes the acquisition of Centre d’autorisation et de paiement des services de sante, Inc. by our Canadian subsidiary effective March 1, 2001.

(4)		Includes a non-cash write-off of $165,207 ($103,089 net of tax) of our investment in PlanetRx.com, Inc. Includes an ordinary gain of $1,500 ($926 net of tax) on the restructuring of our interest rate swap agreements. These items resulted in a net $1.33 decrease in basic and diluted earnings per share.

(5)		Includes the acquisition of DPS effective April 1, 1999. Also includes non-recurring operating charges and a one-time non-operating gain of $30,221 ($18,188 net of tax) and $182,930 ($112,037 net of tax), respectively. These items resulted in net increases of $1.30 and $1.27 of basic and diluted earnings per share, respectively.

(6)		In accordance with Financial Accounting Standards Board Statement No. 128, “Earnings Per Share,” basic weighted average shares were used to calculate 2000 diluted EPS as the 2000 net loss and the actual diluted weighted average shares (78,066 as of December 31, 2000) cause diluted EPS to be anti-dilutive.

(7)		EBITDA is earnings before other income (expense), interest, taxes, depreciation and amortization, or operating income plus depreciation and amortization. EBITDA is presented because it is a widely accepted indicator of a company’s ability to service indebtedness and is frequently used to evaluate a company’s performance. EBITDA, however, should not be considered as an alternative to net income, as a measure of operating performance, as an alternative to cash flow, as a measure of liquidity or as a substitute for any other measure computed in accordance with accounting principles generally accepted in the United States. In addition, our definition and calculation of EBITDA may not be comparable to that used by other companies.


	Year Ended December 31,
(in thousands)	2003			2002			2001			2000			1999

Net income	$	249,600		$	202,836		$	124,700		$	(9,126	)	$	150,218
Income taxes		154,674			125,167			82,942			2,868			103,606
Depreciation and amortization		54,030			82,038			78,181			78,038			71,867
Interest expense, net		38,027			39,174			27,701			41,263			65,890
Undistributed loss from joint venture		5,796			4,549			1,834			—			—
Write-off of / (gain on) marketable securities		—			—			—			165,207			(182,930	)
Cumulative effect of accounting change, net of tax		1,028			—			—			—			—

EBITDA		503,155			453,764			315,358			278,250			208,651
Current income taxes		(120,236	)		(95,284	)		(63,849	)		(44,960	)		(27,389	)
Change in operating assets and liabilities		84,091			62,533			10,971			19,273			57,130
Interest expense less amortization		(34,963	)		(35,275	)		(25,090	)		(37,082	)		(52,084	)
Bad debt expense		(2,573	)		17,865			8,356			12,843			4,989
Tax benefit from employee stock options		26,893			16,940			20,769			15,456			3,201
Amortization of unearned compensation under employee plans		8,318			9,760			10,490			1,286			—
Undistributed loss from joint venture		(5,796	)		(4,549	)		(1,834	)		—			—
Other, net		(965	)		216			5,819			844			19,561

Net cash provided by operating activities	$	457,924		$	425,970		$	280,990		$	245,910		$	214,059


			Year Ended December 31,
					Increase/					Increase/
(in thousands)			2003		(Decrease)			2002		(Decrease)			2001

Product revenue
	Network revenues		$	9,037,246		7.3	%	$	8,423,861		40.9	%	$	5,977,833
	Mail revenues			3,988,141		10.4	%		3,612,485		47.9	%		2,442,782
Service revenues				72,878		(15.4	)%		86,094		(8.9	)%		94,555

	Total PBM revenues			13,098,265		8.0	%		12,122,440		42.4	%		8,515,170
Cost of PBM revenues				12,282,169		8.3	%		11,342,685		42.8	%		7,945,570

		PBM gross profit		816,096		4.7	%		779,755		36.9	%		569,600
PBM SG&A expenses				402,801		(8.3	)%		439,422		25.6	%		349,818

		PBM operating income	$	413,295		21.4	%	$	340,333		54.9	%	$	219,782


	Payments Due by Period as of December 31, 2003

Contractual obligations	Total		2004		2005 – 2006		2007 – 2008		After 2008

Long-term debt (Note 7)	$	454,768	$	—	$	—	$	250,000	$	204,768
Future minimum lease payments (Note 10)		97,440		19,866		39,210		29,926		8,438

Total contractual cash obligations	$	552,208	$	19,866	$	39,210	$	279,926	$	213,206


			December 31,
(in thousands, except share data)			2003			2002

Assets
Current assets:
	Cash and cash equivalents		$	396,040		$	190,654
	Receivables, net			1,011,154			988,544
	Inventories			116,375			160,483
	Deferred taxes			15,346			25,686
	Prepaid expenses and other current assets			21,220			28,454

		Total current assets		1,560,135			1,393,821
Property and equipment, net				177,312			168,973
Goodwill, net				1,421,493			1,378,436
Other intangible assets, net				232,059			251,111
Other assets				18,175			14,651

		Total assets	$	3,409,174		$	3,206,992

Liabilities and Stockholders’ Equity
Current liabilities:
	Claims and rebates payable		$	1,178,321		$	1,084,906
	Accounts payable			232,290			255,245
	Accrued expenses			215,797			200,356
	Current maturities of long-term debt			—			3,250

		Total current liabilities		1,626,408			1,543,757
Long-term debt				455,018			562,556
Other liabilities				133,755			97,824

		Total liabilities		2,215,181			2,204,137

Commitments and Contingencies (Notes 3 and 10)
Stockholders’ equity:
	Preferred stock, $0.01 par value, 5,000,000 shares authorized, and no shares issued and outstanding			—			—
	Common Stock, $0.01 par value, 181,000,000 shares authorized 79,795,000 and 79,834,000 shares issued and outstanding, respectively			798			798
	Additional paid-in capital			484,663			503,746
	Unearned compensation under employee compensation plans			(23,302	)		(8,179	)
	Accumulated other comprehensive income			3,638			(4,422	)
	Retained earnings			864,550			614,950

				1,330,347			1,106,893
	Common Stock in treasury at cost, 2,223,000 and 1,963,000 shares, respectively			(136,354	)		(104,038	)

		Total stockholders’ equity		1,193,993			1,002,855

		Total liabilities and stockholders’ equity	$	3,409,174		$	3,206,992


		Year Ended December 31,
				Increase/					Increase/
(in thousands)		2003		Decrease			2002		Decrease			2001

Product revenues		$	86,799		55.5	%	$	55,806		153.4	%	$	22,025
Service revenues			109,453		18.6	%		92,267		81.6	%		50,805

	Total non-PBM revenues		196,252		32.5	%		148,073		103.3	%		72,830
Non-PBM cost of revenues			146,010		39.8	%		104,410		124.2	%		46,562

	Non-PBM gross profit		50,242		15.1	%		43,663		66.2	%		26,268
Non-PBM SG&A expense			14,412		17.5	%		12,270		38.3	%		8,873

	Non-PBM operating income	$	35,830		14.1	%	$	31,393		80.5	%	$	17,395


				Number of Shares			Amount

												Unearned
												Compensation			Accumulated
									Additional			Under Employee			Other
				Common			Common		Paid-in			Compensation			Comprehensive			Retained		Treasury
(in thousands)				Stock			Stock		Capital			Plans			Income			Earnings		Stock			Total

Balance at December 31, 2000					39,044		$	390	$	441,387		$	(13,676	)	$	(97	)	$	287,414	$	(10,174	)	$	705,244

	Comprehensive income:
		Net income			—			—		—			—			—			124,700		—			124,700
		Other comprehensive income,
			Foreign currency translation adjustment		—			—		—			—			(907	)		—		—			(907	)
			Cumulative effect of change in accounting for derivative financial instruments, net of taxes		—			—		—			—			(612	)		—		—			(612	)
		Realized and unrealized losses on derivative financial instruments, net of taxes			—			—		—			—			(2,977	)		—		—			(2,977	)

	Comprehensive (loss) income				—			—		—			—			(4,496	)		124,700		—			120,204
	Stock split in form of stock dividend				39,292			393		(393	)		—			—			—		—			—
	Treasury stock acquired				—			—		—			—			—			—		(54,463	)		(54,463	)
	Common stock issued under employee plans				78			1		13,728			(12,266	)		—			—		—			1,463
	Amortization of unearned compensation under employee plans				—			—		—			10,490			—			—		—			10,490
	Exercise of stock options				816			8		11,899			—			—			—		11,544			23,451
	Tax benefit relating to employee stock options				—			—		20,769			—			—			—		—			20,769
	Shares to be issued under contractual agreements (Note 4)				—			—		4,839			—			—			—		—			4,839

Balance at December 31, 2001					79,230			792		492,229			(15,452	)		(4,593	)		412,114		(53,093	)		831,997

	Comprehensive income:
		Net income			—			—		—			—			—			202,836		—			202,836
		Other comprehensive income,
			Foreign currency translation adjustment		—			—		—			—			167			—		—			167
			Realized and unrealized losses on derivative financial instruments, net of taxes		—			—		—			—			4			—		—			4

	Comprehensive income				—			—		—			—			171			202,836		—			203,007
	Treasury stock acquired				—			—		—			—			—			—		(107,121	)		(107,121	)
	Common stock issued under employee plans				52			—		2,895			(2,487	)		—			—		2,270			2,678
	Amortization of unearned compensation under employee plans				—			—		—			9,760			—			—		—			9,760
	Exercise of stock options				—			—		(29,978	)		—			—			—		53,906			23,928
	Tax benefit relating to employee stock options				—			—		16,940			—			—			—		—			16,940
	Shares not issued under contractual agreements (Note 4)				—			—		(4,734	)		—			—			—		—			(4,734	)
	Stock issued for NPA acquisition				552			6		26,394			—			—			—		—			26,400

Balance at December 31, 2002					79,834			798		503,746			(8,179	)		(4,422	)		614,950		(104,038	)		1,002,855

	Comprehensive income:
		Net income						—		—			—			—			249,600		—			249,600
		Other comprehensive income,
			Foreign currency translation adjustment					—		—			—			6,019			—		—			6,019
			Realized and unrealized losses on derivative financial instruments; net of taxes					—		—			—			2,041			—		—			2,041

	Comprehensive income							—		—			—			8,060			249,600		—			257,660
	Treasury stock acquired							—		—			—			—			—		(143,041	)		(143,041	)
	Common stock issued under employee plans, net of forfeitures and stock redeemed for taxes				(39	)				1,512			(23,441	)		—			—		21,467			(462	)
	Amortization of unearned compensation under employee plans							—		—			8,318			—			—		—			8,318
	Exercise of stock options							—		(47,488	)		—			—			—		89,258			41,770
	Tax benefit relating to employee stock options							—		26,893			—			—			—		—			26,893

Balance at December 31, 2003					79,795		$	798	$	484,663		$	(23,302	)	$	3,638		$	864,550	$	(136,354	)	$	1,193,993


	Year Ended
	December 31,
	2002
Total revenues	$	12,915,670
Net income		204,937
Basic earnings per share		2.63
Diluted earnings per share		2.57


		December 31, 2003				December 31, 2002
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization

Goodwill
	PBM⁽¹⁾	$	1,506,242	$	106,885	$	1,462,869	$	106,569
	Non-PBM		22,136		—		22,136		—

		$	1,528,378	$	106,885	$	1,485,005	$	106,569


(in thousands, except per share amounts)	2003		2002		2001

Reported net income	$	249,600	$	202,836	$	124,700
Add back: Goodwill amortization, net of tax		—		—		26,299

Adjusted net income	$	249,600	$	202,836	$	150,999

Reported basic earnings per share	$	3.21	$	2.60	$	1.60
Add back: Goodwill amortization, net of tax		—		—		0.34

Adjusted basic earnings per share	$	3.21	$	2.60	$	1.94

Reported diluted earnings per share	$	3.16	$	2.55	$	1.56
Add back: Goodwill amortization, net of tax		—		—		0.33

Adjusted diluted earnings per share	$	3.16	$	2.55	$	1.89


Year Ended December 31,

2004	$	—
2005		—
2006		—
2007		19,250
2008		230,750
Thereafter		204,768

	$	454,768


	Minimum lease
Year Ended December 31,	payments

2004	$	19,866
2005		20,939
2006		18,271
2007		16,849
2008		13,077
Thereafter		8,438

	$	97,440


	Options Outstanding						Options Exercisable

Range of
Exercise Prices	Number		Weighted-Average				Number		Weighted-
(share data in	Outstanding at		Remaining		Weighted-Average		Exercisable		Average
thousands)	12/31/03		Contractual Life		Exercise Price		at 12/31/03		Exercise Price

$7.44 - 19.31		649		3.2	$	16.43		625	$	16.31
19.32 - 27.56		770		5.1		26.26		630		26.36
27.57 - 39.24		1,199		5.1		36.38		877		36.09
39.25 - 47.95		977		5.1		47.15		442		46.61
47.96 - 71.45		421		5.7		56.63		114		52.49

7.44 - 71.45		4,016		4.9	$	35.96		2,688	$	31.64


		Express					Non-
(in thousands)		Scripts, Inc.		Guarantors			Guarantors			Eliminations			Consolidated

As of December 31, 2003
Current assets		$	1,164,863	$	375,281		$	19,991		$	—		$	1,560,135
Property and equipment, net			106,868		64,686			5,758			—			177,312
Investments in subsidiaries			1,722,595		1,151,924			—			(2,874,519	)		—
Intercompany			624,370		(587,159	)		(37,211	)		—			—
Goodwill, net			241,457		1,161,512			18,524			—			1,421,493
Other intangible assets, net			61,168		161,628			9,263			—			232,059
Other assets			16,288		2,115			(228	)		—			18,175

	Total assets	$	3,937,609	$	2,329,987		$	16,097		$	(2,874,519	)	$	3,409,174

Current liabilities		$	472,160	$	1,144,416		$	9,832		$	—		$	1,626,408
Long-term debt			455,018		—			—			—			455,018
Other liabilities			122,673		11,999			(917	)		—			133,755
Stockholders’ equity			2,887,758		1,173,572			7,182			(2,874,519	)		1,193,993

	Total liabilities and stockholders’ equity	$	3,937,609	$	2,329,987		$	16,097		$	(2,874,519	)	$	3,409,174

As of December 31, 2002
Current assets		$	948,288	$	427,890		$	17,643		$	—		$	1,393,821
Property and equipment, net			117,086		49,561			2,326			—			168,973
Investments in subsidiaries			1,664,602		1,176,251			—			(2,840,853	)		—
Intercompany			823,318		(787,102	)		(36,216	)		—			—
Goodwill, net			241,457		1,121,863			15,116			—			1,378,436
Other intangible assets, net			70,755		171,833			8,523			—			251,111
Other assets			14,764		(358	)		245			—			14,651

	Total assets	$	3,880,270	$	2,159,938		$	7,637		$	(2,840,853	)	$	3,206,992

Current liabilities		$	394,224	$	1,144,827		$	4,706		$	—		$	1,543,757
Long-term debt			562,556		—			—			—			562,556
Other liabilities			58,777		39,264			(217	)		—			97,824
Stockholders’ equity			2,864,713		975,847			3,148			(2,840,853	)		1,002,855

	Total liabilities and stockholders’ equity	$	3,880,270	$	2,159,938		$	7,637		$	(2,840,853	)	$	3,206,992


(in thousands)			PBM		Non-PBM		Total

2003
Product revenue:
		Network revenues	$	9,037,246	$	—	$	9,037,246
		Mail revenues		3,988,141		—		3,988,141
		Other revenues		—		86,799		86,799
Service revenues				72,878		109,453		182,331

	Total revenues			13,098,265		196,252		13,294,517
Depreciation and amortization expense				50,973		3,057		54,030
Operating income				413,295		35,830		449,125

Interest income								3,390
Interest expense								(41,417	)
Undistributed loss from joint venture								(5,796	)

Income before income taxes								405,302
Total assets (as of December 31)				3,286,700		122,474		3,409,174
Investment in equity method investees				1,971		—		1,971
Capital expenditures				49,009		4,096		53,105

2002
Product revenue:
		Network revenues	$	8,423,861	$	—	$	8,423,861
		Mail revenues		3,612,485		—		3,612,485
		Other revenues		—		55,806		55,806
Service revenues				86,094		92,267		178,361

	Total revenues			12,122,440		148,073		12,270,513
Depreciation and amortization expense				80,038		2,000		82,038
Operating income				340,333		31,393		371,726

Interest income								4,716
Interest expense								(43,890	)
Undistributed loss from joint venture								(4,549	)

Income before income taxes								328,003
Total assets (as of December 31)				3,102,285		104,707		3,206,992
Investment in equity method investees				3,117		—		3,117
Capital expenditures				55,388		5,915		61,303

2001
Product revenues:
		Network revenues	$	5,977,833	$	—	$	5,977,833
		Mail revenues		2,442,782		—		2,442,782
		Other revenues		—		22,025		22,025
Service revenues				94,555		50,805		145,360

	Total revenues			8,515,170		72,830		8,588,000
Depreciation and amortization expense				77,233		948		78,181
Operating income				219,781		17,396		237,177

Interest income								7,120
Interest expense								(34,821	)
Undistributed loss from joint venture								(1,834	)

Income before income taxes								207,642
Total assets (as of December 31)				2,437,725		62,520		2,500,245
Investment in equity method investees				3,866		—		3,866
Capital expenditures				54,587		2,699		57,286


Year Ended December 31,

2004	$	16,500
2005		22,000
2006		29,500
2007		39,500
2008		79,500
Thereafter		517,768

	$	704,768


		Quarters

(in thousands, except per share data)		First			Second		Third		Fourth

Fiscal 2003
Total revenues		$	3,223,981		$	3,334,197	$	3,248,602	$	3,487,737
Cost of revenues			3,014,368			3,116,962		3,041,825		3,255,024
Gross profit			209,613			217,235		206,777		232,713
Selling, general and administrative			101,786			106,955		93,286		115,186
Operating income			107,827			110,280		113,491		117,527
Income before cumulative effect of accounting charge			59,649			59,006		64,542		67,431

Cumulative effect of accounting change⁽¹⁾			(1,028	)		—		—		—

Net income		$	58,621		$	59,006	$	64,542		67,431

Basic earnings per share
	Before cumulative effect of accounting change	$	0.77		$	0.75	$	0.82	$	0.87
	Cumulative effect of accounting change		(0.01	)		—		—		—

	Net income	$	0.76		$	0.75	$	0.82	$	0.87

Diluted earnings per share:
	Before cumulative effect of Accounting change	$	0.75		$	0.74	$	0.81	$	0.86
	Cumulative effect of accounting change		(0.01	)				—		—

	Net income	$	0.74		$	0.74	$	0.81	$	0.86


	EXPRESS SCRIPTS, INC.

February 24, 2004	By:	/s/ Barrett A. Toan

		Barrett A. Toan
		Chairman of the Board of Directors and
		Chief Executive Officer


Signature	Title	Date


/s/ Barrett A. Toan

Barrett A. Toan	Chairman of the Board of Directors and Chief Executive Officer	February 24, 2004

/s/ George Paz

George Paz	President and Chief Financial Officer	February 24, 2004

/s/ Darryl E. Weinrich

Darryl E. Weinrich	Vice President, Chief Accounting Officer and Corporate Controller	February 24, 2004

/s/ Gary G. Benanav

Gary G. Benanav	Director	February 24, 2004

/s/ Frank J. Borelli

Frank J. Borelli	Director	February 24, 2004

/s/ Nicholas J. LaHowchic

Nicholas J. LaHowchic	Director	February 24, 2004

/s/ Thomas P. Mac Mahon

Thomas P. Mac Mahon	Director	February 24, 2004

/s/ John O. Parker, Jr.

John O. Parker, Jr.	Director	February 24, 2004

/s/ Samuel Skinner

Samuel Skinner	Director	February 24, 2004

/s/ Seymour Sternberg

Seymour Sternberg	Director	February 24, 2004


Col. A	Col. B		Col. C						Col. D		Col. E

			Additions

	Balance		Charges								Balance
	at		to Costs			Charges					at End
	Beginning		and			to Other					of
Description	of Period		Expenses			Accounts			(Deductions)		Period

Allowance for Doubtful
Accounts Receivable
Year Ended 12/31/01	$	22,677,361	$	8,355,536		$	—		$	6,875,519	$	24,157,378
Year Ended 12/31/02	$	24,157,378	$	17,865,386		$	1,933,359	⁽¹⁾	$	8,134,207	$	35,821,916
Year Ended 12/31/03	$	35,821,916	$	(2,572,786	)⁽²⁾	$	—		$	4,642,298	$	28,606,832


Exhibit Number		Exhibit

2.1¹		Asset Purchase Agreement, dated as of December 19, 2001, by and among the Company, Phoenix Marketing Group (Holdings), Inc., and Access Worldwide Communications, Inc.(“Access”), incorporated by reference to Appendix A to Access’ Definitive Proxy Statement on Schedule 14A, filed January 15, 2002.

2.2¹		Stock and Asset Purchase Agreement, dated February 5, 2002, by and among the Company, Richard O. Ullman and the other Shareholders of National Prescription Administrators, Inc., Central Fill, Inc., CFI of New Jersey, Inc., and NPA of New York, IPA, Inc., Richard O. Ullman as agent for such Shareholders, The Ullman Family Partnership, LP, and Airport Properties, LLC, incorporated by reference to Exhibit No. 2.1 to the Company’s Current Report on Form 8-K filed April 26, 2002.

2.3¹		Amendment No. 1 to Stock and Asset Purchase Agreement dated April 12, 2002 by and among the Company, Richard O. Ullman and the other Shareholders of National Prescription Administrators, Inc., Central Fill, Inc., CFI of New Jersey, Inc., and NPA of New York, IPA, Inc., Richard O. Ullman as agent for such Shareholders, The Ullman Family Partnership, LP, and Airport Properties, LLC, incorporated by reference to Exhibit No. 2.2 to the Company’s Current Report on Form 8-K filed April 26, 2002.

2.4¹		Stock Purchase Agreement, dated December 19, 2003, by and among the Company, CPS Holdings, LLC, CuraScript Pharmacy, Inc. and CuraScript PBM Services, Inc, incorporated by reference to Exhibit No. 2.1 to the Company’s Current Report on Form 8-K filed December 24, 2003.

3.1		Amended and Restated Certificate of Incorporation of the Company, as amended, incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ending December 31, 2001.

3.2		Third Amended and Restated Bylaws, incorporated by reference to Exhibit No. 3.2 to the Company’s Annual Report on Form 10-K for the year ending December 31, 2000.

4.1		Form of Certificate for Class A Common Stock, incorporated by reference to Exhibit No. 4.1 to the Company’s Registration Statement on Form S-1 filed June 9, 1992 (Registration Number 33-46974).

4.2		Indenture, dated as of June 16, 1999, among the Company, Bankers Trust Company, as trustee, and the Guarantors named therein, incorporated by reference to Exhibit No. 4.4 to the Company’s Registration Statement on Form S-4 filed August 4, 1999 (Registration Number 333-83133).

4.3		Supplemental Indenture, dated as of October 6, 1999, to Indenture dated as of June 16, 1999, among the Company, Bankers Trust Company, as trustee, and Guarantors named therein, incorporated by reference to Exhibit No. 4.3 to the Company’s Annual Report on Form 10-K for the year ending December 31, 1999.

4.4		Second Supplemental Indenture, dated as of July 19, 2000, to Indenture dated as of June 16, 1999, among the Company, Bankers Trust Company, as trustee, and Guarantors named therein, incorporated by reference to Exhibit No. 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

4.5		Stockholder and Registration Rights Agreement, dated as of October 6, 2000, between the Company and New York Life Insurance Company, incorporated by reference to Exhibit No. 4.2 to the Company’s Amendment No. 1 to Registration Statement on Form S-3 filed October 17, 2000 (Registration Number 333-47572).


Exhibit Number		Exhibit

4.6		Asset Acquisition Agreement, dated October 17, 2000, between NYLIFE Healthcare Management, Inc., the Company, NYLIFE LLC and New York Life Insurance Company, incorporated by reference to Exhibit No. 4.3 to the Company’s amendment No. 1 to the Registration Statement on Form S-3 filed October 17, 2000 (Registration Number 333-47572).

4.7		Rights Agreement, dated as of July 25, 2001, between the Corporation and American Stock Transfer & Trust Company, as Rights Agent, which includes the Certificate of Designations for the Series A Junior Participating Preferred Stock as Exhibit A, the Form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C, incorporated by reference to Exhibit No. 4.1 to the Company’s Current Report on Form 8-K filed July 31, 2001.

4.8		Amendment dated April 25, 2003 to the Stockholder and Registration Rights Agreement dated as of October 6, 2000 between the Company and New York Life Insurance Company, incorporated by reference to Exhibit No. 4.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2003.

10.1		Lease Agreement dated March 3, 1992, between Riverport, Inc. and Douglas Development Company—Irvine Partnership in commendam and the Company, incorporated by reference to Exhibit No. 10.21 to the Registration Statement on Form S-1 filed June 9, 1992 (Registration Number 33-46974).

10.2		First Amendment to Lease dated as of December 29, 1992, between Sverdrup/MDRC Joint Venture and the Company, incorporated by reference to Exhibit No. 10.13 to the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 1993 (File No. 0-20199).

10.3		Second Amendment to Lease dated as of May 28, 1993, between Sverdrup/MDRC Joint Venture and the Company, incorporated by reference to Exhibit No. 10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 1993 (File No. 0-20199).

10.4		Third Amendment to Lease entered into as of October 15, 1993, by and between Sverdrup/MDRC Joint Venture and the Company, incorporated by reference to Exhibit No. 10.69 to the Company’s Annual Report on Form 10-K for the year ending 1993 (File No. 0-20199).

10.5		Fourth Amendment to Lease dated as of March 24, 1994, by and between Sverdrup/MDRC Joint Venture and the Company, incorporated by reference to Exhibit No. 10.70 to the Company’s Annual Report on Form 10-K for the year ending 1993 (File No. 0-20199).

10.6		Fifth Amendment to Lease made and entered into June 30, 1994, between Sverdrup/MDRC Joint Venture and the Company, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 1994 (File No. 0-20199).

10.7		Sixth Amendment to Lease made and entered into January 31, 1995, between Sverdrup/MDRC Joint Venture and the Company, incorporated by reference to Exhibit No. 10.70 to the Company’s Annual Report on Form 10-K for the year ending 1994 (File No. 0-20199).

10.8		Seventh Amendment to Lease dated as of August 14, 1998, by and between Duke Realty Limited Partnership, by and through its general partner, Duke Realty Investments, Inc., and the Company, incorporated by reference to Exhibit No. 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 1998.

10.9		Eighth Amendment to Lease dated as of August 14, 1998, by and between Duke Realty Limited Partnership, by and through its general partner, Duke Realty Investments, Inc., and the Company, incorporated by reference to Exhibit No. 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 1998.

10.10		Ninth Amendment to Lease dated as of February 19, 1999, by and between Duke Realty Limited Partnership, by and through its general partner, Duke Realty Investments, Inc., and the Company, incorporated by reference to Exhibit No. 10.29 to the Company’s Annual Report on Form 10-K/A for the year ending 1998.


Exhibit Number		Exhibit

10.11³		Amended and Restated Express Scripts, Inc. 1992 Employee Stock Option Plan, incorporated by reference to Exhibit No. 10.78 to the Company’s Annual Report on Form 10-K for the year ending 1994 (File No. 0-20199).

10.12³		First Amendment to Express Scripts, Inc. Amended and Restated 1992 Stock Option Plan incorporated by reference to Exhibit D to the Company’s Proxy Statement dated April 22, 1999 (File No. 0-20199).

10.13³		Second Amendment to Express Scripts, Inc. Amended and Restated 1992 Stock Option Plan incorporated by reference to Exhibit F to the Company’s Proxy Statement dated April 22, 1999 (File No. 0-20199).

10.14³		Amended and Restated Express Scripts, Inc. Stock Option Plan for Outside Directors, incorporated by reference to Exhibit No. 10.79 to the Company’s Annual Report on Form 10-K for the year ending 1994 (File No. 0-20199).

10.15³		First Amendment to Express Scripts, Inc. Amended and Restated 1992 Stock Option Plan for Outside Directors incorporated by reference to Exhibit A to the Company’s Proxy Statement dated April 9, 1996 (File No. 0-20199).

10.16³		Second Amendment to Express Scripts, Inc. Amended and Restated 1992 Stock Option Plan for Outside Directors incorporated by reference to Exhibit G to the Company’s Proxy Statement dated April 22, 1999 (File No. 0-20199).

10.17³		Amended and Restated Express Scripts, Inc. 1994 Stock Option Plan incorporated by reference to Exhibit No. 10.80 to the Company’s Annual Report on Form 10-K for the year ending 1994 (File No. 0-20199).

10.18³		First Amendment to Express Scripts, Inc. Amended and Restated 1994 Stock Option Plan incorporated by reference to Exhibit A to the Company’s Proxy Statement dated April 16, 1997 (File No. 0-20199).

10.19³		Second Amendment to Express Scripts, Inc. Amended and Restated 1994 Stock Option Plan incorporated by reference to Exhibit A to the Company’s Proxy Statement dated April 21, 1998.

10.20³		Third Amendment to Express Scripts, Inc. Amended and Restated 1994 Stock Option Plan, incorporated by reference to Exhibit C to the Company’s Proxy Statement dated April 22, 1999.

10.21³		Fourth Amendment to Express Scripts, Inc. Amended and Restated 1994 Stock Option Plan, incorporated by reference to Exhibit E to the Company’s Proxy Statement dated April 22, 1999.

10.22³		Amended and restated Express Scripts, Inc. 2000 Long-Term Incentive Plan, incorporated by reference to Exhibit No. 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2001.

10.23³		Second Amendment to the Express Scripts, Inc. 2000 Long-Term Incentive Plan, incorporated by reference to Exhibit No. 10.27 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

10.24³		Express Scripts, Inc. Employee Stock Purchase Plan incorporated by reference to Exhibit No. 4.1 to the Company’s Registration Statement on Form S-8 filed December 29, 1998 (Registration Number 333-69855).

10.25³		Amended and restated Express Scripts, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit No. 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

10.26³		Express Scripts, Inc. Executive Deferred Compensation Plan, as amended, incorporated by reference to Exhibit No 10.1 to the Company’s Quarterly Report on From 10-Q for the quarter ending June 30, 2000.


Exhibit Number		Exhibit

10.27³		Express Scripts, Inc. Executive Deferred Compensation Plan, as amended and restated, incorporated by reference to Exhibit B to the Company’s Proxy Statement dated April 28, 2003.

10.27³		Employment Agreement effective as of April 1, 1999, between Barrett A. Toan and the Company, incorporated by reference to Exhibit No. 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 1999.

10.29³		Amendment to the Employment Agreement between the Company and Barrett A. Toan, incorporated by reference to Exhibit No. 10.1 to the Company’s Current Report on Form 8-K dated October 17, 2000 and filed October 18, 2000.

10.30³		Executive Employment Agreement, effective March 15, 2001, between the Company and David A. Lowenberg, incorporated by reference to Exhibit No. 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2001.

10.31³		Executive Employment Agreement, effective March 15, 2001, between the Company and George Paz, incorporated by reference to Exhibit No. 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2001.

10.32³		Form of Executive Employment Agreements entered into effective March 15, 2001 between the Company and each of Thomas Boudreau, Mabel Chen and Linda Logsdon, incorporated by reference to Exhibit No. 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2001.

10.33^2,3		Letter Agreement, dated as of October 2, 2003, between the Company and Barbara Hill.

10.34²		Credit Agreement dated as of February 13, 2004 (Credit Agreement) among the Company, the Lenders listed therein, Credit Suisse First Boston (CSFB)and Citigroup Global Markets, Inc. (CGMI) as Joint Lead Arrangers and Joint Bookmaking Runners, CSFB as Administrative Agent and Collateral Agent, CGMI as Syndication Agent, and Bank of America, Bank One, N.A. and U.S. Bank National Association as Co-Documentation Agents.

10.35²		Subsidiary Guaranty dated as of February 13, 2004, in favor of Credit Suisse First Boston as Collateral Agent and the Lenders listed in the Credit Agreement, by the Subsidiary Guarantors (as defined in the Credit Agreement) of the Company.

10.36²		Company Pledge Agreement dated as of February 13, 2004, by the Company in favor of Credit Suisse First Boston as Collateral Agent and the Lenders listed in the Credit Agreement.

10.37²		Subsidiary Pledge Agreement dated as of February 13, 2004, in favor of Credit Suisse First Boston as Collateral Agent and the Lenders listed in the Credit Agreement, by the Subsidiary Guarantors (as defined in the Credit Agreement) of the Company.

10.38		International Swap Dealers Association, Inc. Master Agreement dated as of April 3, 1998, between the Company and The First National Bank of Chicago, incorporated by reference to Exhibit No. 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 1998.

10.39		Swap Transaction Confirmation Agreement between the Company and Bankers Trust Company dated June 17, 1999, incorporated by reference to Exhibit No. 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 1999.

12.1²		Computation of Ratios of Earnings to Fixed Charges

21.1²		List of Subsidiaries.

23.1²		Consent of PricewaterhouseCoopers LLP.

31.1²		Certification by Barrett A. Toan, as Chairman and Chief Executive Officer of Express Scripts, Inc., pursuant to Exchange Act Rule 13a-14(a).


Exhibit Number		Exhibit

31.2²		Certification by George Paz, as President and Chief Financial Officer of Express Scripts, Inc., pursuant to Exchange Act Rule 13a-14(a).

32.1²		Certification by Barrett A. Toan, as Chairman and Chief Executive Officer of Express Scripts, Inc., pursuant to 18 U.S.C.ss.1350 and Exchange Act Rule 13a-14(b).

32.2²		Certification by George Paz, as President and Chief Financial Officer of Express Scripts, Inc., pursuant to 18 U.S.C.ss. 1350 and Exchange Act Rule 13a-14(b).