Document:

QuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.38    
  

 
  AMENDMENT NO. 6 TO
  CREDIT AGREEMENT    
  

        This AMENDMENT NO. 6 TO CREDIT AGREEMENT (this "Amendment") is dated as of March 21, 2002, but effective as
of December 30, 2001 and entered into by and among OUTSOURCING SERVICES GROUP, INC., a Delaware corporation ("OSG"), as Guarantor, its
wholly-owned Subsidiaries, AEROSOL SERVICES COMPANY, INC., a California corporation, PIEDMONT
LABORATORIES, INC., a Georgia corporation, KOLMAR LABORATORIES, INC., a Delaware corporation,  ACUPAC PACKAGING, INC., a New Jersey corporation, and PRECISION PACKAGING AND SERVICES,
 INC., an Ohio corporation (the "Borrowers"), the banks and other financial institutions signatory hereto that are parties as Lenders to the Credit Agreement referred to
below (the "Lenders"), BT COMMERCIAL CORPORATION, as agent (in such capacity, the "Agent") for the Lenders and the Issuing Bank (as defined in the
Credit Agreement referred to below) and HELLER FINANCIAL, INC., acting as co-agent (in such capacity, the "Co-Agent"). 

 
 

Recitals    
  

        Whereas, the Borrowers, OSG, the Lenders, the Co-Agent and the Agent have entered into that certain
Credit Agreement dated as of January 8, 1998 (as amended by Amendment and Waiver No. 1 dated as of April 29, 1998, Amendment No. 2 dated as of February    ,
1999, Amendment No. 3 to Credit Agreement dated as of February 29, 2000, Amendment No. 4 to Credit Agreement dated as of January 11, 2001, and Amendment No. 5 to
Credit Agreement and Consent to Acquisition dated as of August 15, 2001 and as further modified, or waived or supplemented by the addition of additional Borrowers prior to the date hereof, the
"Credit Agreement"; capitalized terms used in this Amendment without definition shall have the meanings given such terms in the Credit Agreement); and 

        Whereas, the Borrowers have requested that the Lenders agree, subject to the conditions and on the terms set forth in this Amendment, to
amend certain provisions of the Credit Agreement; 

        Whereas, the Lenders are willing to agree to amend the Credit Agreement, subject to the conditions and on the terms set forth herein; 

        Now Therefore, in consideration of the premises and the mutual agreements set forth herein, the Borrowers, OSG, the Lenders, the
Co-Agent and the Agent agree as follows: 

        1.    AMENDMENTS TO CREDIT AGREEMENT.    Subject to the conditions and on the terms set forth in this Amendment and in
reliance on the representations and warranties of the Borrowers and OSG set forth in this Amendment, the Credit Agreement is hereby amended as follows: 

        1.1    Amendments to Definitions.    Section 1.1 of the Credit Agreement is amended as
follows: 

        (a)    Borrowing Base.    Clause (iii) in the definition of "Borrowing Base" is deleted and replaced with the
following" 

        "(iii) the
lesser of $30,000,000 and the sum of (x) up to thirty percent (30%) of the Real Estate Value of the Eligible Real
Property and (y) (A) from January 1, 2002 to August 31, 2002, up to eighty-five percent (85%) of the Equipment Value of its Eligible Equipment and (B) from
September 1, 2002 up to seventy-five percent (75%) of the Equipment Value of its Eligible Equipment;" and (y); minus " 

        (b)    Applicable Margins.    The definitions of "Applicable Eurodollar Rate Margin" and "Applicable Prime Rate
Margin" are deleted in their entirety and replaced with the following: 

        "Applicable Eurodollar Rate Margin means 2.75% per annum; provided that (a) if the
Funded Debt Ratio for the applicable period ending with the then most recently ended fiscal quarter (as shown on the quarterly Compliance Certificate delivered pursuant to Section 7.1) is
within the ranges set out below and no Default or Event of Default exists as of the end of such fiscal quarter (as shown on such Compliance Certificate or 

 

otherwise), the Applicable Eurodollar Rate Margin shall be the per annum rate set out opposite the applicable range below: 

	Funded Debt Ratio
	 	Applicable Eurodollar

Rate Margin

	less than or equal to 3.75:1.0

but greater than 3.25:1.0	 	2.50%
	

less than or equal to 3.25:1.0

but greater than 2.75:1.0	
 	

2.25%
	

less than or equal to 2.75:1.0	
 	

2.0%

and
(b) notwithstanding the foregoing, if the Excess Availability of all Borrower Parties (determined as of the last day of any month and as shown on the monthly Borrowing Base Certificate) is
less than (x) 85% (or from September 1, 2002, 75%) of the Equipment Value of Eligible Equipment of all Borrower Parties minus  (y) 60% of the Equipment Value of Eligible Equipment of all
Borrower Parties (the "Target Excess Availability"), then the Applicable Eurodollar Rate Margin shall
increase by .25% per annum over the Applicable Eurodollar Rate Margin otherwise applicable until the Excess Availability as of the end of a month exceeds the Target Excess Availability. In the event
of the delivery of a Compliance Certificate showing an increase or decrease in the Funded Debt Ratio or of a Borrowing Base Certificate showing Excess Availability which requires a change in the
Applicable Eurodollar Rate Margin, the change in the Applicable Eurodollar Rate Margin shall be effective from the first day of the calendar month immediately following receipt of the Compliance
Certificate or Borrowing Base Certificate (provided that the Compliance Certificate or Borrowing Base Certificate is received by the Agent no later than
10:00 A.M. Los Angeles time at least one (1) Business Day prior to the first of such calendar month) until the next such date on which the Applicable Eurodollar Margin Rate is subject to
change following the delivery of (or failure to deliver) a Compliance Certificate showing an increase or decrease in the Funded Debt Ratio or a monthly Borrowing Base Certificate showing an Excess
Availability which requires a change in the Applicable Eurodollar Rate Margin. The failure to deliver any Compliance Certificate or monthly Borrowing Base Certificate by the date required hereunder
(after giving effect to any applicable grace period) shall automatically cause the Applicable Eurodollar Rate Margin to be the maximum per annum rate described above, effective as of the first day of
the calendar month immediately following the date on which the delivery of the Compliance Certificate or Borrowing Base Certificate was otherwise required. 

        Applicable Prime Rate Margin means 1.25% per annum; provided that if the Funded Debt Ratio
for the applicable period ending with the then most recent ended fiscal quarter (as shown on the quarterly Compliance Certificate delivered pursuant to Section 7.1) is within the ranges set out
below and no Default or Event of Default exists as of the end of such fiscal quarter (as shown on such Compliance Certificate or 

2

 

otherwise), the Applicable Prime Rate Margin shall be the per annum rate set out opposite the applicable range below: 

	Funded Debt Ratio
	 	Applicable Prime

Rate Margin

	less than or equal to 3.75:1.0

but greater than 3.25:1.0	 	1.00%
	

less than or equal to 3.25:1.0

but greater than 2.75:1.0	
 	

..75%
	

less than or equal to 2.75:1.0	
 	

..50%

and
(b) notwithstanding the foregoing, if the Excess Availability of all Borrower Parties (determined as of the last day of any month and as shown on the monthly Borrowing Base Certificate) is
less than (x) 85% (or from September 1, 2002, 75%) of the Equipment Value of Eligible Equipment of all Borrower Parties minus  (y) 60% of the Equipment Value of Eligible Equipment of all
Borrower Parties (the "Target Excess Availability"), then the Applicable Prime Rate Margin shall increase by
..25% per annum over the Applicable Prime Rate Margin otherwise applicable until the Excess Availability as of the end of a month exceeds the Target Excess Availability. In the event of the delivery of
a Compliance Certificate showing an increase or decrease in the Funded Debt Ratio or of a Borrowing Base Certificate showing Excess Availability which requires a change in the Applicable Prime Rate
Margin, the change in the Applicable Prime Rate Margin shall be effective from the first day of the calendar month immediately following receipt of the Compliance Certificate or Borrowing Base
Certificate (provided that the Compliance Certificate or Borrowing Base Certificate is received by the Agent no later than 10:00 A.M. Los Angeles
time at least one (1) Business Day prior to the first day of such calendar month) until the next such date on which the Applicable Prime Rate Margin is subject to change following the delivery
of (or failure to deliver) a Compliance Certificate showing an increase or decrease in the Funded Debt Ratio or a monthly Borrowing Base Certificate showing an Excess Availability which requires a
change in the Applicable Prime Rate Margin. The failure to deliver any Compliance Certificate or monthly Borrowing Base Certificate by the date required hereunder (after giving effect to any
applicable grace period) shall automatically cause the Applicable Prime Rate Margin to be the maximum per annum rate described above, effective as of the first day of the calendar month immediately
following the date on which the delivery of the Compliance Certificate or Borrowing Base Certificate was otherwise required. 

        (c)    Expiration Date.    The definition of "Expiration Date" is deleted in its entirety and replaced with the
following: 

        "Expiration Date" means April 7, 2003." 

        (d)    Subsidiary.    The following proviso is added at the end of the
definition of "Subsidiary": 

        "provided, however, that OSG Norwich Pharmaceuticals, Inc. shall not be a Subsidiary of OSG or any Credit Party under any Loan
Document." 

3

 

        1.2    Amendment to Minimum EBITDA Covenant.    Section 8.1 of the Credit Agreement is
deleted in its entirety and replaced with the following: 

        "8.1    Minimum EBITDA.    OSG and its Subsidiaries shall maintain as of the end of each Test Period ending on the
last day of each fiscal quarter set forth below consolidated EBITDA of not less than the amount set forth below: 

	FISCAL QUARTER
 
	 	EBITDA

	12/31/01	 	$	26,200,000
	3/31/02	 	 	20,400,000
	6/30/02	 	 	20,400,000
	9/30/02	 	 	21,700,000
	12/31/02 and thereafter	 	 	24,000,000

        1.3    Amendment to Fixed Charge Coverage Ratio.    Section 8.2 of the Credit Agreement
is deleted in its entirety and replace with the following: 

        "8.2    Fixed Charge Coverage.    OSG and its Subsidiaries shall maintain a ratio of consolidated EBITDA to
consolidated Fixed Charges for each Test Period ending on the last day of any fiscal quarter set forth below of not less than the ratio set forth below: 

	12/31/01	 	1.00:1.00
	3/31/02	 	0.90:1.00
	6/30/02	 	0.90:1.00
	9/30/02	 	0.90:1.00
	12/31/02 and thereafter	 	1.00:1.00

        1.4    Amendment to Funded Debt Coverage Covenant. Section 8.3 of the Credit Agreement is deleted
in its entirety and replaced with the following: 

        "8.3    Funded Debt Coverage.    OSG and its Subsidiaries shall maintain a Funded Debt Ratio for any Test Period
ending on the last day of any fiscal quarter set forth below of not greater than the ratio set forth below: 

	FISCAL QUARTER
 
	 	RATIO

	12/31/01	 	6.00:1.00
	03/31/02	 	7.70:1.00
	06/30/02	 	7.30:1.00
	09/30/02	 	7.00:1.00
	12/31/02 and thereafter	 	6.00:1.00

        2.    REPRESENTATIONS AND WARRANTIES OF THE BORROWERS AND OSG.    In order to induce the Lenders, the
Co-Agent and the Agent to enter into this Amendment, the Borrowers and OSG represent and warrant to each Lender, the Co-Agent and the Agent that the following statements are
true, correct and complete: 

        2.1    Power and Authority.    Each of the Credit Parties has all corporate power and
authority to enter into this Amendment and, as applicable, the Consent of Guarantors attached hereto (the "Consent"), and to carry out the transactions contemplated by, and to perform its obligations
under or in respect of, this Amendment and the Credit Agreement as amended hereby. 

        2.2    Corporate Action.    The execution and delivery of this Amendment and the Consent and
the performance of the obligations of each Credit Party under or in respect of this Amendment 

4

 

and the Credit Agreement as amended hereby have been duly authorized by all necessary corporate action on the part of each of the Credit Parties. 

        2.3    No Conflict or Violation or Required Consent or Approval.    The execution and delivery
of this Amendment and the Consent and the performance of the obligations of each Credit Party under or in respect of this Amendment and the Credit Agreement as amended hereby do not and will not
conflict with or violate (a) any provision of the articles or certificate of incorporation or bylaws or other governing documents of any Credit Party, (b) any Requirement of Law,
(c) any order, judgment or decree of any court or other governmental agency binding on any Credit Party or any of its Subsidiaries, or (d) any indenture, agreement or instrument to which
any Credit Party or any of its Subsidiaries is a party or by which any Credit Party or any of its Subsidiaries, or any property of any of them, is bound, and do not and will not require any consent or
approval of any Person. 

        2.4    Execution, Delivery and Enforceability.    This Amendment and the Consent and the
Credit Agreement as amended hereby and each other Credit Document have been duly executed and delivered by each Credit Party thereto and are the legal, valid and binding obligations of such Credit
Party, enforceable in accordance with their terms, except as enforceability may be affected by applicable bankruptcy, insolvency, and similar proceedings affecting the rights of creditors generally. 

        2.5    No Default or Event of Default.    No event has occurred and is continuing or will
result from the execution and delivery of this Amendment that would constitute a Default or an Event of Default. 

        2.6    No Material Adverse Effect.    No event has occurred that has resulted, or could
reasonably be expected to result, in a Material Adverse Effect. 

        2.7    Senior Debt.    All Obligations of the Borrowers, whether now outstanding or hereafter
created or incurred, constitute "Guarantor Senior Debt" under the terms of the Subordinated Debt Documents, and all Obligations of OSG, whether now outstanding or hereafter created or incurred,
constitute "Senior Debt" under the terms of the Subordinated Debt Documents. 

        2.8    Representations and Warranties.    Each of the representations and warranties contained
in the Credit Documents is and will be true and correct in all material respects on and as of the date hereof and as of the effective date of this Amendment, except to the extent that such
representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects as of such earlier date. 

        3.    CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT.    This Amendment shall be effective only if and when signed by,
and when counterparts hereof shall have been delivered to the Agent (by hand delivery, mail or telecopy) by, the Borrowers, OSG and Majority Lenders and only if and when each of the following
conditions is satisfied: 

        3.1    Consent of Guarantors.    Each of the Guarantors shall have executed and delivered to
the Agent the Consent. 

        3.2    Mortgage Amendments; Endorsements.    If required by the Agent, the Borrowers shall
have executed and delivered to the Agent such Mortgage amendments as reasonably requested by the Agent, together with endorsements to the policies of title insurance. 

        3.3    No Default or Event of Default; Accuracy of Representations and Warranties.    No
Default or Event of Default shall exist and each of the representations and warranties made by the Credit Parties herein and in or pursuant to the Credit Documents shall be true and correct in all
material respects as if made on and as of the date on which this Amendment becomes effective (except that any such representation or warranty that is expressly stated as being made only as of a
specified 

5

 

earlier date shall be true and correct as of such earlier date), and the Borrowers shall have delivered to the Agent a certificate confirming such matters. 

        3.4    Supporting Documents.    The Borrowers shall have delivered to the Agent copies of
resolutions of each of the Credit Parties approving and authorizing this Amendment and the Consent together with an incumbency certificate for the persons executing this Amendment and the Consent. 

        3.5    Amendment Fee.    The Borrowers shall have paid to the Agent, for the ratable benefit
of the Lenders, an amendment fee of $175,000, which shall be fully earned and non-refundable. 

        3.6    Opinion of Counsel.    If required by the Agent, the Borrowers shall have delivered to
the Agent opinion(s) of counsel in form and substance satisfactory to Agent and its counsel. 

        3.7    Expense Reimbursements.    The Borrowers shall have paid all expense reimbursements due
to the Agent pursuant to Section 11.10 of the Credit Agreement. 

        4.    EFFECT OF THIS AMENDMENT.    From and after the date on which this Amendment becomes effective, all references
in the Credit Documents to the Credit Agreement shall mean the Credit Agreement as amended hereby. Except as expressly amended hereby or waived herein, the Credit Agreement and the other Credit
Documents, including the Liens granted thereunder, shall remain in full force and effect, and are hereby ratified and confirmed. 

        5.    APPLICABLE LAW.    THE VALIDITY, INTERPRETATIONS AND ENFORCEMENT OF THIS AMENDMENT AND ANY DISPUTE ARISING OUT
OF OR IN CONNECTION WITH THIS AMENDMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS OTHER THAN
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND DECISIONS OF THE STATE OF NEW YORK. 

        6.    COMPLETE AGREEMENT.    This Amendment sets forth the complete agreement of the parties in respect of any
amendment to any of the provisions of any Credit Document or any waiver thereof. 

        7.    CATCHLINES & COUNTERPARTS.    The catchlines and captions herein are intended solely for convenience of
reference and shall not be used to interpret or construe the provisions hereof. This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts
(including by telecopy), all of which taken together shall constitute but one and the same instrument. 

[remainder
of page intentionally left blank] 

6

   
        IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by a duly authorized officer as of the date first
above written. 

	 	 	OUTSOURCING SERVICES GROUP, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	AEROSOL SERVICES COMPANY, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	PIEDMONT LABORATORIES, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	KOLMAR LABORATORIES, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

[signatures
continue] 

S-1

 

	 	 	ACUPAC PACKAGING, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	PRECISION PACKAGING AND SERVICES, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 

S-2

 

	 	 	BT COMMERCIAL CORPORATION,

as Agent
	

 	
 	

 	

 	

 
	 	 	By:	/s/  SAM A. CARDONE      

	 	 	 	Name:	Sam A. Cardone

	 	 	 	Title:	Director

	

 	
 	

 	

 	

 
	 	 	BANKERS TRUST COMPANY,

as a Lender
	

 	
 	

 	

 	

 
	 	 	By:	/s/  SAM A. CARDONE      

	 	 	 	Name:	Sam A. Cardone

	 	 	 	Title:	Director

	

 	
 	

 	

 	

 

S-3

 

	 	 	HELLER FINANCIAL, INC.,

as Co-Agent and as a Lender
	

 	
 	

 	

 	

 
	 	 	By:	/s/  ELIZABETH MANNING      

	 	 	 	Name:	Elizabeth Manning

	 	 	 	Title:	 
	 	 	 	 	

	

 	
 	

 	

 	

 

S-4

 

	 	 	PNC BANK, NATIONAL ASSOCIATION

as a Lender
	

 	
 	

 	

 	

 
	 	 	By:	/s/  GREGORY J. HALL      

	 	 	 	Name:	Gregory J. Hall

	 	 	 	Title:	Vice President

	

 	
 	

 	

 	

 
	

 	
 	

 	

 	

 
	 	 	By:	 	 
	 	 	 	

	 	 	 	Name:	 
	 	 	 	 	

	 	 	 	Title:	 
	 	 	 	 	

	

 	
 	

 	

 	

 

S-5

 

	 	 	CALIFORNIA BANK & TRUST,

as a Lender
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PAUL W. JOHNSON JR.      

	 	 	 	Name:	Paul W. Johnson Jr.

	 	 	 	Title:	Vice President

	

 	
 	

 	

 	

 

S-6

 

	 	 	FLEET CAPITAL CORPORATION,

as a Lender
	

 	
 	

 	

 	

 
	 	 	By:	/s/  MATTHEW R. VAN STEENHUYSE      

	 	 	 	Name:	Matthew R. Van Steenhuyse

	 	 	 	Title:	Senior Vice President

	

 	
 	

 	

 	

 

S-7

 
 

CONSENT OF GUARANTORS    
  

        Each of the undersigned is a Guarantor of the Obligations of the Borrowers under the Credit Agreement and hereby (a) consents to the foregoing Amendment,
(b) acknowledges that notwithstanding the execution and delivery of the foregoing Amendment, the obligations of each of the undersigned Guarantors are not impaired or affected and the
Guaranties continue in full force and effect, and (c) ratifies its Guaranty. 

        IN
WITNESS WHEREOF, each of the undersigned has executed and delivered this Consent of Guarantors as of the 21st day of March, 2002. 

	 	 	OUTSOURCING SERVICES GROUP, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	AEROSOL SERVICES COMPANY, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	PIEDMONT LABORATORIES, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	KOLMAR LABORATORIES, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 

	 	 	ACUPAC PACKAGING, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	PRECISION PACKAGING AND SERVICES, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	KOLMAR CANADA, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 
	 	 	OSG IVERS-LEE, INC.
	

 	
 	

 	

 	

 
	 	 	By:	/s/  PERRY MORGAN      

	 	 	 	Name:	Perry Morgan

	 	 	 	Title:	Vice President/CFO

	

 	
 	

 	

 	

 

QuickLinks

Exhibit 10.38

AMENDMENT NO. 6 TO CREDIT AGREEMENT

Recitals

CONSENT OF GUARANTORSQuickLinks
 -- Click here to rapidly navigate through this document

Exhibit 10.29 

        CONFIDENTIAL
MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS. 

 
 

Edwards Lifesciences    
    
    Incentive Plan (EIP)    
    
    2002    
  

 

PLAN OBJECTIVE  

        The Edwards Lifesciences Incentive Plan (EIP) for 2002 is an annual cash bonus program designed to motivate eligible participants to achieve Edwards' financial
and strategic objectives. 

ELIGIBILITY  

        Edwards employees in all locations worldwide are eligible to participate in the 2002 EIP if they meet all of the
following criteria: 

	•
	Broad
Pay Group (BPG) is equivalent to "F" or higher, or equivalent positions as determined by the Plan Administrator or its designee;

	•
	Date
of hire is before October 1, 2002;

	•
	Not
a participant in any other commission or management incentive compensation plan intended to replace EIP;

	•
	Full-time
employee, or part-time employee regularly scheduled to work at least 20 hours per week; and

	•
	Participation
has been submitted to and approved by the Plan Administrator or its designee; provided, however, participation by Edwards executive officers
may be approved only by the Plan Administrator. 

        Employees
who are hired or are promoted into an EIP bonus-eligible position between January 1 and September 30 will be eligible for target bonuses based on their actual
eligible earnings for the year. 

        Part-time
employees regularly scheduled to work at least 20 hours per week will be eligible for target bonuses based on their actual eligible earnings for the year. 

        The
Plan Administrator or its designee will consider exceptions to these general eligibility criteria on a case-by-case basis. 

        Eligibility for and participation in this plan in no way constitutes a contract of employment between Edwards Lifesciences and the employee. Eligible positions
and target bonus levels will be evaluated and determined on an annual basis.

        Edwards Lifesciences reserves the right to amend or terminate this plan in whole or in part at any time without any advance notification.

ELIGIBLE EARNINGS  

        Eligible earnings are outlined on Exhibit 1. 

PLAN YEAR  

        The EIP plan year corresponds with the calendar year beginning January 1 and ending December 31. 

PLAN ADMINISTRATOR  

        The EIP Plan Administrator is the Edwards Lifesciences Compensation Committee. The Plan Administrator may delegate responsibility for plan administration to a
designee; provided, however, the Plan Administrator may not delegate its responsibility regarding the approval of target and actual bonus amounts for Edwards executive officers. 

2

 

BONUS FUNDING  

        The EIP will be funded based on a percentage of Edwards' financial performance as modified by the participant organization's achievement of its Key Operating
Drivers (KODs). 

Financial Performance  

        Edwards Financial Performance will be measured on the following criteria, weighted as noted: 

	 
	 	 
	 
	Net Income	 	50	%
	Free Cash Flow*	 	25	%
	Revenue Growth**	 	25	%

	*
	Defined
as cash flow from operations less capital expenditures.

	**
	Assumes
constant foreign exchange and excludes divested businesses. 

        Exhibit 2
(attached) illustrates funding levels based on financial performance. Actual funding levels for each category will be interpolated at 1% intervals. Performance resulting
in below 50% funding will result in zero payout for that category. Results from 50% to 125% will be specified in 1% increments. Under no circumstances will a category achieve higher than 125% funding.
The funding for each category will be weighted accordingly and added together to achieve a total financial performance funding amount. 

Key Operating Drivers (KODs)  

        EIP bonus funding will be further modified by achievement of the five Edwards Lifesciences Key Operating Drivers (KODs), except with respect to regions(1). 

        Each
region will establish its own KODs, which will also modify the EIP bonus funding. 

        Each
Executive Leadership Team member responsible for a region will: 

	•
	Identify
and communicate KODs for their respective business, region or function;

	•
	Track
and communicate progress on the KODs; and

	•
	Recommend
the number of KODs achieved for payout. 

        Where
applicable, regions should align KODs to Corporate KODs, as follows: 

	•
	Achieve
* * * penetration of $* * * million

	•
	Attain
on time achievement of at least * * *% of key * * *.

	•
	Achieve
* * *(2) * * * sales of $* * * million

	•
	Budget
* * * sales of $* * * million

	•
	Achieve
working capital improvements measured as * * * 

	(1)
	Regions
include Asia, Europe, Japan, Latin America, North America

	(2)
	*
* * 

        At
the end of the plan year, each KOD will be assessed as either achieved or not achieved. 

        Exhibit 2
provides an example of how the bonus amount will be funded based on financial performance  and modified by KOD achievement for an organization with five
KODs. 

3

 

TARGET BONUS LEVELS  

        Unless determined otherwise by the Plan Administrator or its designee, the target bonus amounts are expressed as a percentage of an employee's 2002 eligible
earnings. If a participant had a job change during the plan year that affected bonus level, the target bonus level for purposes of this EIP will be the target bonus applicable at the year end. 

        If
a participant transferred to another Edwards Lifesciences business, region or function during the plan year, the KOD achievement of the organization that the participant belonged to
at year-end will be used for calculating bonus funding. 

        Participants
may receive more or less than their target bonus amounts depending on bonus funding and PMO achievement. 

ACTUAL BONUS PAYOUTS  

        A participant's actual bonus payout amount will be based on individual achievement of 2002 Performance Management Objectives (PMOs). These PMOs must be
established with the participant's manager at the beginning of the year. PMOs should reflect a balance between team and individual goals, financial and non-financial goals, and be clearly
aligned with Edwards' business goals and the organization's Key Operating Drivers. 

        At
the end of the plan year, managers and EIP participants will evaluate and discuss individual PMO achievement levels. Achievement percentages may range from 0% to 200%. However for
every 1% awarded over 100%, a corresponding discount of 1% below 100% should be awarded to another participant so that the total PMO pool adds up to approximately 100% (changes up or down must offset
each other). Under no circumstances will a participant receive a payout greater than 200%. Actual bonus payouts will then be calculated as follows: 

        Payout = Target Bonus × EIP Bonus Funding % × PMO achievement %

PAYMENT OF BONUSES  

        The Edwards Lifesciences Compensation Committee or its designee will review the bonus award recommendations in February 2003. 

        A
participant must be on the Edwards payroll with an "active" status when the bonus amount is paid except as provided in the Termination of Employment Section. EIP payout will be issued
as soon as possible following the February Board of Directors meeting. 

        The
appropriate withholding for FICA, U.S., state and local taxes will be deducted from the bonus award including any withholding for employees subject to tax laws of other countries.
EIP bonuses are also considered to be part of Benefit Pay. Contributions to the Edwards 401(k) Savings and Investment Plan, and the Edwards Executive Option Plan will also be deducted where
appropriate. Employee Stock Purchase Plan payments will not be deducted from bonus pay. 

TERMINATION OF EMPLOYMENT  

        Participants who voluntarily sever their employment with Edwards or who are involuntarily terminated for reasons other than those listed below, during the plan
year or in the following year before bonus payments are actually made, are ineligible for EIP bonus payouts. 

        Participants
who: 

	1.
	are
involuntarily terminated due to a reduction in force, departmental restructuring or job redefinition,

	2.
	become
permanently disabled, 

4

 
	3.
	retire,
or

	4.
	die

after
at least six months of service during the plan year are eligible for bonus payouts based on their actual eligible earnings. The bonus amounts in these cases will be based on the full year of
business performance for funding purposes and the participant's actual level of PMO completion. 

EXCEPTIONS  

        The Plan Administrator or its designee must approve any exception to these guidelines. 

5

 
Exhibit 1

Eligible Earnings

        For
purposes of the Edwards Lifesciences Incentive Plan (EIP) for 2002 eligible earnings shall include: 

	1.
	Payments
in lieu of salary increases;

	2.
	Call
in pay;

	3.
	Commission
pay;

	4.
	Double
time pay;

	5.
	Draws
toward commissions;

	6.
	Funeral
pay;

	7.
	Holiday
pay;

	8.
	Jury
duty pay;

	9.
	Lead
pay;

	10.
	Mileage
pay for long haul truckers;

	11.
	Military
pay;

	12.
	Overtime
pay;

	13.
	Paid
absences;

	14.
	Retroactive
pay;

	15.
	Salary
or other regular pay;

	16.
	Shift
differentials;

	17.
	Sick
pay or other short-term disability pay;

	18.
	Straight
time pay; and

	19.
	Vacation
pay. 

        For
purposes of the Edwards Lifesciences Incentive Plan (EIP) eligible earnings shall not include: 

	1.
	Bonuses
including incentive bonuses under any Edwards Incentive Plan, the Edwards Performance Bonus Plan and any other bonus plans;

	2.
	Amounts
constituting imputed income arising from any Edwards moving expense reimbursement policies, any Edwards life insurance plans or any other Edwards fringe benefit plans;

	3.
	Amounts
paid to replace benefits; and

	4.
	The
following amounts paid, accrued or imputed:

	a.
	attendance
awards;

	b.
	automobile
allowances;

	c.
	business
expense reimbursements;

	d.
	cash
prizes or awards; 

6

 

	e.
	Christmas
gifts;

	f.
	Contest
pay;

	g.
	Deferred
compensation, including deferred bonuses;

	h.
	Discretionary
awards;

	i.
	Employee
referral awards;

	j.
	Executive
perquisite allowances;

	k.
	Hiring
bonuses;

	l.
	Income
from sale of stock;

	m.
	Income
from the exercise of stock options;

	n.
	Interest
earnings and deferred compensation, including deferred bonuses;

	o.
	Invention
fees and awards;

	p.
	Long
term disability pay;

	q.
	Mortgage
differential payments;

	r.
	Non-cash
prizes or awards;

	s.
	Pay
for unused sick time;

	t.
	Performance
shares;

	u.
	Promotional
awards;

	v.
	Relocation
expense reimbursements;

	w.
	Restricted
stock rights;

	x.
	Retention
bonuses;

	y.
	Severance
pay;

	z.
	Stock
appreciation rights;

	aa.
	Tax
equalization payments to expatriates;

	bb.
	Technical
achievement awards;

	cc.
	Travel
allowances; and

	dd.
	Tuition
reimbursements; and workers' compensation benefits. 

7

 

Exhibit 2

Funding and Payout Determination for 2002 EIP

	 
	 	Financial Goals for 2002
	 	 
	 
	 
	 	Net Income ($M)(50% Weight)
	 	Free Cash Flow ($M) (25% Weight)
	 	Revenue Growth (25% Weight)
	 	Percentage of Target Payout Earned
	 
	Min	 	$
$	* * *

* * *	 	$
$	* *

* *	 	* * *

* * *	%
%	50

85	%
%
	Target	 	$	* * *	 	$	* *	 	* * *	%	100	%
	Max	 	$	* * *	 	$	* *	 	* * *	%	125	%

Assumptions Box  

	 
	 	 
	 	 
	 	 
	 	 
	 
	Eligible Earnings:	 	$	80,000	 	 	 	 	 	 	 
	Target Bonus Opportunity:	 	 	10	%	 	 	 	 	 	 
	Target Bonus Amount:	 	$	8,000	 	 	 	 	 	 	 

	Financial Performance
	 	Sample Financial Results
	 	% of Target Earned
	 	Weight
	 	Funding % Per Category
	 
	Net Income	 	$	* * *	 	100	%	50	%	50.00	%
	Free Cash Flow	 	$	* * *	 	125	%	25	%	31.00	%
	Revenue Growth	 	 	* * *	%	100	%	25	%	25.00	%
	Funding Based on Financial Measures	 	 	 	 	 	 	 	 	106.00	%
	
KOD Achievement: 3 (100)%	
 	

 	
 	

 	
 	

 	
 

EIP Funding Matrix  

	KOD Modifiers
	 	Financial Performance Measures
	 
	 
	 	# KODs

Achieved
	 	Modifier
	 	@80% of Target
	 	@100% of Target
	 	@106% of Target
	 	@125% of Target
	 
	5 KODs	 	5	 	150	%	120	%	150	%	159	%	188	%
	 	 	4	 	125	%	100	%	125	%	133	%	156	%
	 	 	3	 	100	%	80	%	100	%	106	%	125	%
	 	 	2	 	75	%	60	%	75	%	80	%	94	%
	 	 	1	 	50	%	40	%	50	%	53	%	63	%
	 	 	0	 	25	%	20	%	25	%	27	%	31	%

Payout (Assuming 106% Funding and 100% PMO Completion)  

	Target
	 	Funding @

106%
	 	PMO%
	 	Payout

	8,000	 	$	8,480	 	100	%	$	8,480

        CONFIDENTIAL
MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2, PROMULGATED
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS. 

8

QuickLinks

Edwards Lifesciences Incentive Plan (EIP) 2002

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00039-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00039-of-00352.parquet"}]]