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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-5851
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RHONE-POULENC RORER INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1699163
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
500 ARCOLA ROAD
COLLEGEVILLE, PENNSYLVANIA 19426
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(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 610-454-8000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common shares (without par value), New York Stock Exchange
stated value $1 per share Paris Stock Exchange
Market Auction Preferred Shares
(without par value), liquidation
preference $1,000 per share
Flexible Money Market Preferred Stock
(without par value), liquidation
preference $100,000 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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 [ ]
As of January 31, 1994, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $1,488,636,713.
Common shares outstanding as of January 31, 1994 were 136,645,759.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been incorporated by reference in this report:
DOCUMENT PARTS INTO WHICH INCORPORATED
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Proxy Statement dated March 21,
1994 in connection with the April
28, 1994 Annual Meeting of
Shareholders Part III
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The Exhibit Index is located on page 60.
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RHONE-POULENC RORER INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1993
PART I
ITEM 1. BUSINESS
Description of the Business
Rhone-Poulenc Rorer Inc., a Pennsylvania corporation, formerly known as Rorer
Group Inc., (the "Company" or "RPR"), is the business formed in the 1990
combination of Rorer Group Inc. ("Rorer") and substantially all of the Human
Pharmaceutical Business ("HPB") of Rhone-Poulenc S.A. ("RP"). RP, based in
Paris, France, owns approximately 68 percent of the Company's common shares as
of January 31, 1994 and controls the Company.
The combination of Rorer and HPB increased Rorer's ability to compete
effectively on a worldwide basis through the achievement of overall critical
mass, increased investment in research and development, a substantial presence
in Europe and the United States, and the opportunity to expand its operations
in Japan. For HPB, the combination provided access for future products to the
world's single largest pharmaceutical market--the United States--where HPB had
no previous marketing or distribution network. For both entities, the
combination afforded a substantial opportunity to achieve production, marketing
and administrative synergies and better leverage the significant research and
development activities of the combined Company.
The Company is primarily engaged in the discovery, development, manufacture
and marketing of a broad line of pharmaceutical products for human use. On the
basis of sales, the Company is the leading pharmaceutical group in France,
among the top three in Europe and among the largest in the world. The Company
also has a growing presence in North America, in developing markets, and in
Japan. The Company's products are manufactured in more than 30 countries and
the Company has a commercial presence in all major markets of the world.
The Company's pharmaceutical products are primarily comprised of prescription
medicines, over-the-counter ("OTC") medicines and plasma derivatives. In
addition, the Company manufactures and sells certain bulk pharmaceuticals and
limited quantities of other chemicals.
Pursuant to a strategy of focusing on pharmaceutical products, the Company
sold its dietetic and nutritional products business (principally Dietetique et
Sante in France and Dietisa in Spain) in 1991.
In 1993, the Company acquired a 37% interest in Applied Immune Sciences, Inc.
("AIS"), a pioneer in cell therapy, and the right to purchase majority
ownership interest around 60%. The Company also launched a long-term gene and
cell therapy research and development collaboration with AIS and entered into
agreements for current and future joint ventures for the marketing and
distribution of cell therapy products and services. These agreements and other
similar collaborations should strategically position the Company to play a
major role in the development of commercial opportunities in both cell and gene
therapies.
Financial Information about Industry Segments and Foreign and Domestic
Operations
See note 14 to the consolidated financial statements, "Industry Segment and
Operations by Geographic Area" appearing on page 41 of this report.
Principal Products
The Company's pharmaceutical products are primarily comprised of prescription
medicines, OTC medicines and plasma derivatives. The Company's principal
product focus can be categorized generally in
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the following major therapeutic areas: cardiovascular; infectious
disease/oncology; bone metabolism/ rheumatology; central nervous
system/analgesia; hypersensitivity; plasma derivatives; and gastroenterology.
In addition, the Company manufactures and sells certain bulk chemicals, OTC
products and pharmaceuticals in other therapeutic areas including dermatology.
No single product contributed more than 6% of 1993 and 1992 sales, and the ten
largest products as a group contributed 36% of the Company's 1993 sales (1992-
35%). The following principal therapeutic areas accounted for the indicated
percentages of the Company's total net sales.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES*
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THERAPEUTIC AREA 1993 1992 1991
---------------- -------- -------- --------
<S> <C> <C> <C>
Cardiovascular products, including
Clexane (R)/Lovenox (R), Lozol (R), Sermion (R),
Frumil (R), Dilacor XR (R) and Selectol (R)..... 21% 22% 20%
Infectious disease/oncology products, including
Flagyl (R), Josacine (R), Peflacine (R),
Rovamycine (R) and Oroken (R)................... 13% 13% 13%
Bone metabolism/rheumatology products, including
Orudis (R)/Profenid (R)/Oruvail (R) and
Calsynar (R)/Calcimar (R) and DDAVP (R)......... 12% 13% 12%
Central nervous system/analgesia products, in-
cluding Doliprane (R) and
Imovane (R)/Amoban (R).......................... 9% 9% 9%
Hypersensitivity products, including Azmacort (R)
and Nasacort (R)................................ 10% 10% 8%
Plasma derivatives, including Albuminar (R) and
Monoclate-P (R)................................. 10% 8% 7%
Gastroenterology products, including Maalox (R).. 12% 12% 13%
All other........................................ 13% 13% 18%
-------- -------- --------
Total net sales................................ 100% 100% 100%
======== ======== ========
</TABLE>
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* Certain reclassifications have been made from amounts shown in prior periods
for therapeutic areas to conform to classifications now used by the Company.
The Company's principal pharmaceutical products include the following:
Maalox (R), a magnesium and aluminum hydroxide-based antacid for treatment of
gastric hyperacidity; Orudis (R)/Profenid (R)/Oruvail (R) (ketoprofen), a non-
steroid anti-inflammatory agent used in the treatment of rheumatoid arthritis;
Calsynar (R)/Calcimar (R) (calcitonin) for the treatment of metabolic bone
diseases such as post-menopausal osteoporosis; Albuminar (R), a protein
replacement agent and plasma volume expander for loss of intra-vascular
volume; Clexane (R)/Lovenox (R) (enoxaparin), a low molecular weight heparin
used in the prevention and treatment of deep vein thrombosis after surgery;
Azmacort (R), an inhaled corticosteroid for asthma; Monoclate-P (R), a
pasteurized antihemophilic factor VIII:C product; Lozol (R) (indapamide), a
diuretic used to treat hypertension; Doliprane (R) (paracetamol), an
analgesic; Rovamycine (R) (spiramycine), a macrolide anti-infective;
Sermion (R) (nicergoline), a cerebral vasodilator used in the treatment of
memory disturbance due to aging and cognitive disorders;
Imovane (R)/Amoban (R) (zopiclone), a non-benzodiazepine sleeping agent;
Nasacort (R) (triamcinolone acetonide), an inhaled corticosteroid for allergic
rhinitis; Flagyl (R) (metronidazole), an antiparasitic used in the treatment
of trichomoniasis, amebiasis and anaerobic bacterial infections; Peflacine (R)
(pefloxacine), an anti-infective quinolone product; DDAVP (R), primarily for
treatment of nocturnal enuresis in children; Josacine (R) (josamycine), a
macrolide antibiotic to treat upper respiratory infections; Sectral (R)
(acebutolol), a beta-blocker used in the treatment of hypertension and angina;
Slo-bid (TM)/Slo-Phyllin (R), a theophylline bronchodilator;
Captea (R)/Captolane (R) (captopril), ACE inhibitors; Oroken (R) (cefixim), a
third-generation cephalosporin anti-infective; Dilacor XR (R) (diltiazem), a
calcium channel blocker used for treatment of hypertension; Selectol (R)
(celiprolol), a highly cardioselective vasodilating beta-blocker used in the
treatment of hypertension; Vasten (R) (pravastatin), a reductase inhibitor for
treatment of hypercholesterolemia; Nitrong (R)/Nitrolingual (R)
(nitroglycerin), used for the prevention and treatment of angina pectoris; and
Frumil (R) (furosemide/amiloride HCl), a diuretic for hypertension.
3
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While the above products as well as others are important to the Company's
strategy and focus in specific geographic markets, not all products are
marketed by the Company in all three of the largest pharmaceutical markets of
the world (Europe, United States and Japan).
Customers, Marketing and Distribution
The Company markets its products in more than 140 countries throughout the
world. The Company's prescription products are sold primarily to drug
wholesalers, retail pharmacies, hospitals and government authorities, while
over-the-counter products are sold, in addition to the foregoing, to food
chains and other retail outlets, particularly in the United States. The
Company's products are sold to a large number of diverse customers. No one
customer accounted for as much as 10 percent of the Company's consolidated net
sales in 1993.
Promotion of the Company's prescription products is directed primarily to
physicians, hospitals and pharmacists through personal visits by professional
sales representatives. In addition, this activity is supported by the Company's
participation in scientific seminars, medical journal advertising and by direct
distribution of samples and other printed material. Promotion of OTC products
includes advertising directed at the end consumer through media such as
television, radio or print.
In France, where the Company enjoys the leading position, its prescription
pharmaceutical marketing activities are presently conducted through three
laboratories: Specia, Theraplix and Bellon. The Company's OTC business in
France is carried on principally through its RP Labo subsidiary. Through the
laboratories, the Company is party to certain arrangements in France with
affiliates of Bristol-Myers Squibb, Bayer, and Astra to co-market such products
as Vasten (R), a cholesterol-lowering agent; Captea (R), a combination ACE
inhibitor and diuretic; Captolane (R), an ACE inhibitor; Nidrel (R), a calcium
channel blocker and Zoltum (R), a proton pump inhibitor. In 1993, just over 34
percent of the Company's sales were in France. Also through its operations in
France, the Company has entered into joint venture agreements for the
development and possible future marketing throughout Western Europe of new
compounds discovered by joint venture partners Dainippon and Chugai.
The Company conducts its marketing efforts in the United States in four
divisions: (1) Rhone-Poulenc Rorer Pharmaceuticals, the prescription
pharmaceuticals division; (2) Rhone-Poulenc Rorer Consumer Pharmaceutical
Products, which markets OTC products; (3) Armour Pharmaceutical Company, which
markets plasma derivatives to hospitals; and (4) Dermik Laboratories, which
markets prescription dermatological products principally to dermatologists. In
1993, just under 28 percent of the Company's sales were in the United States.
The U.S. pharmaceutical industry is currently undergoing fundamental changes
to the way health care is administered and provided. See "Governmental
Regulation". These changes will necessitate that relationships with a smaller
number of large customers (i.e., managed care organizations) be developed in
addition to the traditional marketing focus on the individual physician. At the
end of 1993, the Company reorganized on a regional basis its U.S. prescription
pharmaceuticals division to better respond to this emerging managed care
environment. An emerging markets unit will focus on nationally-organized
managed care plans and will also be responsible for Arcola Laboratories, formed
in mid-1993 to market generic versions of RPR products after patent or market
exclusivity expiration in the United States.
Operations in Other Europe (excluding France) contributed approximately 24
percent of 1993 consolidated sales. The Company's largest operations are in
Germany, Italy and the United Kingdom. The Company conducts its prescription
products operation in Germany under the names of Nattermann, Rorer and Rhone-
Poulenc Pharmaceuticals. Plasma derivatives are marketed by Armour
Pharmaceuticals. The OTC business in Germany is conducted through the
Nattermann and Dr. Schieffer units. In 1991, the Company sold the Woelm trade
name along with the Eschwege facility (and certain OTC products produced there)
to an affiliate of Johnson & Johnson/Merck Consumer Pharmaceutical Co. In
Italy, the Company
4
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conducts business through its Rhone-Poulenc Rorer S.p.A. subsidiary under the
names Rhone-Poulenc and Rorer. In the United Kingdom, the Company markets
branded prescription pharmaceuticals through its Rhone-Poulenc Rorer and May &
Baker divisions. Plasma derivatives are marketed by Armour Pharmaceuticals. In
addition, generic pharmaceuticals are marketed and distributed in the U.K.
under the name of APS-Berk. In 1992, the RPR Family Health Division was
created in the U.K. to develop OTC line extensions and new brand launches. In
1993, the Company strengthened and expanded its operations in Eastern Europe,
building a sales force and entering into local production, warehousing and
distribution arrangements.
In the aggregate, geographic regions comprising the Rest of World area
accounted for 14 percent of RPR's 1993 sales. The Company maintains a presence
in Africa, Asia, Latin America, Canada, Australia and Japan. During 1991, the
Company consolidated its activities in Japan, including its joint venture with
Chugai, in Rhone-Poulenc Rorer Japan Inc. The Company's operations there are
conducted primarily through this subsidiary; in addition, the Company has
several licensing arrangements with Yamanouchi and other Japanese companies
for the sale of RPR products in that market.
Raw Materials and Manufacturing
Substantial amounts of the active ingredients used in the Company's
prescription and OTC medicines are manufactured at its bulk pharmaceutical and
chemical facilities at Villeneuve la Garenne and Vitry-sur-Seine (near Paris,
France), Dagenham (near London, England), Cologne (Germany), Lewes, Delaware
(United States) and Marseilles (France). Other chemicals and botanicals are
purchased from other companies. These materials are generally processed,
compounded and packaged in facilities which the Company operates. See
"Properties".
The Company manufactures a substantial amount of the active ingredients
contained in its pharmaceutical products and does not depend on other
suppliers for these materials. Other raw materials and packaging supplies for
the Company's pharmaceutical products generally are available in ample
quantities under normal conditions. Such supplies were adequate in 1993, and
no shortages are currently anticipated.
During 1993, the Company produced virtually all of the magnesium and
aluminum hydroxides used in its antacid products sold in the United States and
a substantial portion of the magnesium and aluminum hydroxides used in
products sold to the rest of the world. Armour's Plasma Alliance subsidiary,
through the plasmapheresis process, collects all of the plasma used in the
U.S. and substantially all of the plasma used worldwide at 21 collection
centers throughout the southern and mid-western United States.
Patents, Trademarks and Licenses
Patents and Licenses. The Company has obtained patents in France, the United
States, and other countries for the significant products discovered or
developed through its research and development activities. Patent protection
is available in the United States, France and most other developed countries
for new active ingredients, as well as for pharmaceutical formulations or
manufacturing processes. In some other countries, patent protection is
available only for manufacturing processes. The Company also licenses patents
and other know-how from third parties.
Certain of the Company's licensed and owned products are covered by patents
principally in the United States, France and/or other countries. These patents
cover such principal products as Nasacort (R); Monoclate-P (R);
Clexane (R)/Lovenox (R); Azmacort (R); Peflacine (R); Imovane (R) and
Selectol (R). The Company's licensed or owned patents expire at various times
through the next twenty years. The Company has been granted Supplementary
Certificates of Protection to extend the patent terms of several of the
Company's products in Europe. The U.S. Azmacort (R) patent expired in 1993.
The U.S. Lozol (R) patent expired in 1988 and Lozol (R) U.S. FDA exclusivity
expired in mid-1993.
5
<PAGE>
Product patent protection is no longer available in nearly all major markets
for the active ingredients (such as ketoprofen, metronidazole, calcitonin,
acebutolol and spiramycine) used in a number of the Company's leading products.
However, the Company does not believe that the expiration of patent protection
for the active ingredients used in these and other products has generally had a
significant adverse effect on the Company because of the Company's ability thus
far to develop and patent new processes, formulations and uses; to position
many of its products in specific market niches; and because of the absence of a
generic market in France.
The Company believes that no single patent or license is material to the
Company as a whole.
The Company is routinely engaged in disputes over its patented products and
processes, the more significant of which are discussed in "Legal Proceedings"
herein.
Trademarks. The Company also maintains numerous trademarks protected by
registrations in the countries where its products are marketed. The Company's
trademark for a pharmaceutical product generally assumes increasing importance
when the patent for such product expires in a particular country. Except for
trademarks relating to Maalox (R) products, no single trademark is considered
material to the Company as a whole. There are currently no significant disputes
concerning its trademarks.
Competition
Generally, the Company operates in an intensely competitive domestic and
international environment, encountering competition in all of its geographical
markets from large national and international competitors. Among the Company's
chief competitors are Sandoz, Ciba-Geigy, Glaxo, Bayer, Merck, Upjohn, Roche,
SmithKline Beecham and Schering-Plough. These and other competitors have
substantial resources available for research, development and marketing
activities.
In general, a pharmaceutical product may be subject to competition from
alternative therapies during the period of patent protection and thereafter it
may also be open to competition from generic products. The launch by other
companies of new products or processes with therapeutic advantages can result
in product obsolescence and/or significant price erosion despite the existence
of patent protection or recognized trademarks. Medical utility, product quality
and marketing are other major competitive factors. Manufacturers of generic
products typically do not invest as heavily in research and development and,
consequently, are able to offer generic products at considerably lower prices
than brand equivalents. A research-based pharmaceutical company may therefore
seek to achieve a sufficient margin and sales volume during the period of
patent protection to recover the original investment and to fund research for
the future. There are, however, a number of factors that can enable products to
remain profitable once all forms of patent protection (product, process,
formulation and use) have ceased. These include a) creating for the prescriber
or the consumer a strong brand identification supported by an active trademark
registration and enforcement policy, b) offering a range of alternative
formulations that generic manufacturers typically cannot produce, or c)
complexity of manufacture of the active compound.
Increasing governmental and other pressures in many countries in favor of the
dispensing of generic products in substitution for brand-name products may
increase competition for some of the Company's products which are no longer
covered by patents.
The Company believes that its competitive position in the medium- to long-
term depends largely upon the ability of its research and development
organization to discover and develop innovative products, as well as upon
increasing productivity through improved manufacturing methods and marketing
efforts.
Research and Development
The Company invests heavily in research and development, which management
believes is critical to growth and competitiveness in the pharmaceutical
industry.
6
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Research and development expenditures were $561 million in 1993, $521 million
in 1992 and $445 million in 1991. Such expenditures represented 14%, 13% and
12% of net sales in 1993, 1992 and 1991, respectively.
Following its combination with HPB, the Company concentrated research efforts
at three research centers, in France, the United States, and the United
Kingdom. See also "Properties."
The Company has centralized and redirected its research in selected areas
deemed by management to be of long-term market potential. Research and
development programs are concentrated in several therapeutic areas:
cardiovascular, cancer, infectious diseases/AIDS, respiratory, bone
metabolism/rheumatology, and central nervous system. The Company has
development projects in various stages which include, but are not limited to,
the following:
. Taxotere (R), an antitumor agent with potential therapeutic benefit
against breast, lung and other forms of cancer;
. Ebastine, an antihistaminic compound for treatment of seasonal or
perennial allergic rhinitis;
. an AIDS virus-derived immunotherapeutic agent designed to elicit an
immune system response which might prevent or delay the onset of AIDS;
. Menorest (R), an estrogen patch for female hormone replacement, as well
as Combi-patch, an estrogen/progestin combination transdermal patch for
the relief of menopausal symptoms;
. Zagam (TM), a potential first-line therapy broad spectrum anti-infective
compound (being developed in North America and co-developed in Europe
through a joint venture with Dainippon);
. Synercid (TM), an injectable streptogramin antibiotic for hospital-
acquired infections;
. Aprim (R) (aprikalim), a potassium channel opener for treatment of
angina;
. a potent and selective inhibitor of the enzyme phosphodiesterase type IV
indicated in the inflammatory process in the lung;
. new indications for the marketed anti-thrombotic drug, Lovenox (R), in
the U.S.; and
. a novel compound, Riluzole, for the treatment of Amyotrophic Lateral
Sclerosis (ALS).
There can be no assurance that these or other compounds in various stages of
development will ultimately be approved for commercial sale.
In 1993, the Company launched a long-term gene and cell therapy research and
development collaboration with AIS. This arrangement and other similar
collaborations should strategically position the Company to play a major role
in the development of commercial opportunities in both cell and gene therapies.
Governmental Regulation
The introduction of new prescription pharmaceutical products is regulated in
all countries where the Company does business. Regulatory requirements
generally relate to the safety and efficacy of the product as well as to the
manufacturing processes for and the packaging and labeling of such products.
Clinical testing is required for pharmaceutical products. Completion of the
lengthy application and testing process for required governmental approvals is
costly and can significantly delay the introduction of new products in a given
market.
In the French prescription pharmaceutical market, direct price controls have
maintained prices at a low level compared to other markets and have typically
prevented the emergence of generic competition. The government is currently
considering cost containment measures to respond to the nation's health care
deficit, including physician prescribing guidelines to limit the volume of
prescriptions written. A three-year policy agreement between pharmaceutical
manufacturers and the French government signed in January 1994 will
7
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limit annual growth of prices for reimbursable pharmaceuticals to a level
expected to be in line with the average inflation rate. In Germany, physician
prescribing guidelines have been established and the selling prices of
prescription products were reduced by 5% in 1993 and remain frozen through
December 1994. A new reimbursement system was instituted in Italy in 1993
resulting in the removal of certain products from government reimbursement
lists and price cuts of 2.5% to 4.5%. Effective October 1993, the U.K.
Pharmaceutical Price Regulation Scheme enacted price reductions of up to 2.5%
and limited the ability of companies at certain profitability levels to seek
price increases. In Spain, decreases in pharmaceutical prices averaging 3%
became effective in November 1993.
In the European Community ("EC"), the Single Market formally came into being
on January 1, 1993. The Maastricht Treaty creating the European Union was
eventually ratified and came into effect in November 1993. The Single Market
program was extended to five of the European Free Trade Association countries
(Finland, Sweden, Norway, Austria and Iceland) through the creation of the
European Economic Area effective January 1994. Directives relating to
advertising, wholesale distribution, product classification and
labelling/package inserts adopted during 1992 are now being implemented by the
Member States. A regulation compensating the pharmaceutical industry for time
lost during product development by providing extended patent protection for up
to 15 years from the date of first marketing authorization in the EC also came
into effect. The future systems package establishing the new European
regulatory procedures and the European Medicines Evaluation Agency was adopted
in mid-1993; operation of the new procedures will commence in January 1995.
The Company's products sold in the United States are subject to the Food,
Drug and Cosmetic Act, and accordingly are subject to investigation and pre-
market approval of "new drugs" (as such term is defined in the Act), strict
standards regarding their manufacture, safety and efficacy and detailed
requirements with respect to labeling, promotion and, with respect to
prescription drugs, advertising. All states have enacted generic substitution
laws which permit, or in some instances require, the dispensing pharmacist to
substitute a different manufacturer's version of a drug for the one prescribed.
A variety of legislative proposals to expand public health care programs
and/or impose pharmaceutical price or other restrictions in the U.S. have been
discussed in recent years. During 1993, the Clinton Administration proposed the
Health Security Act ("HSA") which would provide universal health coverage
through standardized benefits for all U.S. citizens and would, by 1998, make
sweeping structural and financial changes to the U.S. health care delivery
system. Health care coverage would be provided primarily under managed-care
arrangements available through regional or corporate health alliances
determined at the state level. Elements of HSA and other proposals will be
debated by legislators at various levels in the coming year. The precise form
and effect of any final legislation cannot be predicted; however, most
pharmaceutical manufacturers, including RPR, have reorganized to adapt to an
emerging U.S. managed care environment which dictates that product offerings
satisfy payor objectives aimed at lowering health care costs.
U.S. Federal and state governments also continue to seek means to reduce
costs of Medicare and Medicaid programs. Under the HSA, selected service cuts
and spending caps on these programs would be imposed beginning in 1996.
Medicare and Medicaid recipients would, in many instances, obtain coverage
through regional alliances and be entitled to receive, among other things,
outpatient prescription drug benefits. Drug manufacturers would be required to
sign rebate agreements with the Department of Health and Human Services in
order to participate in the Medicare and Medicaid prescription drug benefit.
The exact form of these measures and whether additional restrictions on
reimbursement for, or access to, certain drug products will be enacted is yet
to be determined. Currently the Company operates under a Medicaid Rebate
Agreement entered into with the U.S. Government under Section 4401 of the
Omnibus Budget Reconciliation Act of 1990. Pursuant to the agreement, as of
January 1, 1991, in order for federal reimbursement to be available for
prescription drugs under state Medicaid plans, the Company must pay certain
statutorily-prescribed rebates on Medicaid purchases. Effective in 1991, the
law also denies federal Medicaid reimbursement for drug products of the
original New Drug Application (NDA)-holder if a less expensive generic version
of such drug is available from another manufacturer, unless the prescriber
indicates
8
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on the prescription that the branded product is medically necessary. In
addition to the agreement with the U.S. Federal Government, the Company has
entered into similar rebate agreements with several state reimbursement
programs. The Company does not believe that continued operation of these
agreements will have a material adverse impact on the Company's financial
condition in the foreseeable future.
In most other developed markets governments exert controls over
pharmaceutical prices either directly or by controlling admission to, or levels
for, reimbursement by government health programs. The nature of such controls
and their effect on the pharmaceutical industry varies greatly from country to
country. It is not possible to predict the extent to which the Company or the
pharmaceutical industry might be affected by the matters discussed above.
Environmental Matters
In 1993, the Company formed an Environmental Council to administer its
worldwide environmental compliance policy. The Company believes that its
operations comply in all material respects with applicable environmental laws
and regulations including those of U.S. Federal, state and local authorities.
The Company routinely makes, and expects that from time to time it will
continue to make, capital expenditures for environmental compliance. It does
not, however, anticipate that such future expenditures will materially affect
its earnings or competitive position.
Like many manufacturers, the Company has been advised of its potential
responsibility relating to past waste disposal practices, including potential
involvement at two sites on the U.S. National Priority List created by the
Comprehensive Environmental Response Compensation and Liability Act
(Superfund). The Company believes its share of liability for such matters, if
any, to be negligible.
Employees
As of January 31, 1994, the Company and its subsidiaries had approximately
22,300 employees. In general, the Company considers its relations with
employees worldwide to be satisfactory.
Non-U.S. Operations
Non-U.S. operations of the Company and its subsidiaries are subject in
varying degrees to a number of risks inherent in conducting business outside of
the United States. These include fluctuating currency exchange rates and the
possibility of nationalization, expropriation or restrictive actions by local
governments. The Company, in general, does not currently consider these factors
to be deterrents to maintaining or expanding such operations.
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Executive Officers of the Company
The identity of the Company's current executive officers and certain
biographical information concerning such individuals are set forth below.
<TABLE>
<CAPTION>
NAME (AND AGE) OF EXECUTIVE
OFFICER, POSITIONS AND OFFICES
HELD WITH THE COMPANY BUSINESS EXPERIENCE
- ------------------------------ -------------------
<S> <C>
Robert E. Cawthorn (58)...... Mr. Cawthorn became Chairman in 1986, having be-
Chairman and Chief Executive come Chief Executive Officer in 1985. He was
Officer President of the Company from 1984 to 1986 and
from 1988 to 1991.
Michel de Rosen (43)......... Mr. de Rosen was appointed in September 1993,
President and Chief having served as Chief Executive Officer of the
Operating Officer Fibers and Polymers sector of RP since 1988.
From 1986 to 1988, he was Chief of Staff for
the Minister of Industry of the French Govern-
ment. Prior to this, Mr. de Rosen served as
General Manager of Pharmuka since 1984.
Alain Audubert (50).......... Mr. Audubert joined the Company in his present
Senior Vice President, position in December 1993, having served as
Worldwide Industrial Chief Executive Officer of Pasteur Merieux
Operations Connaught since 1990. Prior to this, he was
Chief Executive Officer of the Institut de Se-
lection Animale since 1983.
Yves Barou (46).............. Mr. Barou has served as Senior Vice President,
Senior Vice President, Human Resources since April 1993, having been
Human Resources Corporate Vice President, Human Resources since
1991. Mr. Barou was Managing Director of the
Vitry-Alfortville Research Center in France be-
tween 1989 and 1991 and Deputy to the Chief Ex-
ecutive of RP's Health segment from 1987 to
1989.
John B. Bartlett (55)........ Mr. Bartlett was elected Senior Vice President
Senior Vice President, in 1988, having served as Vice President, Gen-
General eral Counsel and Secretary since 1986.
Counsel and Secretary
Gilles D. Brisson (42)....... Mr. Brisson was Area Vice President of Northern
Senior Vice President, Europe, the United Kingdom and Australasia and
Corporate Development General Manager of United Kingdom Health Care
for RP from 1989 to 1990. From 1987 to 1989, he
served as Deputy Senior Vice President of
Worldwide Pharmaceutical Operations of Rhone-
Poulenc Sante.
Manfred E. Karobath, MD (53). Dr. Karobath joined the Company in 1992, having
Senior Vice President and been Senior Vice President, Research and Devel-
President, Research and opment at Sandoz Pharma Ltd. in Basle, Switzer-
Development land since 1989. Prior to this, as Deputy Head,
he was responsible for Preclinical Research
(1987-1989) and Head of Preclinical CNS Re-
search (1983-1989) at Sandoz.
Patrick Langlois (48)........ Mr. Langlois served as Senior Vice President,
Senior Vice President and Corporate Finance and Acquisitions of RP from
Chief 1988 to 1990. In the years 1975 to 1986, he
Financial Officer served as Director of International Financings
of RP, Finance Director for RP's Health segment
and Finance Director of Rhone-Poulenc, Inc.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME (AND AGE) OF EXECUTIVE
OFFICER, POSITIONS AND OFFICES
HELD WITH THE COMPANY BUSINESS EXPERIENCE
- ------------------------------ -------------------
<S> <C>
John D. Michelmore (51)...... Mr. Michelmore was appointed to his current po-
Senior Vice President, sition in December 1993. Prior to that date, he
Europe had been Senior Vice President, Northern Europe
since 1990. Mr. Michelmore served as Area Vice
President of Rorer International Pharmaceuti-
cals from June 1988 to June 1990 and as General
Manager of Rorer Healthcare from June 1986 to
June 1988.
Philippe Maitre (37)......... Mr. Maitre was appointed to his current position
Vice President and Treasurer in January 1994, having joined the Company as
Group Vice President Finance and Planning for
North America and Pacific Rim countries in June
1993. Mr. Maitre
previously held various finance positions with
RP, including General Manager Finance and Plan-
ning of Rhone-Poulenc Japan from 1991 to 1993
and Assistant Treasurer of Rhone-Poulenc Sante
S.A. from 1986 to 1991.
Daniel J. Pedriani (44)...... Mr. Pedriani has served as Vice President and
Vice President and Corporate Controller, since 1989, having been
Corporate Controller Vice President, Finance of the Company's inter-
national subsidiary from 1988 to 1989.
</TABLE>
No executive officer of the Company has any family relationship with any
other.
ITEM 2. PROPERTIES
A substantial portion of the Company's pharmaceutical production in most
product categories is conducted in France, the United States, Germany, and the
U.K. The Company has a total of 45 pharmaceutical plants throughout the world:
in France (9), United States (5), elsewhere in Europe excluding France (9),
Canada (1), Africa (7), Japan (2), other Asia (7) and Latin America (5).
Included in the above are 6 plants dedicated solely or partially to the
production of bulk pharmaceuticals and chemicals. These plants are located in
France (3), the United Kingdom (1), the United States (1) and Germany (1).
Research and development activities are conducted in facilities in Vitry-sur-
Seine, France; in Collegeville, Pennsylvania, United States and Dagenham,
United Kingdom. U.S.-based research operations were consolidated and relocated
to the new research center/corporate office facility during 1992.
The Company generally either owns its facilities or leases them under long-
term leases. In December 1992, the Company sold its U.S. research
center/corporate office facility to a third party for $258.0 million and leased
it back on a triple net basis for an initial term of thirty years with options
to renew for a longer period. The Company also leased the underlying land to
the third party for sixty years and subleased it back with the facility. The
Company believes that its properties are well maintained and generally adequate
to meet its needs for the foreseeable future.
Capital expenditures were $250 million in 1993 and $284 million in both 1992
and 1991. In 1992 and 1991, $63 million and $102 million, respectively, were
for the U.S. research center/corporate office facility.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Diethylstilbestrol ("DES") Litigation
There are approximately two hundred legal actions pending against one or more
subsidiaries of the Company and various groupings of more than one hundred
pharmaceutical companies, in which it is generally alleged that "DES daughters"
and/or their offspring were injured as a result of the development of various
reproductive tract abnormalities in the "DES daughters" because of their in
utero exposure to DES. Typically, William H. Rorer, Inc. ("WHR") and Kremers-
Urban Company ("K-U"), two former operating subsidiaries of the Company, are
named as defendants, along with numerous other former DES manufacturers, when
the claimant is unable to identify the manufacturer of the DES to which she was
exposed. While the aggregate monetary damages sought in all of these DES
actions are substantial, the Company believes that both WHR and K-U have
adequate defenses to DES claims. All pending cases are currently being defended
by insurance carriers, sometimes under a reservation of rights. The Company is
also responsible for the obligations of Nattermann & Cie GmbH ("Nattermann")
with respect to DES-related legal actions brought against certain of its former
U.S. subsidiaries. Under the terms of the 1990 Acquisition Agreement, Rhone-
Poulenc S.A. is obligated to indemnify the Company for amounts expended on the
Nattermann DES claims in excess of $2 million. The Company believes that the
former Nattermann subsidiaries have adequate defenses to DES claims.
AHF Litigation
There are approximately one hundred sixty one pending lawsuits in the United
States, twenty five in Canada and fifty three in Ireland against the Company's
Armour Pharmaceutical Company ("Armour") subsidiary, and in some instances, the
Company, in which individuals with hemophilia and infected with the Human
Immunodeficiency Virus ("HIV"), or their representatives, claim that their
infection with HIV and, in some cases, resulting illnesses, including Acquired
Immune Deficiency Syndrome-related conditions or death therefrom, may have been
caused by administration of anti-hemophilic factor ("AHF") concentrates
processed by Armour in the early and mid-1980's; none of these cases involve
Armour's currently distributed AHF concentrates. In most of these suits, Armour
is one of a number of defendants, including other fractionators who supplied
AHF during that period. To date, approximately sixty three claims have been
resolved either by dismissal by the plaintiffs or the Court or through
settlement. A majority of the currently pending lawsuits was filed in 1993, and
management believes the number of lawsuits filed will continue to trend upward.
It is not possible, however, to predict with certainty the number of additional
lawsuits that may eventually be filed alleging HIV-related claims.
Trials took place in three of the above lawsuits during 1993. In January
1993, a jury in Florida held that Armour was liable to the parents of a
deceased HIV-infected hemophiliac for damages of approximately $2 million.
Armour believes this verdict to be inconsistent with evidence specific to the
case and, accordingly, it filed motions with the trial court seeking reversal
or, alternatively, a new trial. The trial court has denied both motions. Armour
has appealed this judgment to the United States Court of Appeals for the
Eleventh Circuit. Regardless of the outcome of this case, and because the facts
vary widely in such cases, the Company does not view this verdict as predictive
of, or as precedent for, decisions in any other cases. Juries in other AHF
cases have determined that Armour and the other plasma fractionators acted
responsibly and were not negligent. In October 1993, Armour obtained a directed
verdict dismissing it from a lawsuit pending in Louisiana State Court on the
basis that the plaintiff had not presented evidence sufficient to maintain an
action against Armour. Additionally, a jury verdict in favor of Armour and the
other plasma fractionators was obtained in an action pending in the United
States District Court for the Northern District of Illinois in November 1993.
The jury concluded that the fractionators of Factor VIII concentrate in the
early 1980's were not negligent in any of the ways charged and accordingly were
not liable to the claimant. Plaintiff has filed a post-trial motion seeking a
new trial. Although there are no other actions pending against Armour which are
presently at trial, Armour reasonably expects that other cases will proceed to
trial in the future.
12
<PAGE>
In July 1993, attorneys for certain plaintiffs filed a Petition with the
Federal Multi-District Litigation Panel seeking the consolidation of all AHF
litigation pending in U.S. Federal Courts for purposes of pre-trial discovery.
This Petition was subsequently withdrawn. In October 1993, a new petition was
filed, by attorneys for certain plaintiffs, with the Federal Multi-District
Litigation Panel seeking consolidation to the U.S. District Court for the
Northern District of Illinois. The Panel authorized consolidation in December
1993. In August 1993, a proposed class action lawsuit was filed in New Jersey
State Court against several fractionators, including Armour, on behalf of HIV-
infected hemophiliacs in New Jersey and their families (D.K., et al. v. Armour
Pharmaceutical Company, et al., Sup. Ct., Middlesex County, NJ). In September
1993, a proposed national class action lawsuit was filed purportedly on behalf
of up to ten thousand HIV-infected hemophiliacs and their families in the U.S.
District Court for the Northern District of Illinois against Armour, RPR, other
AHF fractionators and the National Hemophilia Foundation ("NHF") (Wadleigh, et
al. v. Armour Pharmaceutical Company, et al.; United States District Court,
Northern District, Illinois). Additionally, another proposed federal class
action lawsuit was filed against Armour and other fractionators in October 1993
purportedly on behalf of all HIV-infected hemophiliacs residing in Idaho, Utah
and Oregon and their families (Richard Roe and his mother, Jane Roe v. Armour
Pharmaceutical Company, et al.; United States District Court, Idaho District).
As the facts in each individual lawsuit vary widely, Armour does not believe
that class action status is warranted. One U.S. federal court and one state
court have denied previous petitions for class action certification. The
Company intends to vigorously oppose the petitions requesting class action
certification.
In the U.S., Armour and other plasma fractionators have participated in
discussions with representatives of the hemophilia community, including the
NHF, concerning the issue of assistance for U.S. hemophiliacs infected with
HIV. During 1993, the fractionators and representatives of the hemophilia
community discussed several alternative proposals which included financial
assistance and units of AHF concentrate which would be provided by the
fractionators over periods spanning several years. Conditions of fractionator
participation in such a plan included, among other things, participation by a
substantial majority of HIV-infected hemophiliacs who would agree to forego
legal proceedings against the fractionators. These discussions are not active
at this time. While Armour will continue to vigorously defend its position in
all cases and claims brought against it, the Company will evaluate alternative
ways of resolving pending and threatened litigation.
In Canada, representatives of the provincial governments have agreed to the
participation of several fractionators, including Armour, in a recently
announced Multi-Provincial Assistance Program for HIV-infected hemophiliacs.
Under the provisions of this program, participants will release contributing
parties, including Armour, from all legal claims related to infection with HIV.
Armour's share of the fractionator's contribution to this Program was provided
to the Canadian Provincial Governments in December 1993.
The Company has contractual rights to certain insurance coverage provided by
insurance carriers to Revlon, Inc., the party from which it purchased the
Armour business in 1986 ("Revlon carriers"). The Company also believes it has
certain insurance coverage from another principal insurance carrier ("principal
carrier") and from an umbrella insurance carrier. In addition, the Company
believes it has access to "excess" liability insurance coverage from other
carriers, effective in 1986, for certain of these cases if certain self-insured
retention levels from relevant insurable losses are exceeded. The Company has
been involved in litigation with the principal and umbrella carriers as well as
with certain of the Revlon carriers, relative to carrier defense and indemnity
obligations associated with AHF litigation. A trial in the insurance coverage
litigation, if necessary, would take place in United States District Court for
the Eastern District of Pennsylvania sometime in 1994. In August 1993, the
Court granted the Company's motion for partial summary judgment, deciding that
the principal carrier is obligated to provide a defense to the Company for the
AHF litigation. The Company and certain of the carriers have recently engaged
in extensive discussions aimed principally at settling the extent and other
conditions of coverage of those carriers. Based upon these discussions, the
Company believes that, although not a certainty, a substantial level of
coverage (including substantial coverage for legal defense expenditures) for
the Company's estimated liability determined in accordance with Statement of
Financial Accounting Standards No. 5 ("SFAS 5") is probable of occurrence.
13
<PAGE>
Shareholder Litigation
In 1990, a former shareholder initiated a purported class action lawsuit
against the Company, its Chairman, and two of its employees in the United
States District Court for the Southern District of New York. This action was
purportedly brought on behalf of all persons who sold the Company's common
shares, convertible debentures and call options between August 8, 1989 and
January 15, 1990. The plaintiff alleged, among other things, violations of
federal securities laws arising from alleged false and misleading statements
made prior to the public announcement of the 1990 transaction with Rhone-
Poulenc S.A. and sought compensatory and punitive damages in an unspecified
amount. The Court issued a decision permitting this action to proceed as a
class action, although the scope of the class has not been defined. Three
additional shareholder lawsuits were initiated in 1991, two purported class
actions and one brought individually against the Company, its Chairman, and
certain present and former employees. These lawsuits involve allegations and
claims which are substantially similar to those made in the case described
above. In the two additional purported class actions, the plaintiffs sought to
represent all persons who sold the Company's common shares, the Company's
convertible debentures, and call options between August 3, 1989 and January 15,
1990. The Court has refused to permit these actions to proceed as class actions
and certain of the plaintiffs have chosen to proceed individually.
The Company and the employee-defendants have asserted various defenses
denying all liability. However, in order to avoid the expense and disruptive
effects typically associated with defending these types of claims, the Company
and the employee-defendants have agreed to settle these cases. The proposed
settlement agreement was approved by the Court in December 1993.
Antitrust Litigation
The Company has been named as a defendant in six antitrust actions pending in
state and federal courts in Northern California, eleven in Federal Court in the
Southern District of New York, and single actions in the District of Minnesota,
the District of South Carolina, the Southern District of Ohio, and the Southern
District of Georgia. The suits allege that RPR, certain other pharmaceutical
companies and wholesalers and a large mail order concern discriminated against
independent community pharmacist plaintiffs with respect to the prices charged
for pharmaceutical products and further conspired to maintain prices at
artificially high levels to the detriment of these pharmacies. The federal
actions purport to be class actions, as do three of the four state cases.
Plaintiffs in these lawsuits seek injunctive relief and a monetary award for
past damages alleged. While the cases are in their early stages, the Company
believes that the claims are without merit and it intends to vigorously defend
these lawsuits.
Additionally, Petitions were filed with the Judicial Panel on Multi-District
Litigation seeking to consolidate the federal actions in which the Company has
been named with several other federal actions in which the Company has not been
named for purposes of coordinating overlapping pre-trial proceedings, like
discovery. The Panel heard oral argument on the Petitions in January 1994.
Patent and Intellectual Property Litigation
In 1987, Choay S.A. ("Choay") and Dropic, affiliates of Sanofi S.A.
("Sanofi"), filed suit against two subsidiaries of the Company alleging the
Company's Lovenox (R) enoxaparin product infringes the French patent issued to
Choay. In 1992, Choay filed patent infringement suits against the Company in
the United States District Court for the Southern District of New York as well
as in Italy, the United Kingdom and Germany. In April 1993, the Company reached
an agreement with Sanofi which settles the above lawsuits.
The Company was a plaintiff in three patent infringement lawsuits filed in
United States District Courts involving the patent licensed exclusively to the
Company by the Scripps Research Institute ("Scripps") covering the
antihemophilic Factor VIII:C. Two suits are in the state of California where,
procedurally, they have been consolidated, and one was in the state of
Delaware. In January 1993, the Company settled its patent dispute with Miles
Inc., defendant in one of the California cases. In December 1993, the Company
settled its dispute with Miles' co-defendant, Genentech Inc. Settlement papers
have been approved by the Court and
14
<PAGE>
the case has been dismissed. The Court in the remaining California case
involving Chiron Corporation is considering pending summary judgment motions.
If this case goes to trial, such trial is likely to be scheduled to commence
within the next six to twelve months.
In May 1993, the Company settled its patent dispute with Baxter Healthcare
Corporation and Baxter International, Inc. ("Baxter"), defendant in the
Delaware case. The court entered a consent judgment dismissing the case and
acknowledging the validity of the Scripps patent and infringement by the Baxter
plasma-derived and recombinant Factor VIII:C products. Pursuant to the
settlement papers filed in the U.S. District Court in Delaware, Baxter paid the
Company $105 million in June 1993 and agreed to pay ongoing royalties based on
sales of its Factor VIII:C concentrates. The Company also granted Baxter a
worldwide non-exclusive license covering its Factor VIII:C concentrates and
entered into a supply agreement under which Baxter will provide the Company
with recombinant Factor VIII:C.
In February 1993, Tanabe Seiyaku Company ("Tanabe") of Japan and their U.S.
licensee, Marion Merrell Dow Inc. ("MMD") initiated an action in the
International Trade Commission ("ITC"), the administrative agency responsible
for handling complaints of imports which allegedly infringe U.S. patent rights.
The complaint names ten domestic and foreign respondents, including the
Company, and alleges infringement of a Tanabe U.S. patent, claiming a process
for preparing bulk diltiazem, the active ingredient in the Company's Dilacor
XR (R) product. Tanabe and MMD are requesting relief in the form of an
Exclusion Order and a Cease and Desist Order. The Company has raised several
defenses, including lack of jurisdiction, patent invalidity, and non-
infringement. The ITC has suspended the proceeding indefinitely in view of an
ongoing reexamination proceeding involving the Tanabe U.S. process patent.
The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows SFAS 5 in determining whether
to recognize losses and accrue liabilities relating to such matters.
Accordingly, the Company recognizes a loss if available information indicates
that a loss or range of losses is probable and reasonably estimable. The
Company estimates such losses on the basis of current facts and circumstances,
prior experience with similar matters, the number of claims and the anticipated
cost of administering, defending and, in some cases, settling such claims. The
Company has also recorded as an asset insurance recoveries which are determined
to be probable of occurrence on the basis of the status of current discussions
with its insurance carriers. If a contingent loss is not probable, but is
reasonably possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY
The price range at which the Company's common stock traded and the quarterly
dividends paid per share during the last eight quarters are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW DIVIDEND PAID
- ------------- ------- ------- -------------
<S> <C> <C> <C>
December 31, 1993................................ $48.500 $32.625 $.28
September 30, 1993............................... 48.875 43.000 .26
June 30, 1993.................................... 54.000 46.375 .24
March 31, 1993................................... 48.000 42.500 .22
December 31, 1992................................ $50.750 $44.375 $.20
September 30, 1992............................... 59.250 45.625 .18
June 30, 1992.................................... 59.750 51.500 .16
March 31, 1992................................... 69.375 55.625 .14
</TABLE>
Rhone-Poulenc Rorer Inc. (RPR) common shares are listed and traded on the New
York and Paris Stock Exchanges and are traded, unlisted, on the Philadelphia,
Boston, Pacific and Midwest Stock Exchanges.
On January 31, 1994, there were approximately 7,336 holders of record of
Rhone-Poulenc Rorer Inc. common shares.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NINE-YEAR SELECTED FINANCIAL DATA (UNAUDITED)
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- -------- -------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $4,019.4 $4,095.9 $3,824.3 $2,917.4 $1,182.2 $1,041.6 $ 928.8 $ 844.6 $338.1
Operating income........ 675.3 675.0 558.5 88.9 125.5 144.1 122.7 52.9 59.9
Income from continuing
operations............. 421.1 423.3 326.5 1.0 86.5 61.8 54.3 3.5 36.0
Discontinued operations,
net of tax:
Gain on sale........... -- -- -- -- -- -- -- 122.1 --
Earnings from
operations............ -- -- -- -- -- -- -- -- .8
Cumulative effect of
change in accounting
for income taxes....... -- 15.0 -- -- -- -- (35.5) -- --
Net income available to
common shareholders.... 408.7 428.2 326.1 1.0 85.0 61.8 18.8 125.6 36.8
Primary earnings per
common share:
Continuing operations.. 2.96 2.99 2.37 .01 1.33 .98 .84 .05 .56
Discontinued opera-
tions:
Gain on sale........... -- -- -- -- -- -- -- 1.88 --
Earnings from opera-
tions................. -- -- -- -- -- -- -- -- .01
Cumulative effect of
change in accounting
for income taxes...... -- .11 -- -- -- -- (.55) -- --
Primary earnings per
common share.......... 2.96 3.10 2.37 .01 1.33 .98 .29 1.93 .57
Fully diluted earnings
per common share....... 2.96 3.10 2.37 .01 1.21 .97 .29 1.93 .57
Cash dividends per
common share........... 1.00 .68 .445 .42 .405 .40 .386 .376 .373
Research and development
expenses............... 561.2 521.3 444.5 350.1 121.8 104.0 82.7 69.7 17.9
BALANCE SHEET DATA:
Working capital......... 446.6 667.1 407.0 391.3 436.9 312.4 226.6 155.7 53.9
Property, plant &
equipment, at cost..... 1,958.6 1,855.9 2,027.8 1,930.7 488.2 395.7 363.5 333.0 150.6
Capital expenditures:
U.S. corporate offices,
research center and
site.................. -- 63.1 102.1 92.1 29.3 10.8 -- -- --
Other.................. 250.4 221.2 181.6 124.8 82.1 59.9 45.1 36.7 14.5
Total assets............ 4,050.2 3,858.3 4,115.5 4,085.0 1,791.7 1,388.0 1,240.5 1,110.1 444.4
Long-term debt
(including payable to
RP).................... 432.2 779.7 960.5 1,634.3 882.5 564.6 509.7 444.3 37.3
Shareholders' equity.... 1,821.2 1,568.3 1,298.6 693.5 439.9 414.2 368.8 390.4 265.7
Common shares
outstanding at year-
end.................... 137.0 138.3 137.9 137.4 63.1 63.6 62.9 65.4 64.9
Book value per common
share.................. 10.37 9.17 7.24 5.05 6.97 6.51 5.86 5.97 4.09
OTHER DATA:
Employees............... 22,300 22,900 22,500 23,500 8,500 8,400 7,400 7,500 8,900
Sales per employee
(thousands)............ 180 180 170 150 140 132 124 103 84
</TABLE>
- --------
Results include the accounts of the Human Pharmaceutical Business ("HPB") of
Rhone-Poulenc S.A. from May 5, 1990.
Results include pretax restructuring and other charges of $93.8 million in
1993, $73.6 million in 1991, $289.3 million in 1990, and $10.0 million in
1989. Results for 1993 also include $105.0 million proceeds from litigation
settlement and pretax charges of $29.1 million related to an investment in
AIS, including acquired research and development expense. Pretax gains on
sales of product rights and non-strategic assets totaled $30.2 million in
1993, $23.1 million in 1992, $95.7 million in 1991, $78.8 million in 1990 and
$30.9 million in 1989. Results for 1989 also include a $19.9 million pretax
gain on contract termination fee.
Effective January 1, 1992, the Company adopted SFAS 109, "Accounting for
Income Taxes," and recorded a cumulative effect adjustment increasing 1992
income by $15.0 million ($.11 per share). Prior years reflect the application
of SFAS 96, "Accounting For Income Taxes," effective January 1, 1987.
The year 1985 has been restated to reflect operations discontinued on February
28, 1986.
Employees and sales per employee for the year 1990 have been restated on a pro
forma basis to include HPB as if it were part of the Company from January 1,
1990.
All share and per share data have been adjusted to reflect a two-for-one
common stock split effective June 7, 1991.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Rhone-Poulenc Rorer Inc. ("RPR" or "the Company") is one of the largest
research-based pharmaceutical companies in the world. RPR was formed in July
1990 by the combination of Rorer Group Inc. and substantially all of the human
pharmaceutical business of Rhone-Poulenc S.A. ("RP"), based in Paris, France.
RP owns approximately two-thirds of RPR's common stock and controls the
Company.
PHARMACEUTICAL INDUSTRY ENVIRONMENT
As government and private payors seek means to reduce the rate of growth in
health care expenditures in virtually all worldwide markets, the pharmaceutical
industry continues to be affected by initiatives to limit both pharmaceutical
prices and prescriptions written by physicians. As a result, annual
prescription pharmaceutical revenue growth rates in major strategic markets
have slowed from prior year levels. The degree to which pharmaceutical
companies are individually affected will depend upon each company's product
portfolio and its ability to manage in the environment specific to each
country.
In France, where the Company enjoys a leading position, the government is
considering measures which include physician prescribing guidelines which would
limit the volume of prescriptions written. A three-year policy agreement
between pharmaceutical manufacturers and the French government signed in
January 1994 will restrict annual growth of prices for reimbursable
pharmaceuticals to an average inflation rate. Although these steps are not
likely to affect RPR revenues significantly in the near term, future
governmental actions cannot be determined.
In the U.S., prior legislation requiring payment of rebates to state Medicaid
programs reduced the Company's sales by $34 million in 1993, $21 million in
1992 and $12 million in 1991. During 1993, the Clinton Administration proposed
the Health Security Act ("HSA"), which would provide universal health coverage
through standardized benefits for all U.S. citizens and would, by 1998, make
sweeping structural and financial changes to the U.S. health care delivery
system. Elements of HSA and other proposals will be debated by legislators at
various levels in the coming year. The precise form and effect of any final
legislation cannot be predicted; however, most pharmaceutical manufacturers,
including RPR, have reorganized to adapt to an emerging U.S. managed care
environment which dictates that product offerings satisfy payor objectives
aimed at lowering health care costs.
In Germany, physician prescribing guidelines have been established and
selling prices of prescription products remain frozen through December 1994. In
Italy, new legislation affecting health care reimbursement lists was recently
instituted, resulting in the removal of certain products from government
reimbursement lists and price reductions of 2.5% to 4.5%. In October 1993, the
U.K. Pharmaceutical Price Regulation Scheme enacted price reductions of up to
2.5% and will restrict certain more profitable companies from seeking
pharmaceutical price increases in that country. In Japan, a biannual price
reduction will take effect in April 1994, and in Spain, decreases in
pharmaceutical prices averaging 3% took effect in November 1993.
These measures, while indicative of a global trend toward more governmental
control over health care expenditures, are neither new to the industry nor to
RPR. In certain cases, the legislation may allow companies to negotiate other
terms or conditions which can minimize the effect on revenues; however, these
measures tend to restrict future revenue growth derived from existing products
and, as a result, companies in the industry must look increasingly to achieve
profitability objectives through more rapid commercialization of highly
innovative therapies, integrated prescription, OTC and generic product
strategies, aggressive cost reduction, strategic alliances with others and
creative marketing solutions to meet the needs of payors.
18
<PAGE>
RESULTS OF OPERATIONS
Principal Product Sales
In the table and discussion which follows, percentage comparisons of year-to-
year sales by therapeutic area and principal products are presented excluding
the effects of exchange rate fluctuations. Certain reclassifications have been
made from amounts shown in prior periods for therapeutic area totals to conform
to classifications now used by the Company.
<TABLE>
<CAPTION>
THERAPEUTIC AREA/PRINCIPAL PRODUCTS 1993 % CHANGE* 1992 % CHANGE* 1991
----------------------------------- ---- --------- ---- --------- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
TOTAL CARDIOVASCULAR......................... $834 + 1% $878 + 9% $777
Clexane (R)/Lovenox (R)..................... 153 +30% 127 +33% 90
Lozol (R)................................... 104 -13% 119 +14% 104
Dilacor XR (R).............................. 51 N/A 20 N/A --
Selectol (R)/Selecor (R).................... 50 +43% 37 +31% 28
Vasten (R).................................. 48 +11% 46 +49% 29
- --------------------------------------------------------------------------------
TOTAL INFECTIOUS DISEASE/ONCOLOGY............ 542 +11% 530 + 5% 486
Rovamycine (R).............................. 94 +26% 82 +30% 61
Peflacine (R)............................... 76 + 9% 75 + 7% 68
Oroken (R).................................. 55 +23% 47 + 8% 42
- --------------------------------------------------------------------------------
TOTAL HYPERSENSITIVITY....................... 407 + 5% 396 +28% 304
Azmacort (R)................................ 143 +13% 127 +48% 86
Nasacort (R)................................ 79 +37% 58 N/A 13
- --------------------------------------------------------------------------------
TOTAL PLASMA DERIVATIVES..................... 400 +20% 337 +18% 281
Albuminar (R)............................... 154 + 6% 139 +15% 119
Monoclate-P (R)............................. 114 + 7% 112 +15% 97
- --------------------------------------------------------------------------------
TOTAL CENTRAL NERVOUS SYSTEM/ANALGESIA....... 365 + 2% 386 + 6% 354
Doliprane (R)............................... 102 +23% 88 + 2% 81
Imovane (R)/Amoban (R)...................... 85 + 9% 84 +43% 57
- --------------------------------------------------------------------------------
TOTAL GASTROENTEROLOGY....................... 490 +10% 471 -10% 514
Maalox (R).................................. 239 + 4% 240 - 8% 258
- --------------------------------------------------------------------------------
TOTAL BONE METABOLISM/RHEUMATOLOGY........... 465 - 2% 514 + 9% 465
Orudis (R)/Profenid (R)/Oruvail (R)......... 173 + 3% 186 + 2% 180
Calcitonins................................. 163 -10% 198 + 6% 186
DDAVP (R)................................... 73 - 4% 76 +34 56
- --------------------------------------------------------------------------------
OTHER THERAPEUTIC AREAS...................... 516 - 5% 584 -12% 643
- --------------------------------------------------------------------------------
</TABLE>
* % change excludes currency translation effects.
1993 Compared with 1992
On net sales of $4,019 million in 1993, net income available to common
shareholders was $409 million ($2.96 per share), 5% below $428 million reported
in 1992 ($3.10 per share). Earnings per share benefitted by $.63 in 1993 from
$105 million of proceeds from the settlement of litigation and $30 million of
gains from sale of certain product rights and investments. In addition, 1993
results include an $11 million ($.08 per share) after-tax benefit from the
extension in depreciation lives for certain production machinery and equipment
effective January 1. Earnings in 1993 were reduced by $.59 per share due to $94
million of restructuring and other charges and $29 million of costs related to
the Company's equity investment in Applied Immune Sciences, Inc. ("AIS").
Results for 1992 benefitted by $.12 per share from gains on the sale of assets
and $.11 per share from adoption of Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes."
19
<PAGE>
The Company's 1993 reported net sales of $4,019 million were down 2% from
1992. The 2% decline consists of currency fluctuations (which reduced sales by
6%), divested products (-1%), price increases (less than +1%), and volume gains
(+4%). No single product contributed more than 6% of worldwide sales in 1993,
and the ten largest products contributed approximately 36%. Sales of the
Company's key strategic products--to which particular marketing emphasis is
directed and which, as a group, comprised 43% of 1993 sales--increased by 10%,
approximately twice the 5% overall rate of sales growth, on a basis which
excludes the effects of currency fluctuations and divested products.
Sales in France, the Company's largest market, were $1,375 million in 1993 on
an as-reported basis. Excluding the effects of fluctuating currency rates and
product divestitures, sales increased 8% in 1993, driven primarily by demand
for anti-infectives and analgesics following a strong influenza season. In the
United States, prescription pharmaceuticals and over-the-counter products
contributed to a 12% increase in sales, to $1,120 million, despite a fourth
quarter decision to curtail year-end trade incentives on certain prescription
pharmaceuticals. Sales in Other Europe of $978 million fell 8% due principally
to the impact of restrictive government programs in Germany (where prescription
product sales were down 26%) and Italy (down 31%). The sales decline in these
countries was partially offset by higher branded product sales in Eastern and
Southern Europe and generic products in Northern Europe. Sales in the Rest of
World area increased 13% to $546 million, led principally by Japan. If the
effects of restructuring charges and gains on asset sales are excluded from
reported geographic area results in the years, income before income taxes as a
percentage of sales ("IBT margin") increased in 1993 in the U.S., France and
Rest of World but fell in Other Europe, triggered by market conditions in Italy
and Germany.
Sales of the Company's cardiovascular products in 1993 were led by
Clexane (R)/Lovenox (R), a global low molecular weight heparin product, which
performed well in France and was launched in the U.S. early in the year. The
FDA exclusivity of Lozol (R), a diuretic sold principally in the U.S., expired
in mid-1993. The Company introduced a half-strength presentation of Lozol (R)
during the year as well as a generic indapamide product through its newly-
established Arcola Labs unit in anticipation of further generic competition,
the overall result of which is expected to be a decline in Lozol (R) sales.
Dilacor XR (R), a once daily calcium channel blocker launched in the U.S. in
mid-1992, attained steady prescription growth throughout 1993. Other
cardiovascular products Frumil (R) (-19%), a leading diuretic facing generic
competition in the U.K., and Biosinax (R) (-66%), a ganglioside sold in Italy,
experienced sales declines as anticipated.
Sales of infectious disease/oncology products were higher in 1993 on stronger
first and fourth quarter demand for upper respiratory disease products in
France.
Sales of plasma derivatives by the Company's Armour Pharmaceutical Company
("Armour") were led by Albuminar (R) human serum albumin in Japan and
Monoclate-P (R) (pasteurized antihemophiliac Factor VIII:C) in Other Europe
markets. In the U.S., Monoclate-P (R) encountered competition from a
recombinant form that entered the market in 1993; the Company launched its own
recombinant version in the U.S. in late 1993 with a worldwide launch
anticipated in 1994. Mononine (TM), launched in the U.S. in late 1992 for
treatment of hemophilia B, also contributed to 1993 plasma derivatives sales
growth.
Hypersensitivity products were led by sales of the inhaled steroids
Azmacort (R) and Nasacort (R) in North America. During the year, the Company
entered into an agreement with U.K.-based Fisons to co-promote Azmacort (R) and
Fisons' Tilade (R) in the U.S., further bolstering the Company's respiratory
product position. Sales of Slo-bid (TM)/Slo-Phyllin (R), a theophylline
bronchodilator sold primarily in the U.S., declined due to a shift in use to
inhaled steroids, although brand market share was maintained.
Sales of central nervous system/analgesia products were headed by the
analgesic Doliprane (R), driven by a higher incidence of influenza in France,
and Imovane (R)/Amoban (R), a non-benzodiazepine sleeping agent, which
performed well in France and Japan.
Sales of gastroenterology products benefitted from higher Maalox (R) antacid
sales in the U.S., Canada and Japan which exceeded declines in Other Europe.
Expansion of the U.S. antacid market contributed to
20
<PAGE>
higher factory sales in the U.S. although the brand's share of the highly
competitive antacid market trailed 1992. In 1993, the Company launched Anti-Gas
and Anti-Diarrheal line extensions of Maalox (R). Sales of Zoltum (R), a peptic
ulcer medication co-marketed in France, more than doubled in 1993.
A decline in sales of bone metabolism/rheumatology products included lower
sales of calcitonin products for bone disorders and DDAVP (R) for nocturnal
enuresis. Calcitonin products encountered competition and unfavorable
legislation in Italy, their largest market and further sales declines are
anticipated in 1994 under expected lower levels of government reimbursements.
Calcitonins faced generic competition in the United States, where the Company's
Arcola Labs unit also launched a generic version in the second half of 1993.
Elsewhere, RPR recorded higher calcitonin sales in Spain and Japan in 1993.
Sales of Orudis (R)/Profenid (R)/Oruvail (R), a ketoprofen anti-inflammatory,
were marginally higher, led by sales in Japan.
Sales in other therapeutic categories included sales of prescription skin
care products marketed to dermatologists by Dermik Laboratories ("Dermik"),
which increased 15%.
Gross profit, as a percentage of sales, improved one percentage point in 1993
to 67% due to cost control and product mix-related improvements. Management
will continue to emphasize productivity enhancements to achieve further gross
profit margin improvements in the coming years.
Selling, delivery and administrative expenses were 36.5% of sales compared to
36.7% sales in 1992. Higher expenses in support of selling and promotion of
U.S. prescription pharmaceuticals and in Japan were more than offset by expense
reductions in Europe, particularly Germany and Italy. Significant financial
resources in support of selling and promotional activities will continue to be
necessary for the Company to maintain its competitive position in all major
markets.
Research and development expenses increased 8% to $561 million, or 14% of
sales, in 1993. The Company's research and development efforts continue to
focus on innovative global products and technologies, particularly those with
potential to prolong significantly and/or improve the quality of life
worldwide. The Company's most important projects are Taxotere (R), for certain
solid malignant tumors; Zagam (TM), a broad spectrum quinolone antibiotic; and
an AIDS immunotherapeutic vaccine being developed in partnership with The
Immune Response Corporation ("IRC"). Certain issues regarding the joint and
individual responsibilities of RPR and IRC are currently in arbitration; such
proceedings are not expected to impact the progress of the project. In
addition, the Company's 1993 alliance with AIS represents an important entry
into gene and cell therapy technology which, beyond the promise of AIS's
immediate product line, is likely to affect how pharmaceutical research is
conducted by the industry in the future. The Company's research and development
efforts will also concentrate on bringing existing products to new markets,
developing more effective dosage forms and drug delivery systems, and
maximizing the benefits of new business alliances. At comparable exchange
rates, research and development expenses are expected to approach $600 million
in 1994.
Restructuring and other charges of $94 million recorded in 1993 include the
costs of restructuring marketing and manufacturing operations in the German and
Italian prescription pharmaceutical businesses, the planned divestiture of a
portion of a manufacturing facility in Monts, France, and increased provisions
for certain litigation. In 1994, the Company expects to aggressively pursue
other cost-reduction steps which offer attractive payback opportunities in the
present environment. Such steps may give rise to a restructuring charge during
the year; however, there are no specific plans at this time and it is not
possible to estimate the costs or associated benefits of any such program which
might be pursued.
Excluding restructuring and other charges and litigation proceeds, operating
income was approximately 16.5% of sales in 1993 and 1992. In 1993, the effects
of expense controls in manufacturing and administration exceeded relatively
higher research and development spending and lower selling price increases. In
the current business environment, more aggressive product cost and
administrative expense reduction policies will be major contributors to
maintaining this profitability measure in the near term.
21
<PAGE>
Net interest expense declined by $44 million to $61 million in 1993 as a
result of lower average net debt balances and worldwide interest rates.
Approximately 92% of combined short- and long-term debt was at variable rates
(principally in Europe) at December 31, 1993 and 1992. The remainder at
December 31, 1993 is fixed either by its terms or by interest rate swap
contracts expiring primarily in 1994. In 1994, net interest expense is
anticipated to continue to decline due to lower average net debt.
Other expense, net increased to $54 million from $12 million in 1992 due
primarily to higher losses associated with equity-method investments, including
$29 million of non-cash losses related to AIS including acquired research and
development.
The Company's effective income tax rate for 1993 was 28.7% compared with
27.2% for 1992 as a result of reduced tax benefits from Puerto Rico operations
and reduced utilization of net operating losses outside the United States. In
August 1993, the U.S. Omnibus Budget Reconciliation Act of 1993 (the "Act") was
signed into law. The Act provides, among other things, a limitation on the
Company's use of the Possessions Tax Credit beginning in December 1994, an
increase in the U.S. corporate tax rate from 34% to 35% effective January 1,
1993, and a retroactive reinstatement of the Research and Experimentation
Credit to July 1, 1992. These provisions gave rise to a retroactive rate
adjustment for U.S. deferred taxes but had minimal impact overall on the
Company's effective income tax rate in 1993. Although it is not expected to
significantly change the Company's 1994 effective tax rate, the Act could
increase the Company's effective rate by up to three percentage points in 1995
and thereafter as a result of the reduction in the Possessions Tax Credit
benefit. However, the Company will seek to mitigate this effect through routine
tax planning measures.
In 1993, the Company issued $175 million of money market preferred stock in
the U.S. with initial dividend rates fixed for two to five years and redeemed
$75 million of Market Auction Preferred Shares ("MAPS"). At $12 million,
dividends on preferred shares were higher than in 1992 due to the $100 million
net increase in outstanding preferred shares, partially offset by the effect on
auction rate dividends of lower U.S. short-term interest rates earlier in the
year.
1992 Compared with 1991
On net sales of $4,096 million, net income available to common shareholders
increased 31% to $428 million in 1992 ($3.10 per share). Sales growth, measured
on a basis which excludes the effects of divested products, was just over 11%.
Of such growth, price increases contributed just over two percentage points,
currency fluctuations added three percentage points, and higher volume
accounted for just under six percentage points. Sales of the Company's key
strategic products increased by 17% in 1992, excluding currency fluctuation
effects.
Sales in 1992 were in the following geographic areas: France--$1,388 million
(+5% over 1991, excluding the effects of fluctuating exchange rates and
divested products); U.S.--$1,000 million (+17%); Other Europe--$1,218 million
(+6%); and Rest of World--$490 million (+9%). IBT margin, excluding effects of
restructuring charges and gains on asset sales, improved significantly on
higher sales in the U.S. and, to a lesser degree, in France. IBT margin fell in
Other Europe, triggered by market conditions in Italy and Eastern Europe, and
in the Rest of World area due to higher operating costs in Japan and Mexico.
Sales of cardiovascular products were led by growth of
Clexane (R)/Lovenox (R) in France and other European markets. Dilacor XR (R),
launched in the U.S. in June 1992, also advanced sales growth in the category.
While France contributes most of the infectious disease/oncology sales, 1992
sales growth came principally from other markets in Asia, Africa and Northern
Europe. A lower incidence of influenza in 1992 held sales of anti-infectives in
France approximately level compared to 1991.
Sales of bone metabolism/rheumatology products were led by calcitonin
products and Orudis (R)/Profenid (R)/Oruvail (R). Higher sales of calcitonin in
Japan and in Spain, following introduction of the intranasal spray, more than
offset a 27% decline in Italy stemming from competitive pressures and
legislative effects. Sales of Orudis (R)/Profenid (R)/Oruvail (R) benefitted
from the introduction of new dosage forms to combat generic entries in some
markets.
22
<PAGE>
Sales of central nervous system/analgesia products advanced on the
performance of Doliprane (R) and Imovane (R)/Amoban (R). Sales growth of
Imovane (R)/Amoban (R) was broad-based throughout France, Other Europe, Canada
and Japan.
Sales of hypersensitivity products were led by growth in the U.S. of
Azmacort (R) and Nasacort (R). Following its second half 1991 launch,
Nasacort (R) sales increased by threefold in 1992.
Led by Monoclate-P (R) in Europe and Albuminar (R) in Japan and China, plasma
derivative sales nearly doubled in markets outside the United States.
Mononine (TM) was launched in the U.S. following FDA approval in August 1992.
Sales of gastroenterology products, principally the Maalox (R) brand of
antacid, declined during the year. Maalox (R) U.S. sales and market share
trailed 1991 levels but were supported by launch of Maalox (R) HRF tablets and
Maalox (R) caplets and new promotional initiatives in the second half of 1992.
Elsewhere, Maalox (R) posted sales gains in Europe, Canada and in Japan, where
Maalox (R) Plus entered the over-the-counter market. In France, Zoltum (R)
contributed to 1992 sales growth following its late-1991 launch in a co-
marketing arrangement.
Sales performance of products in all other therapeutic categories was led by
Dermik skin care products (+19%).
Gross profit margin increased one percentage point from 65% of sales in 1991
to 66% in 1992, as selling price increases and productivity improvements
exceeded the effects of unfavorable sales mix. Selling, delivery and
administrative expenses were 36.7% of sales in 1992 compared to 36.8% in 1991.
A lower ratio in the U.S. prescription pharmaceuticals business was offset by
the effects of sales force expansions and higher marketing expenses in France,
Germany and in Armour's U.S. operations. Administrative expenses in 1992 were
limited to growth of 1% excluding currency effects. The Company's investment in
research and development increased 17% from $445 million (11.6% of sales) in
1991 to $521 million (12.7% of sales) in 1992.
In 1991, the Company recorded $74 million of restructuring charges for
facility divestitures in Germany and the U.K., relocation of U.S. corporate
offices and research facilities, and other costs.
Lower average net debt and a greater concentration of lower cost dollar-
denominated debt reduced net interest expense by $44 million in 1992.
In 1992, the Company recorded gains of $23 million ($.12 per share) related
principally to sales of product rights in the U.S. and France. In 1991, the
Company sold its dietary products business in France and a product line in the
U.S. and recorded a before-tax gain of $96 million.
Other expense, net of $11 million in 1992 included foreign exchange gains of
$8 million, most of which were realized on foreign currency forward contracts
entered into and expiring during the fourth quarter.
The Company's effective income tax rate for 1992 was 27.2% under SFAS 109,
compared to 32.3% in 1991 under Statement of Financial Accounting Standards No.
96. The lower 1992 rate was the result of recognition of deferred tax benefits
on certain non-U.S. net operating losses, an increase in the benefit from
Puerto Rico operations and other adjustments.
Dividends on Market Auction Preferred Shares, issued in December 1991, were
$10 million in 1992.
Inflation
Although its effect has stabilized at historically low levels in most
developed countries in recent years, price inflation continues to increase the
Company's cost of goods and services. As a result, limited ability to raise
selling prices in the current environment exposes companies in the industry to
risk of profit erosion.
23
<PAGE>
The Company attempts to mitigate such adverse inflationary effects through
quality initiatives to improve productivity and control costs.
FINANCIAL CONDITION
Cash Flows
Net cash provided by operating activities was $721 million in 1993, $357
million in 1992, and $468 million in 1991. In 1993, operating cash flows
include $105 million proceeds from the settlement of litigation. Operating cash
flows were substantially higher in 1993 than in 1992 because of lower outlays
for income taxes (lower by $114 million), working capital needs and
restructuring activities. In addition, 1993 earnings included non-cash charges
for rent and AIS research costs totaling $52 million. In 1992, operating cash
flows were lower than in 1991 as higher cash requirements for taxes and working
capital exceeded lower restructuring outlays. 1992 tax payments included
settlement of an examination of the Company's 1986 consolidated U.S. tax return
and substantial payments of 1991 taxes which had been deferred in several
European subsidiaries following legal entity restructurings after the 1990
formation of RPR. Because certain 1993 operating cash flows will not recur,
cash flows from operating activities are expected to be lower in 1994.
Investing activities used cash of $346 million in 1993 and $88 million in
1991 and provided cash of $51 million in 1992. In 1993, the Company acquired a
37% interest in AIS for $117 million, while 1992 and 1991 investing cash flows
benefitted from significantly higher proceeds from the sale of assets. Cash
outlays for capital expenditures were $250 million in 1993, down from $284
million in years 1992 and 1991.
Financing activities used cash of $375 million in 1993, $500 million in 1992
and $409 million in 1991. Net proceeds from issuances of preferred shares were
$97 million in 1993 and $296 million in 1991, while net repayments of third
party and RP borrowings were $265 million in 1993, $403 million in 1992, and
$647 million in 1991. In 1993, the Company repurchased approximately two
million of its common shares ($76 million) for a newly-established Employee
Benefits Trust to fund employee benefits in the United States. Cash dividends
paid to common shareholders were $138 million in 1993 ($1.00 per share), $94
million in 1992 ($.68 per share) and $61 million in 1991 ($.445 per share). In
January 1994, the Board of Directors declared a first quarter cash dividend of
$.28 per share, a 12% increase above the average 1993 quarterly dividend.
Liquidity
As a result of debt repayments, the Company's net debt (short- and long-term
debt including notes payable to RP, less cash and cash equivalents, short-term
investments and time deposits) to net debt plus equity ratio improved to .26 to
1 at December 31, 1993 from .38 to 1 at December 31, 1992.
At December 31, 1993, the ratio of current assets to current liabilities was
1.37 to 1 compared to 1.63 to 1 a year ago. The change is principally due to a
reduction of certain third party bank borrowings classified as long-term at
December 31, 1992 and a higher level of temporary borrowings from RP classified
as short-term at December 31, 1993 even though RPR has a continuing ability to
refinance these borrowings on a long-term basis under committed bank lines.
At December 31, 1993, the Company has committed lines of credit totaling $1.4
billion with no borrowings outstanding under these lines. Of this amount, $700
million relates to a long-term revolving credit facility unconditionally
guaranteed by RP; the amount available under this facility reduces by $200
million per year until expiration of the facility in 1997. In a separate
agreement with RP related to the issuance of MAPS, the Company must maintain as
unused under this facility the smaller of $325 million or the principal amount
of debt outstanding (excluding borrowings from, or guaranteed by, RP). The
Company has an additional $250 million available under revolving credit
agreements due in 1996. During 1993, the Company entered into several new
multicurrency line of credit agreements with various banks totaling $495
million and maturing in one to five years. At December 31, 1993, the Company
has the ability and intent to renew,
24
<PAGE>
or to refinance under these facilities, approximately $255 million of short-
term third party borrowings for at least one year. Accordingly, this amount has
been classified as long-term debt.
Pursuant to a $500 million shelf registration filed in 1993, the Company
issued $175 million of money market preferred stock and has the ability to
issue an additional $325 million in debt or equity securities.
In 1993, Moody's Investors Service ("Moody's") and Standard & Poor's ("S&P")
lowered the Company's preferred stock credit ratings, attributing the change to
the privatization of RP. As a result, the Company's preferred stock issues are
now rated BBB by S&P and Baa1 by Moody's. The Company's senior unsecured debt
ratings have been affirmed as BBB+ by S&P and A3 by Moody's.
Other noncurrent assets increased at December 31, 1993 compared to 1992 due
to early adoption of FASB Interpretation No. 39, "Offsetting of Amounts Related
to Certain Contracts" ("FIN 39") with regard to probable insurance recoveries
related to certain litigation liabilities, the equity investment in AIS and
higher deferred tax assets. An increase in other noncurrent liabilities at
December 31, 1993 included the impact of FIN 39 and pension accruals.
Management believes that cash flows from operations, supplemented by
financing expected to be available from external sources, will provide
sufficient liquidity to meet its needs for the foreseeable future. Long-term
liquidity is dependent upon the Company's competitive position, including its
ability to discover, develop and market innovative new therapies.
Insurance and Litigation
The Company maintains significant levels of excess catastrophic general and
products liability insurance obtained from independent third-party insurers. In
light of the risks attendant to the Company's business activities, the limits
and coverage terms of such insurance are believed reasonable in amount and
scope and comparable to the insurance carried by others in the industry.
The Company is involved in litigation incidental to its business including,
but not limited to: (1) approximately 239 lawsuits pending in the United
States, Canada and Ireland against RPR and its Armour subsidiary, in which it
is claimed by individuals infected with the Human Immunodeficiency Virus
("HIV") that their infection with HIV and, in some cases, resulting illnesses,
including Acquired Immune Deficiency Syndrome-related conditions or death
therefrom, may have been caused by administration of antihemophilic factor
("AHF") concentrates processed by Armour in the early and mid-1980's. Armour
has also been named as a defendant in three proposed class action lawsuits
filed on behalf of HIV-infected hemophiliacs and their families. None of these
cases involves Armour's currently distributed AHF concentrates; (2) legal
actions pending against one or more subsidiaries of the Company and various
groupings of more than one hundred pharmaceutical companies, in which it is
generally alleged that certain individuals were injured as a result of the
development of various reproductive tract abnormalities because of in utero
exposure to diethylstilbestrol ("DES") (typically, two former operating
subsidiaries of the Company are named as defendants, along with numerous other
DES manufacturers, when the claimant is unable to identify the manufacturer);
(3) antitrust actions alleging that the Company engaged in price discrimination
practices to the detriment of certain independent community pharmacists; (4) an
alleged infringement by the Company of a process patent for the manufacture of
bulk diltiazem, an ingredient in the Company's product Dilacor XR (R); these
proceedings have been indefinitely suspended; and (5) potential responsibility
relating to past waste disposal practices, including potential involvement, for
which the Company believes its share of liability, if any, to be negligible, at
two sites on the U.S. National Priority List created by Superfund legislation.
In addition, the Company agreed to settle shareholder litigation for an amount
which is fully accrued at December 31, 1993.
The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows Statement of Financial
Accounting
25
<PAGE>
Standards No. 5 in determining whether to recognize losses and accrue
liabilities relating to such matters. Accordingly, the Company recognizes a
loss if available information indicates that a loss or range of losses is
probable and reasonably estimable. The Company estimates such losses on the
basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence on the basis of the status of current discussions with
its insurance carriers. If a contingent loss is not probable, but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position or results
of operations.
Recently Issued Accounting Standards
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting No. 112, "Employers' Accounting for Postemployment
Benefits". RPR does not expect this new standard, which will be adopted in
1994, or various other recently issued accounting standards to materially
affect financial position or results of operations.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................. $ 4,019.4 $ 4,095.9 $ 3,824.3
Cost of products sold...................... 1,326.3 1,394.6 1,340.1
Selling, delivery and administrative ex-
penses.................................... 1,467.8 1,505.0 1,407.6
Research and development expenses.......... 561.2 521.3 444.5
Restructuring and other charges............ 93.8 -- 73.6
Proceeds from litigation settlement........ 105.0 -- --
---------- ---------- ----------
Operating income.......................... 675.3 675.0 558.5
Interest expense........................... 71.2 125.3 164.9
Interest income............................ (10.4) (20.4) (15.7)
Gain on sale of non-strategic assets....... (30.2) (23.1) (95.7)
Other expense, net......................... 54.2 11.5 23.0
---------- ---------- ----------
Income before income taxes................ 590.5 581.7 482.0
Provision for income taxes................. 169.4 158.4 155.5
---------- ---------- ----------
Net income before accounting change....... 421.1 423.3 326.5
Cumulative effect of accounting change..... -- 15.0 --
---------- ---------- ----------
Net income................................ 421.1 438.3 326.5
Dividends on preferred stock............... 12.4 10.1 .4
---------- ---------- ----------
Net income available to common sharehold-
ers...................................... $ 408.7 $ 428.2 $ 326.1
========== ========== ==========
Primary earnings per common share:
Net income before cumulative effect of ac-
counting change.......................... $ 2.96 $ 2.99 $ 2.37
Cumulative effect of accounting change.... -- .11 --
---------- ---------- ----------
Net income available to common sharehold-
ers...................................... $ 2.96 $ 3.10 $ 2.37
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents.................................. $ 35.4 $ 39.5
Short-term investments, at cost............................ -- 6.6
Trade accounts receivable less reserves of $68.3(1992:
$66.6).................................................... 746.6 736.4
Inventories................................................ 504.1 531.3
Other current assets....................................... 382.7 424.5
-------- --------
Total current assets................................... 1,668.8 1,738.3
Time deposits, at cost..................................... 64.3 43.8
Property, plant and equipment, net......................... 1,032.0 974.5
Goodwill, net.............................................. 676.5 739.2
Intangibles, net........................................... 206.1 205.7
Other assets............................................... 402.5 156.8
-------- --------
Total assets........................................... $4,050.2 $3,858.3
======== ========
LIABILITIES
Current:
Short-term debt............................................ $ 108.6 $ 153.8
Notes payable to Rhone-Poulenc S.A. & affiliates........... 201.3 100.0
Accounts payable........................................... 365.6 358.1
Income taxes payable....................................... 55.8 24.1
Accrued employee compensation.............................. 121.0 112.7
Other current liabilities.................................. 369.9 322.5
-------- --------
Total current liabilities.............................. 1,222.2 1,071.2
Long-term debt............................................. 432.2 779.7
Deferred income taxes...................................... 29.5 29.8
Other liabilities.......................................... 545.1 409.3
-------- --------
Total liabilities...................................... 2,229.0 2,290.0
-------- --------
Contingencies..............................................
SHAREHOLDERS' EQUITY
Market Auction Preferred Shares, without par value
(liquidation preference $1,000 per share); authorized,
issued and outstanding 225,000 shares (1992: 300,000
shares)................................................... 225.0 300.0
Money market preferred stock, without par value
(liquidation preference $100,000 per share); issued and
outstanding 1,750 shares.................................. 175.0 --
Common stock, without par value; stated value $1 per share;
authorized 200,000,000 shares; issued and outstanding
136,996,345 shares (1992: 138,298,771 shares)............. 139.0 138.3
Capital in excess of stated value.......................... 290.0 269.0
Retained earnings.......................................... 1,207.3 936.9
Employee Benefits Trust.................................... (75.8) --
Cumulative translation adjustments......................... (139.3) (75.9)
-------- --------
Total shareholders' equity............................. 1,821.2 1,568.3
-------- --------
Total liabilities and shareholders' equity............. $4,050.2 $3,858.3
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 421.1 $ 438.3 $ 326.5
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization........... 167.9 197.7 189.6
Provision for deferred income taxes..... (40.9) (20.9) 44.9
Cumulative effect of accounting change.. -- (15.0) --
Gain on sale of non-strategic assets.... (30.2) (23.1) (95.7)
Increase in trade accounts receivable,
net.................................... (33.0) (66.8) (44.6)
(Increase) decrease in inventories...... 2.5 (22.8) 67.2
Increase in accounts payable............ 39.4 47.5 29.2
Increase (decrease) in income taxes pay-
able................................... 77.3 (67.7) 37.2
Restructuring charges................... 44.6 (64.2) (51.2)
Other items, net........................ 72.1 (45.7) (35.5)
---------- ---------- ----------
Net cash provided by operating activi-
ties................................. 720.8 357.3 467.6
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................... (250.4) (284.3) (283.7)
Equity investment in Applied Immune Sci-
ences, Inc............................... (117.3) -- --
Investment in time deposits, net.......... (13.8) 5.9 5.8
Proceeds from sale of assets.............. 35.9 329.1 189.8
---------- ---------- ----------
Net cash provided by (used in) invest-
ing activities....................... (345.6) 50.7 (88.1)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of money market preferred stock.. 171.9 -- --
Redemption of Market Auction Preferred
Shares................................... (75.0) -- --
Issuance of Market Auction Preferred
Shares................................... -- -- 295.9
Proceeds from issuance of long-term debt.. 108.2 292.6 634.4
Repayment of long-term debt............... (133.0) (993.8) (944.2)
Short-term borrowings, net................ (240.0) 298.3 (337.2)
Issuances of common stock................. 17.8 6.1 3.7
Shares repurchased for Employee Benefits
Trust.................................... (75.8) -- --
Dividends paid............................ (149.2) (103.4) (61.3)
---------- ---------- ----------
Net cash used in financing activities. (375.1) (500.2) (408.7)
---------- ---------- ----------
Effect of exchange rate changes on cash... (4.2) (4.1) (1.4)
---------- ---------- ----------
Net decrease in cash and cash equivalents. (4.1) (96.3) (30.6)
Cash and cash equivalents at beginning of
year..................................... 39.5 135.8 166.4
---------- ---------- ----------
Cash and cash equivalents at end of year.. $ 35.4 $ 39.5 $ 135.8
========== ========== ==========
NONCASH INVESTING AND FINANCING ACTIVI-
TIES:
Issuance of common stock under employee
benefit plans.......................... $ 4.0 $ 5.7 $ 9.2
CASH PAID DURING YEAR FOR:
Interest, net of amounts capitalized.... $ 82.4 $ 128.2 $ 202.7
Income taxes............................ 133.0 247.0 73.4
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Rhone-Poulenc
Rorer Inc. and subsidiaries which are more than 50 percent owned. All
subsidiaries are consolidated on the basis of twelve-month periods ending
December 31. Certain prior year items have been reclassified to conform to
current classifications.
Investments in corporate joint ventures and other companies in which the
Company has a 20 to 50 percent ownership are accounted for by the equity
method. Cost investments, less than 20 percent owned, are carried at their
original cost which approximated $34.7 million at December 31, 1993 (1992:
$47.7 million). The carrying amount of cost investments for which it was
practicable to estimate fair values was $21.2 million at December 31, 1993
(1992: $34.3 million), and the fair value of such investments, as determined by
quoted market prices and pricing models, was $18.8 million (1992: $57.7
million). Equity and cost investments are included in other assets in the
financial statements.
Cash and Cash Equivalents and Time Deposits
The Company considers cash on hand, cash in banks, certificates of deposit,
time deposits and U.S. government and other short-term securities with
maturities of three months or less when purchased as cash and cash equivalents.
Investments with a maturity period of greater than three months but less than
one year are classified as short-term investments. Certain mortgage-backed
certificates, repurchase obligations and certificates of deposit with
maturities of more than one year are classified as long-term time deposits. Due
to the short maturity period of short-term investments and the variable rate
nature of long-term time deposits, the carrying amount of these instruments
approximates their fair values.
Inventories
Inventories are valued at the lower of cost or market, using the first-in,
first-out (FIFO) or average cost methods.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. For financial accounting
purposes, depreciation is computed principally on the straight-line method over
the estimated useful lives of the assets. For income tax purposes, certain
assets are depreciated using accelerated methods. Effective January 1, 1993,
the Company extended the depreciation lives for certain production machinery
and equipment. The change in estimate increased 1993 earnings by $11.1 million
after taxes ($.08 per share).
Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair market value of net
assets of businesses acquired. Goodwill is amortized on a straight-line basis
over a period not to exceed forty years, and is reported net of accumulated
amortization of $172.1 million in 1993 and $158.3 million in 1992. Intangibles,
which principally represent the cost of acquiring patents and product lines,
are amortized over their estimated useful lives and are reported net of
accumulated amortization of $96.5 million in 1993 and $91.7 million in 1992.
30
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company and substantially all of its United States subsidiaries file a
consolidated federal income tax return. No provision has been made for United
States income taxes or withholding taxes on the unremitted earnings of non-U.S.
subsidiaries which are intended to be indefinitely reinvested. Effective
January 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," and recorded a
cumulative effect adjustment increasing 1992 net income by $15.0 million ($.11
per share).
Foreign Currency Translation
Financial information relating to the Company's subsidiaries located outside
the United States is translated using the current rate method. Local currencies
are considered the functional currencies except in countries with highly
inflationary economies.
Financial Instruments
The Company enters into foreign exchange contracts to hedge exposures related
to firm foreign currency commitments. Gains or losses from the contracts are
recognized in the basis of the transaction being hedged. Gains and losses
arising from foreign exchange contracts which are designated and effective as
economic hedges of the Company's net foreign investments are recorded as
translation adjustments. Cash flows from hedging contracts are classified in
the same category as the cash flows from the items being hedged.
At December 31, 1993, the Company was party to forward exchange and currency
swap contracts to purchase $105.8 million equivalent in foreign currencies and
to sell $373.7 million in foreign currencies during the first quarter of 1994.
Such contracts totaled $111.9 million and $339.6 million, respectively, at
December 31, 1992. The carrying values of the contracts approximated their fair
values.
The Company utilizes various instruments to hedge interest rate risk. The net
receivable or payable under these arrangements is recognized as an adjustment
to interest expense over the life of the contracts. At December 31, 1993, the
Company was party to $332.5 million notional amount of swap contracts which fix
interest rates over various periods, and $198.9 million notional amount of swap
contracts which give rise to variable interest rate exposure over various
periods. Such contracts totaled $340.8 million and $117.2 million,
respectively, at December 31, 1992. The fair value of all such outstanding
interest rate swap contracts, as determined through bank pricing models, was
approximately equal to their December 31 carrying value.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of trade receivables, cash investments and
time deposits, and foreign currency and interest rate swap contracts. Credit
risk with respect to trade receivables is limited due to a large customer base
in a wide geographic area. The Company places its cash investments and time
deposits with credit worthy, high quality financial institutions and, by
policy, limits the amount of credit exposure to any one institution. The
Company does not anticipate nonperformance by the counterparties to its
financial instruments.
31
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. RESTRUCTURING AND OTHER CHARGES, PROCEEDS FROM LITIGATION SETTLEMENT,
AND GAIN ON SALE OF NON-STRATEGIC ASSETS
In 1993, the Company recorded charges of $93.8 million for the costs of
certain restructuring and manufacturing streamlining programs and increased
provisions for certain litigation. The programs, principally in Europe, include
restructuring of marketing and manufacturing operations in the Company's German
and Italian prescription pharmaceutical businesses following governmental
actions aimed at limiting prices and prescription volume. The programs also
include a plan to divest a portion of a manufacturing facility in Monts, France
by the end of 1995. In 1991, restructuring charges of $73.6 million were
provided for facility divestitures in Germany and the U.K., relocation of U.S.
corporate offices and research facilities, professional fees and other costs.
At December 31, 1993 and 1992, amounts included in other current liabilities
for restructuring were $37.9 million and $26.0 million, respectively.
In 1993, the Company received $105.0 million cash proceeds from the
settlement of a longstanding patent lawsuit with Baxter International
concerning Factor VIII:C concentrates for the treatment of hemophilia.
Gains from asset sales totaled $30.2 million in 1993 and included sales of
product rights and certain investments. In 1992, the Company recorded gains of
$23.1 million related principally to the sales of product rights in the U.S.
and France.
In 1991, the Company recorded $95.7 million of gains from the sales of non-
strategic assets (principally a dietary products business in France and certain
product rights in the U.S.).
NOTE 3. EQUITY INVESTMENT IN APPLIED IMMUNE SCIENCES, INC.
In 1993, the Company acquired for $117.3 million, including expenses, a 37%
interest in Applied Immune Sciences, Inc. ("AIS") and a right to purchase
majority ownership of approximately 60%. The companies also agreed to establish
joint ventures related to cell therapy products and services. The Company
recorded as other expense $29.1 million ($.14 per share) in 1993 for noncash
equity losses associated with AIS, including acquired research and development
of approximately 60% of the excess of the purchase price over the Company's
share of the fair market value of the tangible net assets of AIS. The Company
may be required by the terms of the acquisition agreement to purchase up to
four million additional shares of AIS common stock at a cost of up to $100.0
million between 1995 and 1997 if AIS achieves certain development milestones
and/or certain sales and earnings targets.
NOTE 4. OTHER EXPENSE, NET
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Equity losses of affiliates....................... $50.0 $15.8 $19.3
Minority interest................................. 3.8 2.0 3.9
Foreign exchange (gains) losses................... (2.5) (8.1) 3.6
Other (income) expense, net....................... 2.9 1.8 (3.8)
------- ------- -------
$54.2 $11.5 $23.0
======= ======= =======
</TABLE>
32
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. EARNINGS PER SHARE
Earnings per common share were computed by dividing net income available to
common shareholders by the weighted average number of shares of common stock
outstanding. The weighted average number of shares used to compute primary
earnings per common share were 138,168,739; 138,073,872 and 137,708,866 for the
years 1993, 1992 and 1991, respectively. Common share equivalents in the form
of stock options were excluded from the calculation as their dilutive effect
was not material.
NOTE 6. INVENTORIES
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Finished goods......................................... $235.3 $247.2
Work in process........................................ 111.5 128.8
Raw materials and supplies............................. 157.3 155.3
---------- ----------
$504.1 $531.3
========== ==========
</TABLE>
NOTE 7. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Land.................................................. $ 58.0 $ 57.3
Buildings............................................. 568.7 521.6
Machinery and equipment............................... 1,197.2 1,132.9
Construction in progress.............................. 134.7 144.1
---------- ----------
1,958.6 1,855.9
Less accumulated depreciation......................... 926.6 881.4
---------- ----------
Property, plant and equipment, net.................... $1,032.0 $ 974.5
========== ==========
</TABLE>
The Company incurred $75.5 million and $139.9 million in interest cost in
1993 and 1992, respectively, of which $4.3 million and $14.6 million,
respectively, was capitalized as part of the cost of additions to property,
plant and equipment.
NOTE 8. DEBT
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Notes payable to banks................................. $ 86.6 $128.5
Current portion of long-term debt...................... 22.0 25.3
---------- ----------
$108.6 $153.8
========== ==========
Notes payable to Rhone-Poulenc S.A. and affiliates..... $201.3 $100.0
========== ==========
</TABLE>
33
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt, net of current portion, consisted of the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Notes payable at variable rates (expected to be refi-
nanced long-term).................................... $ 255.2 $ 570.7
Revolving credit agreements due 1996 at variable rates
averaging 8.7%....................................... -- 4.3
9.15% Series A Senior Notes due 2004, with interest
payable quarterly (guaranteed by Rhone-Poulenc S.A.). 60.1 63.2
8.95% Series B Senior Notes due 1997, with interest
payable quarterly (guaranteed by Rhone-Poulenc S.A.). 12.9 17.2
Notes, mortgages and capitalized lease obligations at
various rates averaging 9.0% (1992: 9.5%)............ 74.4 90.3
---------- ----------
$402.6 $745.7
Notes payable to Rhone-Poulenc S.A. and affiliates
principally due in 1997 at rates averaging 6.0%
(1992: 8.2%)......................................... $ 29.6 $ 34.0
---------- ----------
$432.2 $779.7
========== ==========
</TABLE>
The Company has classified $255.2 million of various short-term borrowings
from banks as long-term debt in accordance with the Company's intention and
ability to refinance such obligations on a long-term basis. The $255.2 million
of notes payable classified as long-term consists of borrowings in various
currencies and interest rates as follows: $96.3 million in U.S. dollars at
3.4%, $54.2 million in British pounds at 6.5%, $45.7 million in French francs
at 6.6%, $42.8 million in Japanese yen at 3.6% and $16.2 million in German
marks at 7.0%.
At December 31, 1993, after the effect of interest rate swap contracts,
approximately 92% of the Company's outstanding debt was at variable rates of
interest. The aggregate maturities of all long-term debt, including related
party debt, were: $22.0 million in 1994, $21.7 million in 1995, $36.5 million
in 1996, $78.4 million in 1997, $194.9 million in 1998 and $100.7 million
thereafter.
At December 31, 1993, the Company had committed lines of credit totaling $1.4
billion with no borrowings outstanding under these lines. Of this amount,
$700.0 million related to the Revolving Credit Facility Agreement dated April
30, 1990 ("the Facility"). The Facility is unconditionally guaranteed by Rhone-
Poulenc S.A. ("RP") and expires in $100.0 million installments semi-annually
through April 30, 1997. In connection with the 1991 issuance of Market Auction
Preferred Shares, the Company agreed to maintain as unused a portion of the
Facility of not less than the smaller of $325.0 million or total indebtedness
(excluding amounts owed to or guaranteed by RP). Terms of the Facility contain
certain covenants regarding the financial condition of RP, the most restrictive
of which is the maintenance of minimum stockholders' equity and ratio of total
indebtedness to net worth. The Company has an additional $250.0 million
available under revolving credit agreements due in 1996. During 1993, the
Company entered into several multicurrency credit line agreements with various
banks totaling $495.0 million. These lines mature in one to five years.
Borrowings under the above facilities can be made in various currencies,
principally U.S. dollars, French francs, German marks and British pounds;
interest rates vary with the respective currency's interbank offering rate.
Amounts available under unused uncommitted lines of credit approximated $562.0
million at December 31, 1993.
Pursuant to a $500.0 million shelf registration filed in 1993, the Company
issued $175.0 million of money market preferred stock during the year and has
the ability to issue an additional $325.0 million in debt or equity securities.
34
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. LEASE COMMITMENTS
Rent expense was $49.4 million, $28.2 million and $27.0 million in 1993, 1992
and 1991, respectively. Future minimum lease commitments under all leases with
initial or remaining noncancelable lease terms in excess of one year at
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
1994............................................... $ 6.4 $ 53.5
1995............................................... 4.6 48.3
1996............................................... 4.0 40.5
1997............................................... 3.4 45.8
1998............................................... 3.3 33.3
Thereafter......................................... 24.7 585.6
---------- ----------
Minimum lease payments............................. 46.4 $ 807.0
==========
Less imputed interest.............................. (17.6)
----------
Present value of minimum lease payments
(current--$3.8, noncurrent--$25.0)................ $ 28.8
==========
</TABLE>
In December 1992, the Company sold its U.S. corporate offices and research
facility to a third party for $258.0 million and leased it back for an initial
term of thirty years with options to renew for a longer period. The Company
also leased the underlying land to the third party for sixty years and
subleased it back for thirty years with the facility. The Company pays taxes,
insurance and maintenance costs associated with the facility. Average annual
accounting rent is $22.5 million; under terms of the agreement, the first cash
rental payment is in July 1994.
NOTE 10. INCOME TAXES
Effective January 1, 1992, the Company adopted SFAS 109, "Accounting for
Income Taxes," which modifies the liability method prescribed by SFAS 96,
particularly with respect to recognition of deferred tax benefits in certain
circumstances. Upon adoption, the Company recorded a cumulative effect
adjustment increasing 1992 net income by $15.0 million ($.11 per share). The
components of income before income taxes are:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
United States........................................ $289.1 $258.9 $161.3
Non-U.S.............................................. 301.4 322.8 320.7
------- ------- -------
$590.5 $581.7 $482.0
======= ======= =======
</TABLE>
35
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provisions for income taxes are:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current:
United States.................................... $ 100.2 $ 62.9 $ 37.8
Non-U.S.......................................... 110.0 116.4 72.8
------- ------- -------
210.2 179.3 110.6
------- ------- -------
Deferred:
United States.................................... (31.0) 2.2 1.9
Non-U.S.......................................... (9.8) (23.1) 43.0
------- ------- -------
(40.8) (20.9) 44.9
------- ------- -------
$169.4 $158.4 $155.5
======= ======= =======
</TABLE>
Deferred income taxes are provided for temporary differences between book and
tax bases of the Company's assets and liabilities. Temporary differences giving
rise to a significant portion of the deferred tax assets and liabilities at
December 31 are:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Assets (liabilities):
Pension............................................ $ 51.8 $ 48.5
Depreciation and amortization...................... (65.0) (36.7)
Intercompany profit in ending inventory............ 30.5 33.8
Distributable non-U.S. earnings.................... (14.7) (14.7)
Net operating loss carryforwards................... 13.2 14.0
Equity investment write-down....................... 10.7 --
Other, including nondeductible accruals............ 68.5 11.8
---------- ----------
95.0 56.7
Less valuation allowance........................... (8.9) (16.2)
---------- ----------
Deferred income taxes, net......................... $ 86.1 $ 40.5
========== ==========
</TABLE>
The portion of the above net deferred tax asset classified as current was
$60.3 million. At December 31, 1993, total deferred tax assets were $269.2
million and total deferred tax liabilities were $174.2 million before netting.
As of January 1, 1993, similar temporary differences gave rise to total
deferred tax assets of $185.6 million and total deferred tax liabilities of
$128.9 million.
The differences between the U.S. statutory income tax rate and the Company's
effective income tax rate are:
<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- -------------
(PERCENT OF INCOME BEFORE INCOME TAXES)
<S> <C> <C> <C>
U.S. statutory income tax rate. 35.0% 34.0% 34.0%
Non-U.S. tax rate differential. (1.7) 1.5 1.4
Puerto Rico operations......... (3.6) (4.9) (2.0)
Research and development tax
credits....................... (1.8) -- (1.2)
Non-U.S. net operating losses.. -- (1.6) --
Other, net..................... 0.8 (1.8) 0.1
------------- ------------- -------------
Effective income tax rate...... 28.7% 27.2% 32.3%
============= ============= =============
</TABLE>
36
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has subsidiaries in Puerto Rico and Ireland, where earnings are
either exempt or substantially exempt from income taxes under local government
incentive programs, the latest of which expires in the year 2010.
The Company has non-U.S. net operating loss carryforwards of $37.4 million
for tax return purposes which expire principally through the years 1994-1998.
The U.S. tax returns for the years 1987-1989 are currently being examined by
the IRS; the Company's French tax returns have been examined through the year
1990. Neither the IRS nor the French tax authorities have proposed any
adjustments of a material nature.
Unremitted earnings of non-U.S. subsidiaries which are intended to be
indefinitely reinvested were $851.0 million at December 31, 1993. Withholding
taxes payable if the entire amount of these earnings were remitted would be
$54.2 million. U.S. income taxes payable if these earnings were remitted would
be substantially offset by available foreign tax credits.
NOTE 11. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Pensions
The Company has several defined benefit pension plans which cover a majority
of its employees throughout the world. In the United States, the Company's
funding policy is to contribute funds to a trust as necessary to provide for
current service and for any unfunded projected benefit obligation over a
reasonable period. To the extent that these requirements are fully covered by
assets in the trust, a contribution may not be made in a particular year.
Obligations under non-U.S. plans are systematically provided by depositing
funds with trustees, under insurance policies or through book reserves.
The funded status of the Company's plans at December 31 was as follows:
<TABLE>
<CAPTION>
1993 1992
--------------------------- ---------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Vested benefit obliga-
tions.................. $(128.7) $(317.9) $(188.4) $(188.7)
Nonvested benefits...... (4.1) (54.4) (6.2) (52.6)
------- ------- ------- -------
Accumulated benefit ob-
ligation............... (132.8) (372.3) (194.6) (241.3)
------- ------- ------- -------
Projected future salary
increases.............. (9.0) (62.3) (42.5) (31.1)
------- ------- ------- -------
Projected benefit obli-
gation................. (141.8) (434.6) (237.1) (272.4)
Fair value of plan as-
sets (invested primar-
ily in equities and
bonds)................. 158.8 132.2 231.4 30.8
------- ------- ------- -------
Plan assets in excess of
(less than) projected
benefit obligation..... 17.0 (302.4) (5.7) (241.6)
Unrecognized net transi-
tion (asset) liability. (.9) 5.9 (7.7) 12.7
Unrecognized net (gain)
loss................... (4.9) 78.3 11.4 28.3
Unrecognized prior serv-
ice cost............... 7.5 3.6 8.9 5.4
Adjustment required to
recognize minimum
liability.............. -- (52.7) -- (36.0)
------- ------- ------- -------
Prepaid (accrued) pen-
sion cost.............. $ 18.7 $(267.3) $ 6.9 $(231.2)
======= ======= ======= =======
</TABLE>
37
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accumulated benefit obligation of U.S. plans included in the above table
was $148.8 million in 1993 and $122.5 million in 1992. U.S. plan assets were
$128.5 million and $121.7 million at December 31, 1993 and 1992, respectively.
Of the net accrued pension cost, $262.6 million and $241.4 million are included
in other noncurrent liabilities in 1993 and 1992, respectively.
The following items are the components of net periodic pension cost for the
years ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Service cost...................................... $ 16.9 $ 17.0 $ 16.3
Interest cost..................................... 42.7 41.2 39.1
Actual return on plan assets...................... (49.9) (25.5) (40.4)
Amortization and deferral......................... 27.2 2.3 18.7
------- ------- -------
Net periodic pension cost......................... $ 36.9 $ 35.0 $ 33.7
======= ======= =======
</TABLE>
Net periodic pension cost for U.S. plans included in the above amounts are
$8.5 million, $8.2 million and $7.5 million for 1993, 1992 and 1991,
respectively.
The following weighted average assumptions, which are based on the economic
environment of each applicable country, were used to determine the return on
plan assets and benefit obligations:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 7.7% 9.0% 8.8%
Expected return on plan assets............................. 10.4% 10.1% 10.4%
Rate of future compensation increases...................... 4.6% 5.4% 5.4%
</TABLE>
For U.S. plans, the discount rate was 7.5% in 1993 and 8.25% in 1992 and
1991. The expected return on plan assets of 9.5% remained constant from 1991
through 1993. The rate of future compensation increases was 5% in 1993 and 6%
in 1992 and 1991.
Savings Plans
The Company sponsors defined contribution savings plans covering
substantially all U.S. employees. Company contributions to the plans may not
exceed the greater of 3% of employee compensation or three thousand dollars per
employee. Amounts charged to expense were $6.2 million, $4.8 million and $3.8
million in 1993, 1992 and 1991, respectively.
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" and is amortizing the $6.0 million accumulated
postretirement benefit obligation over twenty years. The Company's non-U.S.
affiliates generally contribute to government insurance programs during the
employees' careers and do not sponsor additional postretirement programs. In
the United States, the Company grants retirees access to its medical,
prescription and life insurance programs for a premium targeted to equal the
cost of such benefits.
38
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"). SFAS 112, which will be adopted in the first quarter of
1994, requires recognition of the obligation to provide benefits to former or
inactive employees after employment but before retirement. Adoption of the new
standard will not materially affect the Company's financial position or results
of operations.
NOTE 12. STOCK PLANS
Stock options and restricted shares have been granted to employees under
plans approved by the shareholders in 1982 and 1985, as amended in 1988 ("Stock
Plan"). The aggregate number of shares originally available for issuance or
transfer to employees under these plans was 7,000,000. Option prices are equal
to the fair market value of the shares on the date of grant. Options are
exercisable during a period determined by the Company, but in no event later
than ten years from the date granted. Shares issued under a restricted grant
may not be sold or otherwise disposed of for a period designated by the
Company. Restricted shares are returned to the Company if the grantee's
employment terminates during the period of restriction. During the restriction
period, the grantee is entitled to vote the shares and receive any dividends
paid. The 1985 Stock Plan, as amended, permits the Company to grant stock
appreciation rights in tandem with stock options. As of December 31, 1993, no
such rights have been granted. The Equity Compensation Plan adopted in 1990
supplements the Stock Plan by providing for an additional 6,000,000 shares that
may be issued to participants after all shares authorized pursuant to the terms
of the Stock Plan have been utilized. The terms of the Equity Compensation Plan
are substantially the same as those of the Stock Plan.
Effective January 1, 1993, the Company substantially curtailed the granting
of restricted shares to employees. In 1992 and 1991, respectively, 90,146 and
217,125 restricted shares were granted to employees under the Stock Plan. Due
to employee terminations 12,312; 23,561 and 22,148 restricted shares were
returned to the Company in 1993, 1992 and 1991, respectively. In connection
with the 1990 transaction with RP, the Company granted to certain executives
options to purchase a total of 1,090,008 shares at a price of $30.18 per share
and 78,872 shares at a price of $49.25 per share. These options vest but are
exercisable according to a schedule based upon the maturity of RP contingent
value rights. In 1993, 375,347 options were exercised and 573,417 options were
canceled. The remaining options expire in the year 2000.
Stock option activity shown below reflects the two-for-one stock split
effective June 7, 1991:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Shares under option at beginning of
year............................... 4,999,932 4,165,969 3,098,220
Additions (deductions):
Granted........................... 2,342,582 1,323,120 1,479,268
Exercised......................... (662,711) (336,325) (264,166)
Canceled.......................... (864,169) (152,832) (147,353)
Shares under option at year-end..... 5,815,634 4,999,932 4,165,969
Options exercisable at December 31.. 2,455,205 2,165,050 956,923
Shares reserved for future grants... 4,272,384 5,738,561 6,975,434
Price range of options exercised.... $7.92-41.63 $4.67-45.63 $0.88-32.28
Price range for all options out-
standing........................... $4.67-63.00 $4.67-63.00 $4.67-58.50
Price range for all options exercis-
able............................... $4.67-63.00 $4.67-58.50 $4.67-32.31
</TABLE>
39
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARKET MONEY COMMON CAPITAL IN
AUCTION MARKET STOCK AT EXCESS OF EMPLOYEE CUMULATIVE
PREFERRED PREFERRED STATED STATED RETAINED BENEFITS TRANSLATION
SHARES STOCK VALUE VALUE EARNINGS TRUST ADJUSTMENTS
--------- --------- -------- ---------- -------- -------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1991: $ -- $ -- $ 68.7 $318.8 $ 337.8 $ -- $ (31.8)
Net income--1991....... -- -- -- -- 326.5 -- --
Common stock split..... -- -- 68.9 (68.9) -- -- --
Cash dividends, $.445
per common share...... -- -- -- -- (61.3) -- --
Issuance of Market
Auction Preferred
Shares................ 300.0 -- -- (5.1) -- -- --
Dividends on Market
Auction Preferred
Shares................ -- -- -- -- (.4) -- --
Issuance of shares
under employee benefit
plans................. -- -- .3 12.1 -- -- --
Translation
adjustments, including
hedging (net of $.7
tax effect)........... -- -- -- -- -- -- 33.0
------ ------ ------ ------ -------- ------ -------
Balance, December 31,
1991: 300.0 -- 137.9 256.9 602.6 -- 1.2
Net income--1992....... -- -- -- -- 438.3 -- --
Cash dividends, $.68
per common share...... -- -- -- -- (93.9) -- --
Dividends on Market
Auction Preferred
Shares................ -- -- -- -- (10.1) -- --
Issuance of shares
under employee benefit
plans................. -- -- .4 12.1 -- -- --
Translation
adjustments, including
hedging (net of $1.7
tax effect)........... -- -- -- -- -- -- (77.1)
------ ------ ------ ------ -------- ------ -------
Balance, December 31,
1992: 300.0 -- 138.3 269.0 936.9 -- (75.9)
Net income--1993....... -- -- -- -- 421.1 -- --
Cash dividends, $1.00
per common share...... -- -- -- -- (138.3) -- --
Dividends on preferred
shares................ -- -- -- -- (12.4) -- --
Issuance of money
market preferred
stock................. -- 175.0 -- (3.1) -- -- --
Redemption of Market
Auction Preferred
Shares................ (75.0) -- -- -- -- -- --
Shares repurchased for
Employee Benefits
Trust................. -- -- -- -- -- (75.8) --
Issuance of shares
under employee benefit
plans................. -- -- .7 24.1 -- -- --
Translation adjustments,
including hedging (net
of $11.6 tax effect) -- -- -- -- -- -- (63.4)
------ ------ ------ ------ -------- ------ -------
Balance, December 31,
1993.................. $225.0 $175.0 $139.0 $290.0 $1,207.3 $(75.8) $(139.3)
====== ====== ====== ====== ======== ====== =======
</TABLE>
In December 1991, the Company issued $300.0 million of Market Auction
Preferred Shares ("MAPS") represented by four series, each consisting of 75,000
shares. Each series of MAPS is sold in units of 100 shares and is identical
except as to dividend terms. Dividend rates, which are determined at separate
auctions for each series, averaged 3.01% during 1993 (1992: 3.14%). Dividends
are paid every 49 days, subject to certain exceptions.
In 1993, the Company issued $175.0 million of money market preferred stock. A
portion of the proceeds was used to redeem $75.0 million MAPS Series B. The
money market preferred stock was issued in three series, consisting of 750
shares, 500 shares and 500 shares, respectively. The initial dividend period
for all series commenced on August 1, 1993 at initial dividend rates of 4.7%
per annum for a two-year period for Series 1; 5.125% per annum for a three-year
period for Series 2; and 5.84% per annum for a five-year period for Series 3.
After the initial dividend periods expire, dividends will be determined at
separate auctions for each series.
40
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The MAPS and money market preferred stock (collectively, "the Preferred
Shares") rank prior to common shares of the Company as to dividends. Holders of
Preferred Shares have no voting rights except in the event that preferred
dividends are in arrears for at least 180 consecutive days. In such event, the
authorized number of the Company's Board of Directors would be increased by two
and the holders of record of the respective Preferred Shares may elect these
additional directors. The Preferred Shares are not convertible into common
stock or other shares of the Company and holders thereof have no preemptive
rights. Upon the liquidation, dissolution, or winding up of the Company, or
upon redemption of the Preferred Shares at the Company's option, holders would
be entitled to a liquidation preference of $1,000 per share for MAPS or
$100,000 per share for money market preferred stock, plus any accumulated and
unpaid dividends thereon.
In connection with the issuance of MAPS, the Company entered into a support
agreement with RP pursuant to which both parties agreed that 1) RP will own a
majority of the outstanding common stock of the Company entitled to elect
directors; 2) RP will make a capital contribution to the Company if certain
debt-to-capitalization or tangible net worth ratios do not meet specified
levels or if the Company fails to pay a declared dividend on MAPS on a timely
basis; and 3) RP, as guarantor of the Revolving Credit Facility Agreement dated
April 30, 1990, will maintain such facility in full force, and the Company will
maintain, as of any date, the unused portion of such facility in an amount
equal to all principal, interest and premium amounts payable in the next twelve
months with respect to short- and long-term debt other than amounts owed to RP
or guaranteed by RP, subject to certain requirements and exceptions. In
connection with the support agreement, the Company pays RP an annual fee which
in 1993 approximated $.4 million ($.5 million in 1992). The support agreement
does not constitute a guarantee by RP of any obligation of the Company,
including MAPS, and is not enforceable by any holder of MAPS. The units of each
series of MAPS must be redeemed in the event of breach of certain covenants in
the support agreement.
At December 31, 1993, there were 2,451,800 preferred shares without par value
authorized and unissued (1992: 2,551,800).
In March 1993, the Company's Board of Directors approved the repurchase from
time to time of up to 5 million of its common shares on the open market. As of
December 31, 1993, 1,873,300 shares had been acquired at a cost of $75.8
million and are being held in an Employee Benefits Trust to fund future
employee benefits in the United States. At December 31, 1993, repurchase
commitments existed for an additional 108,700 shares at a cost of $4.0 million.
NOTE 14. INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREA
The Company's operations are conducted in one industry segment. Operations
involve the production and sale of pharmaceuticals, primarily cardiovascular
products, bone metabolism/rheumatology products, gastroenterology products,
central nervous system/analgesia products, infectious disease/oncology
products, hypersensitivity products, and plasma derivatives. In addition, the
Company manufactures and markets a number of other products, including bulk
pharmaceuticals and chemicals.
Information about the Company's operations for the years 1993, 1992 and 1991
by geographic area is shown below. Inter-area affiliated sales are not
significant. Corporate loss before income taxes includes corporate
administrative expenses incurred in the U.S., worldwide net interest expense,
and worldwide equity losses from unconsolidated affiliates. Corporate loss
before income taxes also includes corporate administrative expenses incurred in
France of $49.2 million in 1993, $54.3 million in 1992 and $40.2 million in
1991.
41
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales:
United States................................ $1,119.9 $ 999.7 $ 853.2
France....................................... 1,374.8 1,388.1 1,318.5
Other Europe................................. 977.8 1,218.4 1,197.3
Rest of World................................ 546.9 489.7 455.3
-------- -------- --------
Total net sales............................ $4,019.4 $4,095.9 $3,824.3
======== ======== ========
Income (loss) before income taxes:
United States................................ $ 385.2 $ 268.0 $ 159.9
France....................................... 280.7 274.6 293.0
Other Europe................................. 64.6 216.5 214.4
Rest of World................................ 62.1 44.2 63.4
Corporate.................................... (202.1) (221.6) (248.7)
-------- -------- --------
Total income (loss) before income taxes.... $ 590.5 $ 581.7 $ 482.0
======== ======== ========
Identifiable assets:
United States................................ $1,205.2 $1,025.2 $1,088.3
France....................................... 1,295.6 1,344.0 1,337.8
Other Europe................................. 882.1 992.3 1,024.0
Rest of World................................ 405.9 362.5 334.6
Corporate.................................... 261.4 134.3 330.8
-------- -------- --------
Total identifiable assets.................. $4,050.2 $3,858.3 $4,115.5
======== ======== ========
</TABLE>
Income before income taxes ("IBT") for the U.S. in 1993 includes income of
$68.0 million from litigation settlement proceeds and gains on asset sales net
of restructuring charges. France IBT includes $19.5 million of restructuring
charges net of gains on asset sales in 1993 and $69.4 million of gains on asset
sales in 1991. Other Europe IBT includes restructuring charges net of gains on
asset sales totaling $30.2 million in 1993 and $50.2 million in 1991.
NOTE 15. RELATED PARTY TRANSACTIONS
The entities comprising the Company manage their cash separately. In the
largest countries such as the U.S., France, the U.K. and Germany, the local
entities have access to RP cash pooling arrangements whereby they can, at their
own request, lend to or borrow from RP at market terms and conditions.
Amounts receivable from RP and affiliates totaled $35.8 million and $55.0
million at December 31, 1993 and 1992, respectively. The 1993 balance includes
$11.3 million of accounts receivable from sales of products and services to RP
(1992: $10.8 million) and $24.6 million classified as other current assets
(1992: $44.2 million).
Accounts payable related to purchase of materials and services from RP and
affiliates were $6.3 million at December 31, 1993 (1992: $6.5 million); accrued
and other liabilities due to RP at December 31, 1993 were $12.9 million (1992:
$11.9 million). In 1993, sales to RP and affiliates were $34.5 million;
materials purchased from RP totaled $44.4 million. In 1992, these amounts were
$37.2 million and $53.1 million, respectively. In 1993, RP also compensated the
Company $1.7 million in cost of products sold related to the transfer of
certain production activities.
42
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
At December 31, 1993, debt with RP and affiliates totaled $230.8 million
(1992: $134.0 million). Related interest expense for 1993 was $24.9 million
(1992: $46.4 million). During 1993, the Company paid $.6 million in debt
guarantee fees to RP (1992: $1.0 million).
RP charges the Company for expenses incurred on its behalf, including
research, data processing, insurance, legal, tax, advertising, public relations
and management fees. Such charges are reflected in the financial statements and
amounted to approximately $20.2 million in 1993 (1992: $19.6 million).
Management believes that the expenses so charged are representative of amounts
that the Company would have incurred if it had been operated as an unaffiliated
entity.
NOTE 16. CONTINGENCIES
The Company is involved in litigation incidental to its business including,
but not limited to: (1) approximately 239 pending lawsuits in the United
States, Canada and Ireland against the Company and its Armour Pharmaceutical
Company subsidiary ("Armour"), in which it is claimed by individuals infected
with the Human Immunodeficiency Virus ("HIV") that their infection with HIV
and, in some cases, resulting illnesses, including Acquired Immune Deficiency
Syndrome-related conditions or death therefrom, may have been caused by
administration of antihemophilic factor ("AHF") concentrates processed by
Armour in the early and mid-1980's. Armour has also been named as a defendant
in three proposed class action lawsuits filed on behalf of HIV-infected
hemophiliacs and their families. None of these cases involve Armour's currently
distributed AHF concentrates; (2) legal actions pending against one or more
subsidiaries of the Company and various groupings of more than one hundred
pharmaceutical companies, in which it is generally alleged that certain
individuals were injured as a result of the development of various reproductive
tract abnormalities because of in utero exposure to diethylstilbestrol ("DES")
(typically, two former operating subsidiaries of the Company are named as
defendants, along with numerous other DES manufacturers, when the claimant is
unable to identify the manufacturer); (3) antitrust actions alleging that the
Company engaged in price discrimination practices to the detriment of certain
independent community pharmacists; (4) an alleged infringement by the Company
of a process patent for the manufacture of bulk diltiazem, an ingredient in the
Company's product Dilacor XR (R); these proceedings have been indefinitely
suspended; and (5) potential responsibility relating to past waste disposal
practices, including potential involvement, for which the Company believes its
share of liability, if any, to be negligible, at two sites on the U.S. National
Priority List created by Superfund legislation. In addition, the Company agreed
to settle shareholder litigation for an amount which is fully accrued at
December 31, 1993.
The eventual outcomes of the above matters of pending litigation can not be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows Statement of Financial
Accounting Standards No. 5 in determining whether to recognize losses and
accrue liabilities relating to such matters. Accordingly, the Company
recognizes a loss if available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company estimates such losses
on the basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence on the basis of the status of current discussions with
its insurance carriers. If a contingent loss is not probable but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position or results
of operations.
As of December 31, 1993 the Company had unused standby letters of credit
outstanding of $23.6 million. The letters of credit are issued primarily in the
form of guarantees or performance bonds.
43
<PAGE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Rhone-Poulenc Rorer Inc. is responsible for the information
and representations contained in this report. Management believes that the
financial statements have been prepared in conformity with generally accepted
accounting principles and that the other information in this annual report is
consistent with those statements. In preparing the financial statements,
management is required to include amounts based on estimates and judgments
which it believes are reasonable under the circumstances.
In fulfilling its responsibilities for the integrity of the data presented
and to safeguard the Company's assets, management employs a system of internal
accounting controls designed to provide reasonable assurance, at appropriate
cost, that the Company's assets are protected and that transactions are
appropriately authorized, recorded and summarized. This system of control is
supported by the selection of qualified personnel, by organizational
assignments that provide appropriate delegation of authority and division of
responsibilities, and by the dissemination of written policies and procedures.
This control structure is further reinforced by a program of internal audits
including a policy that requires responsive action by management.
Coopers & Lybrand, the Company's independent accountants, performs audits in
accordance with generally accepted auditing standards. The independent
accountants conduct a review of internal accounting controls to the extent
required by generally accepted auditing standards and perform such tests and
procedures as they deem necessary to arrive at an opinion on the fairness of
the financial statements presented herein.
The Board of Directors, through the Audit Committee comprised solely of
directors who are not employees of the Company, meets with management, the
internal auditors and the independent accountants to ensure that each is
properly discharging its respective responsibilities. Both the independent
accountants and the internal auditors have free access to the Audit Committee,
without management present, to discuss the results of their work, including
internal accounting controls and the quality of financial reporting. The Audit
Committee met three times in 1993.
/s/ Robert E. Cawthorn
Robert E. Cawthorn
Chairman and
Chief Executive Officer
/s/ Patrick Langlois
Patrick Langlois
Senior Vice President
and Chief Financial Officer
/s/ Daniel J. Pedriani
Daniel J. Pedriani
Vice President and
Corporate Controller
44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Rhone-Poulenc Rorer Inc.:
We have audited the accompanying consolidated balance sheets of Rhone-Poulenc
Rorer Inc. and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Rhone-Poulenc
Rorer Inc. and subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1992.
/s/ COOPERS & LYBRAND
Coopers & Lybrand
Philadelphia, Pennsylvania
January 26, 1994
45
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
QUARTERLY DATA (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED 1993 QUARTER ENDED 1992
----------------------------------- ----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $916.3 $1,008.1 $960.1 $1,134.9 $897.8 $971.1 $1,049.2 $1,177.8
Gross profit............ 607.5 681.7 637.5 766.4 585.9 639.1 688.6 787.7
Net income available to
common shareholders.... 94.2 119.6 71.0 123.9 83.7 86.7 90.6 167.2
Earnings per common
share.................. .68 .87 .51 .90 .61 .63 .66 1.21
Market price per common
share:
High................... 48.000 54.000 48.875 48.500 69.375 59.750 59.250 50.750
Low.................... 42.500 46.375 43.000 32.625 55.625 51.500 45.625 44.375
Common dividends paid... .22 .24 .26 .28 .14 .16 .18 .20
</TABLE>
- --------
Results for 1993 include pretax income of $105.0 million proceeds from
litigation settlement in the second quarter. Results also includes $77.2
million and $16.6 million of restructuring and other charges recorded in the
second and fourth quarters, respectively and a $27.0 million pretax charge for
acquired research and development expense in the third quarter. Gains from
sales of product rights and certain investments totaled $10.2 million, $2.5
million, $2.7 million and $14.8 million in each of the four quarters,
respectively.
Results for the first quarter of 1992 include a cumulative effect adjustment
increasing earnings by $15.0 million as a result of adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
effective January 1, 1992. Results also include $6.5 million and $16.6 million
of gains on sales of non-strategic assets in the 1992 third and fourth
quarter, respectively.
Earnings per share amounts for each quarter are required to be computed
independently and, therefore, the sum of the four quarters does not
necessarily equal the amount computed for the total year.
Rhone-Poulenc Rorer Inc. (RPR) common shares are listed and traded on the New
York and Paris Stock Exchanges, and are traded, unlisted, on the Philadelphia,
Boston, Pacific and Midwest Stock Exchanges. On January 31, 1994, there were
7,336 holders of record of RPR common shares.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
46
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company entitled, "Election of
Directors," in the Company's Proxy Statement dated March 21, 1994 is
incorporated herein by reference. For information relating to the executive
officers of the Company, refer to "Executive Officers of the Company" on pages
10 through 11 of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation immediately before "Certain
Relationships and Related Transactions," of the Company's Proxy Statement dated
March 21, 1994, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and
management entitled, "Ownership of Shares" immediately before "Control of the
Company," of the Company's Proxy Statement dated March 21, 1994, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information entitled, "Certain Relationships and Related Transactions" in the
Company's Proxy Statement dated March 21, 1994, is incorporated herein by
reference.
47
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
<TABLE>
<CAPTION>
PAGE IN THIS
FORM 10-K
------------
<C> <S> <C>
1. Consolidated financial statements:
Consolidated Statements of Income.......................... 27
Consolidated Balance Sheets................................ 28
Consolidated Statements of Cash Flows...................... 29
Notes to Consolidated Financial Statements................. 30-43
Responsibility for Financial Statements.................... 44
Report of Independent Accountants.......................... 45
2. Financial statement schedules:
Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other than Related Parties
(Schedule II)............................................. 52
Indebtedness to Related Parties--Not Current (Schedule IV). 53
Property, Plant and Equipment (Schedule V)................. 54
Accumulated Depreciation of Property, Plant and Equipment
(Schedule VI)............................................. 55
Guarantees of Securities of Other Issuers (Schedule VII)... 56
Valuation and Qualifying Accounts (Schedule VIII).......... 57
Short-Term Borrowings (Schedule IX)........................ 58
Supplementary Income Statement Information (Schedule X).... 59
Schedules not listed above have been omitted because they
are not applicable.
3. Exhibits:
A complete listing of exhibits required is given in the
Exhibit Index which precedes the exhibits filed with this
Report.
</TABLE>
(b) No Current Reports on Form 8-K were filed during the fourth quarter.
48
<PAGE>
SIGNATURES
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, THERETO DULY AUTHORIZED.
Rhone-Poulenc Rorer Inc.
March 8, 1994 By /s/ Robert E. Cawthorn
----------------------------------
ROBERT E. CAWTHORN CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
/s/ Robert E. Cawthorn Chairman, Chief March 8, 1994
- ------------------------------------- Executive Officer
ROBERT E. CAWTHORN and Director
/s/ Patrick Langlois
- ------------------------------------- Senior Vice March 8, 1994
PATRICK LANGLOIS President and Chief
Financial Officer
/s/ Daniel J. Pedriani
- ------------------------------------- Vice President-- March 8, 1994
DANIEL J. PEDRIANI Corporate
Controller (Chief
Accounting Officer)
Jean-Jacques Bertrand* Director March 8, 1994
- -------------------------------------
JEAN-JACQUES BERTRAND
Jean-Marc Bruel* Director March 8, 1994
- -------------------------------------
JEAN-MARC BRUEL
Michel de Rosen* Director President March 8, 1994
- ------------------------------------- and Chief Operating
MICHEL DE ROSEN Officer
Charles-Henri Filippi* Director March 8, 1994
- -------------------------------------
CHARLES-HENRI FILIPPI
49
<PAGE>
NAME TITLE DATE
Claude Helene* Director March 8, 1994
- -------------------------------------
CLAUDE HELENE
Michael H. Jordan* Director March 8, 1994
- -------------------------------------
MICHAEL H. JORDAN
Manfred E. Karobath, MD* Director, Senior March 8, 1994
- ------------------------------------- Vice President,
MANFRED E. KAROBATH, MD Research and
Development
Igor Landau* Director March 8, 1994
- -------------------------------------
IGOR LANDAU
Peter J. Neff* Director March 8, 1994
- -------------------------------------
PETER J. NEFF
James S. Riepe* Director March 8, 1994
- -------------------------------------
JAMES S. RIEPE
Edward J. Stemmler, MD* Director March 8, 1994
- -------------------------------------
EDWARD J. STEMMLER, MD
Jean-Pierre Tirouflet* Director March 8, 1994
- -------------------------------------
JEAN-PIERRE TIROUFLET
* By his signature set forth below, John B. Bartlett, pursuant to duly
authorized powers of attorney filed with the Securities and Exchange
Commission, has signed this report on behalf of the persons whose signatures
are printed above, in the capacities set forth opposite their respective names.
/s/ John B. Bartlett General Counsel, March 8, 1994
- ------------------------------------- (Attorney-in-fact)
JOHN B. BARTLETT
50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Rhone-Poulenc Rorer Inc.:
Our report on the consolidated financial statements of Rhone-Poulenc Rorer
Inc. and subsidiaries is included on page 45 of this Form 10-K. In connection
with our audits of the financial statements, we have also audited the related
financial statement schedules listed in the index on page 48 this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand
_____________________________________
COOPERS & LYBRAND
Philadelphia, Pennsylvania
January 26, 1994
51
<PAGE>
SCHEDULE II
RHONE-POULENC RORER INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES
OTHER THAN RELATED PARTIES
FOR THE YEARS 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT
DEDUCTIONS END OF PERIOD
BALANCE AT --------------------- ---------------
BEGINNING AMOUNTS AMOUNTS NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT CURRENT
- -------------- ---------- --------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1993:
Rhone-Poulenc, S.A.... $ 55.0 34.5 53.7 -- $ 35.8 $--
1992:
Rhone-Poulenc, S.A.... $107.5 37.2 89.7 -- $ 55.0 $--
1991:
Rhone-Poulenc, S.A.... $ 93.2 53.5 39.2 -- $107.5 $--
</TABLE>
52
<PAGE>
SCHEDULE IV
RHONE-POULENC RORER INC. AND SUBSIDIARIES
INDEBTEDNESS TO RELATED PARTIES--NOT CURRENT
FOR THE YEARS 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
INDEBTEDNESS OF INDEBTEDNESS TO
----------------------------------------- --------------------------------------------
BALANCE AT BALANCE BALANCE AT BALANCE
BEGINNING AT END BEGINNING AT END
NAME OF PERSON OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
- -------------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993:
Rhone-Poulenc, S.A.... -- -- -- -- $ 34.0 -- 4.4 $29.6(/1/)
1992:
Rhone-Poulenc, S.A.... -- -- -- -- $ 41.3 21.6 28.9(/2/) $34.0(/3/)
1991:
Rhone-Poulenc, S.A.... -- -- -- -- $495.0 -- 453.7(/4/) $41.3(/5/)
</TABLE>
- --------
(1) The $29.6 million is denominated in British pounds at a variable interest
rate of 6.0%.
(2) Of the $28.9 million, approximately $18.5 million represents transfers to
current.
(3) Of the $34.0 million, $30.4 million is denominated in British pounds at a
variable interest rate of 7.8%.
(4) Of the $453.7 million, approximately $151.0 million represents transfers to
current.
(5) Of the $41.3 million, $37.4 million is denominated in British pounds at a
variable interest rate of 12.2%.
53
<PAGE>
SCHEDULE V
RHONE-POULENC RORER INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS OTHER END OF
CLASSIFICATION OF PERIOD AT COST(/1/) RETIREMENTS CHANGES(/2/) PERIOD
-------------- ---------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1993:
Land.................. $ 57.3 $ .1 $ .1 $ .7 $ 58.0
Buildings............. 521.6 5.0 4.9 47.0 568.7
Machinery & equipment. 1,132.9 20.3 34.4 78.4 1,197.2
Construction in pro-
gress................ 144.1 210.5 -- (219.9) 134.7
-------- ------- ------ ------- --------
$1,855.9 $ 235.9 $ 39.4 $ (93.8) $1,958.6
======== ======= ====== ======= ========
1992:
Land.................. $ 50.9 $ 9.1 $ .3 $ (2.4) $ 57.3
Buildings............. 530.7 283.5 263.2 (29.4) 521.6
Machinery & equipment. 1,125.6 159.4 64.7 (87.4) 1,132.9
Construction in pro-
gress................ 320.6 (167.7) .6 (8.2) 144.1
-------- ------- ------ ------- --------
$2,027.8 $ 284.3(/3/) $328.8(/4/) $(127.4) $1,855.9
======== ======= ====== ======= ========
1991:
Land.................. $ 61.9 $ 3.8 $ 6.1 $ (8.7) $ 50.9
Buildings............. 569.0 36.8 67.3 (7.8) 530.7
Machinery & equipment. 1,093.6 124.3 81.8 (10.5) 1,125.6
Construction in pro-
gress................ 206.2 118.8 3.5 (.9) 320.6
-------- ------- ------ ------- --------
$1,930.7 $ 283.7(/3/) $158.7 $ (27.9) $2,027.8
======== ======= ====== ======= ========
</TABLE>
- --------
(1) Additions reflect normal expenditures for expansion, replacement and
modernization of the Company's facilities, and property, plant and
equipment obtained through acquisition.
(2) Includes reclassifications among property, plant and equipment accounts and
the effect of foreign currency rate changes.
(3) Includes approximately $63 million and $102 million in 1992 and 1991,
respectively, related to new U.S. corporate offices, research center and
site in Montgomery County, Pa.
(4) Includes approximately $258 million related to the sale of the new U.S.
corporate offices and research center.
54
<PAGE>
SCHEDULE VI
RHONE-POULENC RORER INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
CLASSIFICATION OF PERIOD EXPENSES(/1/) RETIREMENTS changes(/2/) PERIOD
-------------- ---------- ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1993:
Buildings............. $214.8 $ 32.3 $ 3.1 $(11.6) $232.4
Machinery & equipment. 666.6 93.7 29.8 (36.3) 694.2
------ ------ ------ ------ ------
$881.4 $126.0 $ 32.9 $(47.9) $926.6
====== ====== ====== ====== ======
1992:
Buildings............. $202.4 $ 35.6 $ 11.8 $(11.4) $214.8
Machinery & equipment. 652.8 117.9 53.1 (51.0) 666.6
------ ------ ------ ------ ------
$855.2 $153.5 $ 64.9 $(62.4) $881.4
====== ====== ====== ====== ======
1991:
Buildings............. $185.9 $ 33.5 $ 28.4 $ 11.4 $202.4
Machinery & equipment. 615.7 112.4 57.4 (17.9) 652.8
------ ------ ------ ------ ------
$801.6 $145.9 $ 85.8 $ (6.5) $855.2
====== ====== ====== ====== ======
</TABLE>
- --------
(1) Depreciation has been computed principally on the straight-line method for
buildings and machinery and equipment at rates ranging from 2% to 20% and
5% to 50% per annum, respectively.
(2) Includes reclassifications among property, plant and equipment accumulated
depreciation accounts and the effect of foreign currency rate changes.
55
<PAGE>
SCHEDULE VII
RHONE-POULENC RORER INC. AND SUBSIDIARIES
GUARANTEES OF SECURITIES OF OTHER ISSUERS
FOR THE YEARS 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NAME OF ISSUER TITLE OF ISSUE TOTAL AMOUNT
OF SECURITIES OF SECURITIES GUARANTEED AND NATURE OF
GUARANTEED GUARANTEED OUTSTANDING GUARANTEE
-------------- -------------------- -------------- -------------
<S> <C> <C> <C>
1993:
Immune Response Operating lease $1.0 Lease rentals
Corporation(/1/)........... through October 2000
1992:
Immune Response Operating lease $1.2 Lease rentals
Corporation(/1/)........... through October 2000
1991:
Immune Response Operating lease $1.3 Lease rentals
Corporation(/1/)........... through October 2000
</TABLE>
- --------
(1) The Company's stock investment in Immune Response Corporation which is
accounted for at cost totaled 8.9% at December 31, 1993 and 1992 and 9.6%
at December 31, 1991.
56
<PAGE>
SCHEDULE VIII
RHONE-POULENC RORER INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO COSTS BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES DEDUCTIONS(/1/) END OF PERIOD
----------- ---------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31,
1993
Accounts receivable
reserves............. $66.6 129.7 128.0 $68.3
Year ended December 31,
1992
Accounts receivable
reserves............. $56.6 104.1 94.1 $66.6
Year ended December 31,
1991
Accounts receivable
reserves............. $42.3 103.9 89.6 $56.6
</TABLE>
- --------
(1) Accounts charged off, net of recoveries and the effect of foreign currency
rate changes.
57
<PAGE>
SCHEDULE IX
RHONE-POULENC RORER INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
FOR THE YEARS 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
CATEGORY OF WEIGHTED
AGGREGATE BALANCE AVERAGE MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED AVERAGE
SHORT-TERM AT END INTEREST OUTSTANDING DURING OUTSTANDING DURING INTEREST RATE DURING
BORROWINGS OF PERIOD RATE THE PERIOD(/1/) THE PERIOD(/2/) THE PERIOD(/3/)
----------- --------- -------- ------------------ ------------------ --------------------
<S> <C> <C> <C> <C> <C>
1993:
Bank loans(/4/)....... $287.9 6.5% $546.1 $349.5 7.5%
1992:
Bank loans(/4/)....... $228.5 8.3% $928.0 $631.7 9.3%
1991:
Bank loans(/4/)....... $519.2 10.8% $920.5 $808.4 10.5%
</TABLE>
- --------
(1) At the end of any month.
(2) Month-end average.
(3) Calculated by relating appropriate interest expense to average aggregate
borrowings.
(4) Includes bank loans and short-term notes payable to Rhone-Poulenc S.A.
58
<PAGE>
SCHEDULE X
RHONE-POULENC RORER INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS 1993, 1992 AND 1991
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B
-------- -----------------------------
CHARGED TO COSTS AND EXPENSES
ITEM YEARS ENDED DECEMBER 31
---- -----------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Repairs & maintenance............................ $ 57.6 $ 37.8 $ 39.3
Amortization of intangible assets................ 41.9 44.2 43.1
Advertising...................................... 177.0 191.6 138.9
Royalties........................................ 47.5 34.5 36.8
</TABLE>
59
<PAGE>
EXHIBIT INDEX
(3)a.
The By-laws of the Company are incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1990.
b.
The Amended and Restated Articles of Incorporation of the Company as
of January 31, 1992.
c.
Articles of Amendment dated July 16, 1993 to The Amended and Restated
Articles of Incorporation of the Company as of January 31, 1992.
(4)a.
$1,600,000,000 Revolving Credit Facility Agreement dated April 30,
1990 is incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
b.
Deposit Agreement dated July 19, 1993 among Rhone-Poulenc Rorer Inc.,
Bankers Trust Company as Depositary, and the holders from time to time
of the Depositary Receipts is incorporated herein by reference to the
Company's Current Report on Form 8-K dated July 12, 1993.
(10)
Material Contracts.
a.
Form of Lease Agreement among the Company, Rhone-Poulenc Rorer
Pharmaceuticals Inc. and the Owner Trustee is incorporated herein by
reference to Exhibit 4.2.2 of the Company's Registration Statement No.
33-53378 on Form S-3, filed with the Securities and Exchange
Commission on October 16, 1992.
b.
Armour Pharmaceutical Company Pension Program Amended and Restated
effective January 1, 1989 is incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991.
c.
Pension Plan of Rhone-Poulenc Rorer Inc. Amended and Restated
effective January 1, 1989 is incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991.
d.
Rhone-Poulenc Rorer Pharmaceuticals Inc. Fort Washington Hourly
Employees' Pension Plan effective January 1, 1990 is incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991.
e.
Rhone-Poulenc Rorer Employee Savings Plan as Amended and Restated
effective January 1, 1992 is incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991.
f.
Amendment 1992-1 to the Rhone-Poulenc Rorer Employee Savings Plan as
Amended and Restated effective January 1, 1992 is incorporated herein
by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
g.
Amendment 1993-1 dated September 1, 1993 to the Rhone-Poulenc Rorer
Employee Savings Plan as Amended and Restated effective January 1,
1992.
h.
The Rorer Group Inc. Stock Plan, adopted April 23, 1985, is
incorporated herein by reference to the Registration Statement on Form
S-8 (No. 33-2403) dated December 23, 1985.
i.
The Rhone-Poulenc Rorer Inc. Amended and Restated Stock Plan, adopted
March 12, 1990, is incorporated herein by reference to the Company's
Proxy Statement dated June 29, 1990, filed in connection with the July
31, 1990 Annual Meeting of Shareholders.
j.
The Rhone-Poulenc Rorer Inc. Equity Compensation Plan is incorporated
herein by reference to the Company's Proxy Statement dated June 29,
1990, filed in connection with the July 31, 1990 Annual Meeting of
Shareholders.
k.
The Rorer Group Inc. Incentive Stock Option Plan, adopted April 27,
1982, is incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989.
60
<PAGE>
l.
Amendment to the Rhone-Poulenc Rorer Inc. Incentive Stock Option Plan,
effective March 11, 1990, is incorporated herein by reference to the
Form 8, Amendment No. 1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989.
m.
The Rorer Group Inc. Non-Qualified Stock Option Plan, adopted April
24, 1973, is incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989.
n.
The Rhone-Poulenc Rorer Inc. Annual Performance Incentive Plan is
incorporated herein by reference to the Form 8, Amendment No. 1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1989.
o.
The Rhone-Poulenc Rorer Inc. Retirement Plan for Outside Directors,
adopted January 1, 1988, is incorporated herein by reference to the
Form 8, Amendment No. 1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989.
p.
The Rhone-Poulenc Rorer Inc. Supplemental Executive Retirement Plan,
adopted January 1, 1988, is incorporated herein by reference to the
Form 8, Amendment No. 1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1989.
q.
The Rhone-Poulenc Rorer Inc. Director Deferred Compensation Plan,
effective March 1, 1987, is incorporated herein by reference to the
Form 8, Amendment No. 1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987.
r.
Acquisition Agreement, dated as of March 12, 1990, between Rorer Group
Inc. and Rhone-Poulenc S.A., is incorporated herein by reference to
the Company's Current Report on Form 8-K dated March 12, 1990.
s.
Employment agreement with Robert E. Cawthorn, dated March 12, 1990, is
incorporated herein by reference to the Company's Current Report on
Form 8-K, dated March 12, 1990.
t.
Employment agreement with Manfred Karobath, dated January 27, 1992, is
incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992.
u.
The Indemnification Agreements between Rorer Group Inc. and
Indemnified Representatives effective July 1, 1987, are incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1987.
v.
Supplemental Benefit and Deferred Compensation Trust Agreement, dated
May 10, 1988, between Rorer Group Inc. and Philadelphia National Bank,
as Trustee, is incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989.
(11)
Statement re: Computation of Earnings per Share.
(12)
Statement re: Computation of Ratios.
(21)
Subsidiaries of the Registrant.
(23)
Consent of Independent Accountants.
(24)
Powers of Attorney.
61
<PAGE>
EXHIBIT 3(b)
Microfilm Number 9209-1257 Filed with the Department of State on Jan 31 1992
---------- -----------
Entity Number 309279 /s/ SIGNATURE APPEARS HERE
------- --------------------------------------
ACTING Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCS:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating
to articles of amendment), the undersigned business corporation, desiring to
amend its Articles, hereby states that:
1. The name of the corporation is: Rhone-Poulenc Rorer Inc.
-------------------------------------------
-----------------------------------------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
(a) 500 Virginia Drive Fort Washington PA 19034 Montgomery
-------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o:
---------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office
provider, the county in (b) shall be deemed the county in which the
corporation is located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Act of May 5, 1933,
----------------------
P.L.364, as amended
----------------------------------------------------------------------------
4. The date of its incorporation is: July 1, 1968
-------------------------------------------
5. (Check, and if appropriate complete, one of the following):
X
----- The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
----- The amendment shall be effective on: at
-------------- ----------------
Date Hour
6. (Check one of the following):
X
----- The amendment was adopted by the shareholders (or members) pursuant to
15 Pa.C.S. Section 1914(a) and (b).
----- The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
X
----- The amendment adopted by the corporation, set forth in full, is as
follows:
RESOLVED, that the proposed amendments to the Articles of
Incorporation of the Company be and they are hereby adopted and that the
Articles of Incorporation, as so amended, be and they are hereby restated to
read in full as set forth in Exhibit A attached hereto and made a part
hereof.
----- The amendment adopted by the corporation as set forth in full in
Exhibit A is attached hereto and made a part hereof.
<PAGE>
DSCS:15-1915 (REV 90)-2
8. (Check if the amendment restates the Articles):
X
----- The restated Articles of Incorporation supersede the original
Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused
these Articles of Amendment to be signed by a duly authorized officer thereof
this 31st day of January, 1992.
---- ------- --
RHONE-POULENC RORER INC.
----------------------------------------
BY: /s/ John D. Bartlett
-------------------------------------
(Signature)
TITLE: Senior Vice President, Secretary
-----------------------------------
and General Counsel
<PAGE>
Exhibit A
-----------
RHONE-POULENC RORER INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
FIRST: The name of the Corporation is Rhone-Poulenc Rorer Inc.
SECOND: The location and post office address of its registered office
in the Commonwealth of Pennsylvania is 500 Virginia Drive, Fort Washington,
Montgomery County, Pennsylvania.
THIRD: The purpose or purposes for which the Corporation is
incorporated under the Business Corporation Law or the Commonwealth of
Pennsylvania are to engage in, and do any lawful act concerning, any or all
lawful business for which corporations may be incorporated under said Business
Corporation Law, including but not limited to manufacturing, processing,
research and development.
FOURTH: The term for which it is to exist is perpetual.
FIFTH: The authorized Capital Stock of the corporation shall be
203,000,000 shares, to be divided into two classes consisting of (a) 3,000,000
Preferred Shares, without par value, and (b) 200,000,000 Common Shares, without
par value. The following shares shall be uncertificated shares: all previously
issued shares of the Corporation owned by it and those Common Shares that may be
issued under the Rhone-Poulenc Rorer Inc. Amended and Restated Stock Plan or the
Rhone-Poulenc Rorer Inc. Equity Compensation Plan and are subject to any
restrictions under either of such plans.
The Board of Directors shall have the power, by resolution, to issue
from time to time, in whole or in part, the kinds and classes of shares herein
authorized.
The following is a statement of the voting rights, designations,
preferences, limitations and other special rights in respect of the shares of
each class.
DIVISION ONE -- PREFERRED SHARES
PART A - GENERAL TERMS
1. Issuance of Preferred Shares in Series. The Board of Directors is
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hereby authorized by resolution to divide into and issue the Preferred Shares in
series, and to fix the voting
<PAGE>
rights, preferences, limitations and special rights of any such series.
Except as may be provided by the resolution establishing and designating
such series, the Board of Directors is hereby further authorized by resolution
to increase or decrease the authorized number of shares of each series (but not
below the number of shares thereof then outstanding).
2. Dividends. The holders of each series of Preferred Shares shall be
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entitled to receive, when and as declared by the Board of Directors, out of any
funds legally available for the purpose under 15 Pa.C.S. (S) 1551 (relating to
distributions to shareholders) or any superseding provision of law subject to
any additional limitations in the express terms of the series, cash dividends at
the rate or rates and on the terms which shall have been fixed by or pursuant to
the authority of the Board of Directors with respect to such series and no more,
payable quarterly or at such other time or times as may be fixed by or pursuant
to the authority of the Board of Directors. If and to the extent provided by
the express terms of any series of Preferred Shares, the holders of the series
shall be entitled to receive such other dividends as may be declared by the
Board of Directors.
The dividend rate of a series of the Preferred Shares may vary from time
to time dependent upon facts ascertainable outside of these articles of
incorporation if the manner in which the facts will operate to fix or change the
dividend rate is set forth in the express terms of the series or upon terms
incorporated by reference to an existing agreement between the Corporation and
one or more other parties or to another document of independent significance and
the dividend payment dates of a series having auction or other variable dividend
rates may vary from time to time as provided by or pursuant to the express terms
of the series.
3. Liquidation of the Corporation. In the event of voluntary or
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involuntary liquidation of the Corporation, the holders of Preferred Shares
shall be entitled to receive from the assets of the Corporation (whether capital
or surplus), prior to any payment to the holders of Common Shares or of any
other class of stock of the Corporation ranking as to assets subordinate to the
Preferred Shares, the amount per share which shall have been fixed and
determined by the Board of Directors with respect thereto, plus the accrued and
unpaid dividends thereon computed to the date on which payment thereof is made
available, whether or not earned or declared.
4. Conversion Privileges. In the event any series of the Preferred
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Shares is issued with the privilege of
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conversion, such stock may be converted, at the option of the record holder
thereof, at any time or from time to time, as determined by the Board of
Directors, in the manner and upon the terms and conditions stated in the
resolution establishing and designating the series and fixing and determining
the relative rights and preferences thereof.
5. Redemption. The Corporation, at its option to be exercised by its
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Board of Directors, may redeem the whole or any part of the Preferred Shares or
of any series thereof at such time or times as may be fixed by the Board, at the
applicable price for each share, and upon the terms and conditions which shall
have been fixed and determined by the Board with respect thereto.
6. Voting Rights. Each holder of record of Preferred Shares shall have
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full, limited, multiple, fractional, conditional or no voting rights as shall be
stated in the resolution or resolutions of the Board of Directors providing for
the issue of such shares. Unless provided in such resolution or resolutions, no
holder of Preferred Shares shall have cumulative voting rights.
PART B - DESIGNATION AND STATEMENT OF THE VOTING RIGHTS, PREFERENCES,
LIMITATIONS AND SPECIAL RIGHTS OF THE MARKET AUCTION PREFERRED SHARES,
SERIES A THROUGH D
1. Designation; Amount and Series. The four Series of Preferred Shares
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authorized in this Part B are 300,000 shares designated as "Market Auction
Preferred Shares" (referred to as the "Auction Preferred" or the "Preferred
Stock") issuable in the following Series: 75,000 shares designated "Market
Auction Preferred Shares, Series A" (the "Series A Auction Preferred"), 75,000
shares designated "Market Auction Preferred Shares, Series B" (the "Series B
Auction Preferred"), 75,000 shares designated "Market Auction Preferred Shares,
Series C" (the "Series C Auction Preferred") and 75,000 shares designated
"Market Auction Preferred Shares, Series D" (the "Series D Auction Preferred").
The shares of each Series of Auction Preferred will be sold in units (each a
"Unit") of 100 shares per Unit, which number of shares per Unit may be adjusted
from time to time under certain circumstances by the Corporation pursuant to the
terms hereof. Each share of each separate Series of Auction Preferred shall be
identical and equal in all aspects to every other share of such Series, and the
shares of all of the Series shall, except as expressly provided in this Part B
be identical and equal in all respects.
2. Definitions. Any references to Sections or subsections that are
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made in this Part B shall be to Sections
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<PAGE>
or subsections contained in this Part B. Unless the context or use indicates
another or different meaning or intent, the following terms shall have the
following meanings when used in this Part B, whether used in the singular or
plural:
"Act" means the Securities Act of 1933, as amended.
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"Additional Directors" has the meaning specified in Section 5(b) below.
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"Affiliate" means any Person controlled by, in control of, or under
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common control with, the Corporation.
"Applicable 'AA' Composite Commercial Paper Rate" means, on any date,
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in the case of any Standard Dividend Period or Short Dividend Period of (1) 49
days or more but less than 70 days, the interest equivalent of the 60-day rate,
(2) 70 days or more but less than 85 days, the arithmetic average of the
interest equivalent of the 60-day and 90-day rates, (3) 85 days or more but less
than 120 days, the interest equivalent of the 90-day rate, (4) 120 days or more
but less than 148 days, the arithmetic average of the interest equivalent of the
90-day and 180-day rates, (5) 148 days or more but less than 184 days, the
interest equivalent of the 180-day rate, in each case, on commercial paper
placed on behalf of issuers whose corporate bonds are rated "Aa" by Moody's or
"AA" by Standard & Poor's, or the equivalent of such rating by another rating
agency, as made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date.
In the event that the Federal Reserve Bank of New York does not make available
any of the foregoing rates, then such rates shall be the 60-day rate or the
arithmetic average of such rates, as the case may be, as quoted on a discount
basis or otherwise, by the Commercial Paper Dealers to the Auction Agent as of
the close of business on the Business Day next preceding such date. If any
Commercial Paper Dealer does not quote a rate required to determine the
Applicable "AA" Composite Commercial Paper Rate, the Applicable "AA" Composite
Commercial Paper Rate shall be determined on the basis of the quotation or
quotations furnished by the remaining Commercial Paper Dealer or Commercial
Paper Dealers (if any) and any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Corporation to provide such rate or
rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Company does not select any such
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by
the remaining Commercial Paper Dealer or Commercial Paper Dealers. For purposes
of this definition, the "interest equivalent" means the equivalent yield on a
360-day basis of a discount-basis security to an interest-bearing security.
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"Applicable Determining Rate" means (i) for any Standard Dividend Period
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or Short-Dividend Period of 183 days or less, the Applicable "AA" Composite
Commercial Paper Rate, (ii) for any Short Dividend Period of 184 to 364 days,
the Applicable Treasury Bill Rate and (iii) for any Long Dividend Period, the
Applicable Treasury Note Rate.
"Applicable Rate" means the rate per annum at which dividends are
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payable on a Series for any Dividend Period for such Series established pursuant
to Section 3(c) below.
"Applicable Treasury Bill Rate" for any Short Dividend Period in excess
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of 183 days and "Applicable Treasury Note Rate" for any Long Dividend Period, on
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any date, with respect to any Series of Auction Preferred, means the interest
equivalent of the rate for direct obligations of the United States Treasury
having an original maturity which is equal to, or next lower than, the length of
such Short Dividend Period or Long Dividend Period, as the case may be, as
published weekly by the Federal Reserve Board in "Federal Reserve Statistical
Release H.15 (519)--Selected Interest Rates," or any successor publication by
the Federal Reserve Board, within five Business Days preceding such date. In
the event that the Federal Reserve Board does not publish weekly such per annum
interest rate, or if such release is not available, the Applicable Treasury Bill
Rate or Applicable Treasury Note Rate shall be the arithmetic mean of the
secondary market bid rates as of approximately 3:30 p.m., New York City time, on
the Business Day next preceding such date of the U.S. Government Securities
Dealers furnished to the Auction Agent for the issue of direct obligations of
the United States Treasury, in an aggregate principal amount of at least
$1,000,000, with a remaining maturity equal to, or next lower than, the length
of such Short Dividend Period or Long Dividend Period, as the case may be. If
any U.S. Government Securities Dealer does not quote a rate required to
determine the Applicable Treasury Bill Rate or the Applicable Treasury Note
Rate, as the case may be, such rate shall be determined on the basis of the
quotation or quotations furnished by the remaining U.S. Government Securities
Dealer or Dealers (if any) or any Substitute U.S. Government Securities Dealer
or Dealers selected by the Corporation to provide such rate or rates not being
supplied by any U.S. Government Securities Dealer or Dealers, as the case may
be, or, if the Corporation does not select any such Substitute U.S. Government
Securities Dealer or Dealers, by the remaining U.S. Government Securities Dealer
or Dealers; provided that, in the event the Corporation is unable to cause such
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quotations to be furnished to the Auction Agent by such sources, the Corporation
may cause the Applicable Treasury Bill Rate or the Applicable Treasury Note
Rate, as the case may be, to be furnished to the Auction Agent by such
alternative source or sources as the Corporation in good faith deems to be
reliable. For purposes of this
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<PAGE>
definition, the "interest equivalent" of a rate stated on a discount basis shall
be equal to the quotient of (A) the discount rate divided by (B) the difference
between 1.00 and the discount rate.
"Auction" means each periodic operation of the Auction Procedures.
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"Auction Agent" means Bankers Trust Company, unless or until another
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bank or trust company has been appointed as such by a resolution of the Board of
Directors of the Corporation.
"Auction Agreement" has the meaning set forth in Section 7 below.
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"Auction Date" means the first Business Day preceding the first day of
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Dividend Period other than the initial Dividend Periods.
"Auction Preferred" or "Preferred Stock" means all of the Series.
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"Auction Procedures" means the procedures for conducting Auctions set
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forth in Section 9 below.
"Board of Directors" means the Board of Directors of the Corporation or
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any duly authorized committee of the Board of Directors acting on behalf
thereof.
"Business Day" means a day on which the New York Stock Exchange is open
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for trading and which is not a day on which banks in The City of New York are
authorized or obliged by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
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interests, participations or other equivalents (however designated) of such
Person's capital stock, whether outstanding on the Date of Original Issue or
thereafter.
"Charter Default" has the meaning set forth in Section 6(b) below.
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"Code" means the Internal Revenue Code of 1986, as amended.
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"Commercial Paper Dealers" means Morgan Stanley, First Boston and
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Lehman Brothers or, in lieu of any thereof, their respective affiliates or
successors.
"Common Stock" means all shares now or hereafter issued of the class of
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common stock of the Corporation
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<PAGE>
presently authorized and any other shares of stock into which such stock may
hereinafter be changed from time to time.
"Corporation" means Rhone-Poulenc Rorer Inc., a Pennsylvania
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corporation, or its successor.
"Date of Original Issue", with respect to any share of Auction
----------------------
Preferred, means the date on which the Corporation originally issued such share
of Auction Preferred.
"Default Period" has the meaning set forth in Section 5(b) below.
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"Default Rate" means the higher of the Maximum Applicable Rate obtained
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by multiplying the Applicable Determining Rate, determined as of the Business
Day next preceding the date of the Failure to Deposit that, pursuant to Section
3(c)(i)(B), caused the application of such Default Rate, by the percentage (as
it may be adjusted from time to time) for the lowest credit rating category
applicable to the Auction Preferred, and (i) if the Corporation has failed
timely to pay dividends, the dividend rate in effect for the Dividend Period in
respect of which such Failure to Deposit occurred, or (ii) if the Corporation
has failed timely to pay the redemption price (including accumulated and unpaid
dividends) of shares of any Series called for redemption, the dividend rate in
effect on the applicable Redemption Date, provided that, if a Failure to Deposit
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occurs in the event that a Mandatory Redemption is required due to a Charter
Default, the Default Rate for each Series shall be 15% for each Dividend Period
commencing after the Initial Dividend Period for such Series.
"Dividend Payment Date" has the meaning set forth in Section 3(b)(vi)
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below.
"Dividend Period" has the meaning set forth in Section 3(b)(vii) below.
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"Dividend Period Days" has the meaning set forth in Section 3(b)(v)
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below.
"Dividends - Received Deduction" or "DRD" has the meaning set forth in
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Section 3(b)(v) below.
"Downgrade" has the meaning set forth in Section 6(b) below.
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"Existing Holder" means a Person who has signed a Purchaser's Letter
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and is listed as the beneficial owner of Units of Auction Preferred in the
records of the Auction Agent or, if there is no Securities Depository, in the
Stock Books.
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<PAGE>
"Failure to Deposit" means, with respect to any Series of Auction
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Preferred, the failure by the Corporation to irrevocably deposit with the Paying
Agent by noon on the Business Day immediately preceding a Dividend Payment Date
or Redemption Date sufficient next-day funds for the payment of the dividends
(whether or not earned or declared) or the full redemption price (including
accumulated and unpaid dividends), as the case may be, to be paid on such
Dividend Payment Date or Redemption Date and to give the Paying Agent
irrevocable instructions to apply such funds and, if applicable, the income and
proceeds therefrom, to the payment of such dividends or redemption price on such
Dividend Payment Date or Redemption Date.
"Federal Reserve Board" means the Board of Governors of the Federal
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Reserve System.
"First Boston" means The First Boston Corporation.
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"Holder" means the holder of shares of the Auction Preferred as the
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same appears on the Stock Books.
"Initial Dividend Payment Date" has the meaning set forth in Section
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3(b)(vii) below.
"Junior Capital Stock" means, with respect to the Corporation, any and
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all Capital Stock of the Corporation, ranking junior to the Auction Preferred
with respect to the payment of dividends or the distribution of assets upon
liquidation.
"Lehman Brothers" means Lehman Brothers, a Division of Shearson Lehman
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Brothers Inc.
"Long Dividend Period" has the meaning set forth in Section 3(b)(vii)
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below.
"Mandatory Redemption" has the meaning set forth in Section 6(b) below.
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"Maximum Applicable Rate", on any Auction Date, shall mean the rate
-----------------------
obtained by multiplying the Applicable Determining Rate on such Auction Date by
a percentage (as it may be adjusted from time to time by the Board of Directors
in accordance with the provisions hereof) determined as set forth below based on
the lower of the credit rating or ratings assigned to the Auction Preferred by
Moody's and Standard & Poor's (or if Moody's or Standard & Poor's or both shall
not make such rating available, the equivalent of either or both of such ratings
by a Substitute Rating Agency or two Substitute Rating Agencies, as the case may
be, or, in the event that only
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<PAGE>
one such rating shall be available, the percentage shall be based on such
rating).
<TABLE>
<CAPTION>
Credit Rating
- --------------------------------- Applicable Percentage of
Standard & Applicable Determining
Moody's Poor's Rate
- ------- ------------ -------------------------
<S> <C> <C>
"aa3" or Above AA- or Above 150%
"a3" to "a1" A- to A+ 200%
"baa3" to "baa1" BBB- to BBB+ 225%
Below "baa3" Below BBB- 275%
</TABLE>
The Corporation shall take all reasonable action necessary to enable Moody's and
Standard & Poor's to provide a rating for each Series of Auction Preferred. If
either Moody's or Standard & Poor's shall not make such rating available or
neither Moody's nor Standard & Poor's shall make such a rating available, the
Corporation shall select a Substitute Rating Agency or two Substitute Rating
Agencies, as the case may be, and the Corporation will take all reasonable
action necessary to enable such Substitute Rating Agency or Agencies to provide
a rating for each Series of Auction Preferred.
"Minimum Holding Period" has the meaning set forth in Section 3(b)(v)
----------------------
below.
"Moody's" means Moody's Investors Service, Inc., or its successor, so
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long as such agency (or successor) is in the business of rating securities of
the type of the Auction Preferred and, if such agency is not in such business,
then a Substitute Rating Agency.
"Morgan Stanley" means Morgan Stanley & Co. Incorporated.
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"Non-Auction Rate" has the meaning set forth in Section 3(c)(i) below.
----------------
"Normal Dividend Payment Date" has the meaning set forth in Section
----------------------------
3(b)(ii) below.
"Notice of Long Dividend Period" has the meaning set forth in Section
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3(b)(viii) below.
"Notice of Percentage Increase" has the meaning set forth in Section
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3(c)(iii) below.
"Notice of Redemption" has the meaning set forth in Section 6(c)(i)
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below.
"Notice of Removal" has the meaning set forth in Section 3(b)(viii)
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below.
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"Notice of Revocation" has the meaning set forth in Section 3(b)(viii)
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below.
"Optional Redemption" has the meaning set forth in Section 6(a) below.
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"Outstanding" means, as of any date, Auction Preferred theretofore
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issued except, without duplication, (i) any Auction Preferred theretofore
cancelled, delivered to the Corporation for cancellation or redeemed and (ii) as
of any Auction Date, any Units of Auction Preferred subject to redemption on the
next following Business Day.
"Parity Capital Stock" means any and all shares of Capital Stock
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ranking on a parity with or equal to the Auction Preferred as to the payment of
dividends and distribution of assets.
"Parity Securities" has the meaning set forth in Section 5(b) below.
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"Paying Agent" means the Auction Agent unless another bank or trust
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company has been appointed for such purpose by resolution of the Board of
Directors.
"Person" means and includes an individual, a partnership, a
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corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
"Purchaser's Letter" means a Master Purchaser's Letter substantially in
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the form of Appendix C to the Prospectus delivered to the initial purchasers of
the Auction Preferred which each prospective purchaser of Auction Preferred will
be required to sign as a condition to purchasing Auction Preferred or
participating in an Auction.
"Rating Agencies" means Moody's and Standard & Poor's.
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"Redemption Date" means any date upon which a redemption of shares of
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Auction Preferred is scheduled to occur in accordance with the terms hereof and
specified in the related Notice of Redemption, provided that, in case a
Mandatory Redemption is required under Section 6(b) below and no Notice of
Redemption is given specifying a Redemption Date within the period required
under Section 6(b), then for purposes of the definition of "Failure to Deposit"
the Redemption Date with respect to such required Mandatory Redemption shall be
deemed to be the 30th day following the related Major Support Agreement Default
or Downgrade.
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<PAGE>
"RP" means Rhone-Poulenc S.A., a French societe anonyme.
--
"Securities Depository" means The Depository Trust Company or any other
---------------------
securities depository selected by the Corporation that agrees to follow the
procedures required to be followed by such securities depository in connection
with the Auction Preferred.
"Series" means any of the Series A-D of the Auction Preferred
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authorized by this Part B.
"Short Dividend Period" has the meaning set forth in Section 3(b)(vii)
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below.
"Standard Dividend Period" has the meaning set forth in Section
------------------------
3(b)(vii) below.
"Standard & Poor's" or "S&P" means Standard & Poor's Corporation, or
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its successor, so long as such agency (or successor) is in the business of
rating securities of the type of the Auction Preferred and, if such agency is
not in such business, then a Substitute Rating Agency.
"Stock Books" means the stock transfer books of the Corporation
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maintained by the Paying Agent.
"Substitute Commercial Paper Dealer" means Goldman, Sachs & Co. or
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Merrill Lynch, Pierce, Fenner & Smith Incorporated, or, in lieu of each thereof,
their respective affiliates or successors or, if neither furnishes commercial
paper quotations, a leading dealer in the commercial paper market selected by
the Company in good faith.
"Substitute Rating Agency" means a nationally recognized statistical
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rating organization (as that term is used in the rules and regulations of the
Securities Exchange Act of 1934) selected by the Corporation, subject to
approval by Morgan Stanley, First Boston and Lehman Brothers, such approval not
to be unreasonably withheld.
"Substitute U.S. Government Securities Dealer" means Goldman, Sachs &
--------------------------------------------
Co. or Merrill Lynch, Pierce, Fenner & Smith Incorporated, or, in lieu of each
thereof, their respective affiliates or successors or, if neither provides
quotes in U.S. government securities, a leading dealer in the government
securities market selected by the Company in good faith.
"Support Agreement" means the Support Agreement, dated as of December
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19, 1991, between the Company and RP.
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"Support Agreement Default" has the meaning set forth in Section 6(b)
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below.
"Unit" has the meaning set forth in Section 1 above.
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"U.S. Government Securities Dealers" means Morgan Stanley, First Boston
----------------------------------
and Lehman Brothers or, in lieu of any thereof, their respective affiliates or
successors.
3. Dividends. (a) Holders of shares of Auction Preferred shall be
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entitled to receive, when, as and if declared by the Board of Directors, subject
to applicable law, out of surplus (net assets in excess of stated capital) or
net profits of the Corporation for the fiscal year in which the dividend is
declared and for the preceding fiscal year, cumulative cash dividends at the
applicable dividend rate determined as set forth in Section 3(c)(i) below, and
no more, payable on the respective dates set forth below.
(b) (i) Dividends on the shares of each Series shall accumulate at
the respective Applicable Rates for such Series (whether or not declared) from
the Date of Original Issue.
(ii) Dividends on the shares of each Series with a Standard Dividend
Period shall be payable commencing on the Initial Dividend Payment Date for such
Series and thereafter, except as provided below in this Section 3(b), on each
seventh Tuesday following the preceding Dividend Payment Date for such Series.
Dividends on the shares of each Series with a Short Dividend Period shall be
payable, except as provided below in this Section 3(b), on the day following the
last day of such Short Dividend Period and shall also be payable on such other
Dividend Payment Dates as may be established by the Board of Directors at the
time such Short Dividend Period is determined. Dividends on the shares of each
Series with a Long Dividend Period shall be payable, except as provided below in
this Section 3(b), on the day following the last day of such Long Dividend
Period and, if occurring prior to the last day of such Long Dividend Period, on
the first day of the fourth month after the commencement of such Long Dividend
Period and on the first day of each succeeding third month thereafter. Each day
on which dividends on shares of a Series would be payable as determined as set
forth in this clause (ii) but for the provisions set forth below in this Section
3(b) is referred to herein as a "Normal Dividend Payment Date."
(iii) In the case of dividends payable on the shares of a Series with a
Standard Dividend Period or a Short Dividend Period, if:
(A) (I) The Securities Depository shall continue to make available to
its members and participants the amounts
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due as dividends on the shares of such Series in next-day funds on the dates
on which such dividends are payable and (II) a Normal Dividend Payment Date
for such Series is not a Business Day, or the day next succeeding such
Normal Dividend Payment Date is not a Business Day, then dividends shall be
payable on the first Business Day preceding such Normal Dividend Payment
Date that is next succeeded by a Business Day; or
(B) (I) The Securities Depository shall make available to its members
and participants the amounts due as dividends on the shares of such Series
in immediately available funds on the dates on which such dividends are
payable (and the Securities Depository shall have so advised the Auction
Agent) and (II) a Normal Dividend Payment Date for such Series is not a
Business Day, then dividends shall be payable on the first Business Day
following such Normal Dividend Payment Date.
(iv) In the case of dividends payable on the shares of a Series with a
Long Dividend Period, if:
(A) (I) The Securities Depository shall continue to make available to
its members and participants the amounts due as dividends on the shares of
such Series in next-day funds on the dates on which such dividends are
payable and (II) a Normal Dividend Payment Date for such Series is not a
Business Day, or the day next succeeding such Normal Dividend Payment Date
is not a Business Day, then dividends shall be payable on the first Business
Day following such Normal Dividend Payment Date that is next succeeded by a
Business Day; or
(B) (I) The Securities Depository shall make available to its members
and participants the amounts due as dividends on the shares of such Series
in immediately available funds on the dates on which such dividends are
payable (and the Securities Depository shall have so advised the Auction
Agent) and (II) a Normal Dividend Payment Date for such Series is not a
Business Day, then dividends shall be payable on the first Business Day
following such Normal Dividend Payment Date.
(v) Notwithstanding the foregoing, if the date on which dividends on
the shares of any Series would be payable as determined as set forth in clause
(ii), (iii) or (iv) above is a day that would result in the number of days
between successive Auction Dates for such Series (determined by excluding the
first Auction Date and including the second Auction Date) not being at least
equal to the then-current minimum holding period (currently set forth in Section
246(c) of the Code) (the "Minimum Holding Period") required for
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<PAGE>
corporate taxpayers generally to be entitled to the dividends-received deduction
for corporate income tax purposes in respect of dividends (other than
extraordinary dividends) paid on preferred stock held by nonaffiliated
corporations (currently set forth in Section 243(a) of the Code) (the
"Dividends-Received Deduction" or "DRD"), then dividends on such shares shall be
payable, if either clause (iii)(A) or (iv)(A) above would be applicable to such
Series, on the first Business Day following such date on which dividends would
be so payable that is next succeeded by a Business Day that results in the
number of days between such successive Auction Dates for such Series (determined
as set forth above) being at least equal to the then-current Minimum Holding
Period. In addition, notwithstanding the foregoing, in the event of a change in
law altering the Minimum Holding Period, the period of time between Dividend
Payment Dates for each Series shall automatically be adjusted so that there
shall be a uniform number of days (such number of days without giving effect to
the provisions in Sections 3(b)(iii) and (iv) being hereinafter referred to as
"Dividend Period Days") in Dividend Periods for each Series commencing after the
date of such change in law equal to or, to the extent necessary, in excess of
the then-current Minimum Holding Period, provided that the number of Dividend
--------
Period Days shall not exceed by more than nine days the length of such
then-current Minimum Holding Period and shall be evenly divisible by seven, and
the maximum number of Dividend Period Days in no event shall exceed 119 days.
Upon any such change in the number of Dividend Period Days as a result of a
change in law, the Corporation shall mail notice of such change by first-class
mail, postage prepaid, to the Auction Agent and the Paying Agent.
(vi) Each date on which dividends on the shares of a Series shall be
payable as determined as set forth above is referred to herein as a "Dividend
Payment Date" for such Series. If applicable, the period from the preceding
Dividend Payment Date to the next Dividend Payment Date for any Series with a
Long Dividend Period is herein referred to as a "Dividend Quarter." Although
any particular Dividend Payment Date for a Series may not occur on the
originally scheduled Normal Dividend Payment Date for such Series because of the
foregoing provisions, each succeeding Dividend Payment Date for such Series
shall be, subject to such provisions, the date determined as set forth in clause
(ii) above as if each preceding Dividend Payment Date had occurred on the
respective originally scheduled Normal Dividend Payment Date.
(vii) The Initial Dividend Payment Dates for the Initial Dividend
Periods for Series A Auction Preferred shall be February 11, 1992, for Series B
Auction Preferred shall be February 18, 1992, for Series C Auction Preferred
shall be February 25, 1992 and for Series D Auction Preferred shall be
-14-
<PAGE>
March 3, 1992. The initial Dividend Periods for Series A Auction Preferred,
Series B Auction Preferred, Series C Auction Preferred and Series D Auction
Preferred shall be 54 days, 61 days, 68 days, and 75 days (subject to adjustment
as provided above), respectively. After the Initial Dividend Period for each
Series, each subsequent Dividend Period for such Series (except for the
adjustments for non-Business Days provided in clauses (iii) and (iv) above)
shall be 49 days (each such 49-day period, subject to any adjustment as a result
of a change in law lengthening the Minimum Holding Period as provided in clause
(v) above, being referred to herein as a "Standard Dividend Period"), unless as
provided in clause (viii) below, the Corporation specifies that any such
subsequent Dividend Period for a particular Series shall be a Dividend Period of
(A) 50 to 364 days and consisting of a whole number of weeks (a "Short Dividend
Period") or (B) any period with a maturity, if any, equal to or in excess of one
year (a "Long Dividend Period") (each such Standard Dividend Period, Short
Dividend Period and Long Dividend Period (together with the periods commencing
on the Date of Original Issue and ending on the respective Initial Dividend
Payment Dates for each Series) being referred to herein as a "Dividend Period").
After the Initial Dividend Period for a Series, each successive Dividend Period
for such series shall commence on the Dividend Payment Date for the preceding
Dividend Period for such Series and shall end (A) in the case of any Series with
a Standard Dividend Period, on the day next preceding the next Dividend Payment
Date for such Series and (B) in the case of any Series with a Short Dividend
Period or a Long Dividend Period, on the last day of the Short Dividend Period
or Long Dividend Period, as the case may be, specified by the Corporation in the
related notice of Short Dividend Period or Long Dividend Period, as the case may
be.
(viii) After the termination of the Support Agreement in accordance with
its terms, the Corporation may give telephonic and written notice, not less than
10 and not more than 30 days prior to an Auction Date for any Series and based
on the criteria set forth below, to the Auction Agent, the Paying Agent and the
Securities Depository that the next succeeding Dividend Period for such Series
will be a Short Dividend Period (a "Notice of Short Dividend Period") or a Long
Dividend Period (a "Notice of Long Dividend Period") (a Notice of Short Dividend
Period and a Notice of Long Dividend Period are herein collectively referred to
as a "Notice"). Each such Notice shall be in substantially the form of Exhibit
D to the Auction Agreement and shall specify the following terms, which shall be
established by the Board of Directors, (A) the next succeeding Dividend Period
for such Series as a Short Dividend Period or a Long Dividend Period, as the
case may be, (B) the term thereof, (C) in the case of any Long Dividend Period,
the number of shares of such Series which will constitute a Unit (if less
-15-
<PAGE>
than 100) and any additional redemption provisions or restrictions on
redemption, if any, and (D) the Dividend Payment Dates; provided that for any
--------
Auction occurring after the initial Auction, the Corporation may not give a
Notice for any Series (and any such Notice shall be null and void) unless
Sufficient Clearing Bids were made in the last occurring Auction for any Series
and full cumulative dividends for all Series payable prior to such date have
been paid in full. The Corporation may establish a Short Dividend Period or a
Long Dividend Period, as the case may be, for the shares of a Series of Auction
Preferred, if the Board of Directors determines that such Dividend Period and,
in the case of a Long Dividend Period, such additional redemption provisions as
it may establish pursuant to Section 6(a), provide the Corporation with the most
favorable financing alternative based upon the following: (A) short-term and
long-term market rates and indices of such short-term and long-term rates, (B)
the amounts, maturities, redemption terms and interest or dividend rates on the
then-outstanding securities of the Corporation or its subsidiaries, (C) market
supply and demand for short-term and long-term securities, (D) yield curves for
short-term and long-term securities comparable to such Series of Auction
Preferred, (E) industry and financial conditions which may affect such Series of
Auction Preferred including the Corporation's expectations with respect thereto,
(F) then-current tax laws and administrative interpretations with respect
thereto, (G) the number of Units of such Series of Auction Preferred Outstanding
on the next Auction Date, (H) the number of potential purchasers and (I) the
Corporation's current and projected funding requirements based on its asset and
liability position, tax position and current financing objectives. Any Notice
may be revoked by the Corporation on or prior to 10:00 a.m. on the day of the
related Auction and shall be revoked by telephonic and written notice (a "Notice
of Revocation") of such revocation, in substantially the form of Exhibit E to
the Auction Agreement, to the Auction Agent, the Paying Agent and the Securities
Depository, specifying that the Board of Directors has determined that because
of subsequent changes in any of the foregoing factors, such Short Dividend
Period or Long Dividend Period would not result in the most favorable financing
alternative for the Corporation. Except with respect to a Notice that is
revoked, any Short Dividend Period or Long Dividend Period, as the case may be,
specified by the Board of Directors for each Series of Auction Preferred and any
revocation thereof shall be conclusive and binding on the Corporation and the
Holders.
If the Corporation does not give a Notice with respect to the next
succeeding Dividend Period for any Series of Auction Preferred or has given a
Notice but has also delivered a Notice of Revocation with respect thereto, such
next succeeding Dividend Period shall be a Standard Dividend Period.
-16-
<PAGE>
In addition, in the event the Corporation has given a Notice with respect to the
next succeeding Dividend Period for any Series of Auction Preferred and has not
given a Notice of Revocation with respect thereto, but Sufficient Clearing Bids
are not made in the related Auction for such Series or such Auction is not held
for any reason, such next succeeding Dividend Period shall, notwithstanding such
Notice, be a Standard Dividend Period and the Corporation may not again give a
Notice (and any such Notice shall be null and void) for any Series until
Sufficient Clearing Bids have been made in an Auction with respect to a Standard
Dividend Period for any Series.
(ix) Not later than noon on the Business Day immediately preceding each
Dividend Payment Date with respect to which dividends on any shares of Auction
Preferred have been declared, the Corporation shall irrevocably deposit with the
Paying Agent sufficient next-day funds for the payment of such dividends and
shall give the Paying Agent irrevocable instructions to apply such funds and, if
applicable, the income and proceeds therefrom, to the payment of such dividends.
(x) Each dividend on the shares of any Series declared by the Board of
Directors shall be paid to Holders of such shares as such Holders' names appear
on the Stock Books on the related record date, which shall be the opening of
business on the Business Day immediately preceding the Dividend Payment Date for
such dividend. Subject to Section 3(d)(i) below, dividends on the shares of any
Series of Auction Preferred in arrears for any past Dividend Period (and for any
past Dividend Quarter during a Long Dividend Period) may be declared by the
Board of Directors and paid on any date fixed by the Board of Directors, on a
regular Dividend Payment Date or otherwise, to Holders of such shares as such
Holders' names appear on the Stock Books on the related record date fixed by the
Board of Directors, which shall be not more than 15 (fifteen) days before the
date fixed for the payment of such dividends.
(c) (i) (A) The dividend rate for the Initial Dividend Period for
Series A Auction Preferred shall be 4.30% per annum, for Series B Auction
Preferred shall be 4.30% per annum, for Series C Auction Preferred shall be
4.30% per annum and for Series D Auction Preferred shall be 4.30% per annum, and
the dividend rate on the shares of each Series for each subsequent Dividend
Period shall be the rate per annum determined for such Series pursuant to the
Auction Procedures; provided, however, that in the event that an Auction for any
-------- -------
Dividend Period for any Series is not held for any reason (other than as a
result of the existence of a Failure to Deposit on the Auction Date for such
Dividend Period), the dividend rate on the shares of such Series for such
Dividend
-17-
<PAGE>
Period shall be the Non-Auction Rate on the Auction Date with respect to such
Dividend Period. The "Non-Auction Rate" for any Series on an Auction Date for
such Series shall be the Maximum Applicable Rate for a Standard Dividend Period
in effect on such Auction Date. The dividend rate on the shares of any Series
for any Dividend Period or part thereof determined as set forth in this Section
3(c) is referred to herein as the "Applicable Rate" for such Series for such
Dividend Period or part thereof.
(B) In the event a Failure to Deposit occurs prior to the beginning of
a Dividend Period and is not cured in accordance with the next succeeding
sentence within three Business Days after the occurrence of such Failure to
Deposit, Auctions for such Series will be suspended, until such time as set
forth below, and the Applicable Rate for shares of such Series for each Dividend
Period (until Auctions are resumed) commencing after such Failure to Deposit
shall be equal to the Default Rate of such Dividend Period and each such
Dividend Period shall be a Standard Dividend Period. Any such Failure to
Deposit with respect to the shares of any Series shall be deemed to be cured if,
with respect to a Failure to Deposit relating to the (I) payment of dividends on
such Series, the Corporation deposits with the Auction Agent by 12:00 noon, New
York City time, all accumulated and unpaid dividends on such Series, including
the full amount of any dividends to be paid with respect to the Dividend Period
with respect to which the Failure to Deposit occurred, plus an amount computed
by multiplying the Default Rate by a fraction, the numerator of which shall be
the number of days for which such Failure to Deposit is not cured in accordance
with this subsection (B) (including the day such Failure to Deposit occurs and
excluding the day such Failure to Deposit is cured) and the denominator of which
shall be 360, and applying the rate obtained against the aggregate liquidation
preference of the shares then Outstanding in such Series and (II) the redemption
of shares of any Series, the deposit by the Corporation with the Auction Agent
of funds sufficient to pay the redemption price (including accumulated and
unpaid dividends) of such shares plus an amount computed by multiplying the
Default Rate, by a fraction, the numerator of which shall be the number of days
for which such Failure to Deposit is not cured in accordance with this
subsection (B) (including the day such Failure to Deposit occurs and excluding
the day such Failure to Deposit is cured) and the denominator of which shall be
360, and applying the rate obtained against the aggregate liquidation preference
of the shares in such Series to be redeemed, and the giving of irrevocable
instructions by the Corporation to apply such funds and, if applicable, the
income and proceeds therefrom, to the payment of the redemption price (including
accumulated and unpaid dividends) for such shares.
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<PAGE>
(C) If prior to an Auction Date for shares of such Series, full and
cumulative dividends and the full amount of any redemption price (including
accumulated and unpaid dividends) and dividends accrued at the Default Rate as
provided in subsection 3(c)(i)(B) above shall have been paid in full or funds
sufficient for the payment thereof shall have been irrevocably deposited with
the Paying Agent, Auctions for such Series will resume.
(ii) The amount of dividends per share of any Series of the Auction
Preferred payable for each Dividend Period (or for each Dividend Quarter during
any Long-Term Dividend Period) for any such Series shall be computed by
multiplying the Applicable Rate for each Dividend Period (or Dividend Quarter)
by a fraction the numerator of which shall be the number of days in the Dividend
Period (or Dividend Quarter) (calculated by counting both the last day and first
day thereof) such share was Outstanding and the denominator of which shall be
360 and multiplying the amount so obtained by $1,000.
(iii) The Corporation may from time to time give telephonic and written
notice, not later than 10:00 a.m. on the related Auction Date and based on the
criteria set forth below, to the Auction Agent and the Securities Depository of
an increase in the percentage used to calculate the Maximum Applicable Rate for
any Series of Auction Preferred (a "Notice of Percentage Increase"). Such
Notice of Percentage Increase shall specify the new percentages to be used to
calculate the Maximum Applicable Rate and shall be in substantially the form of
Exhibit G to the Auction Agreement. The Corporation may establish an increase
in such percentages if the Board of Directors determines that such increase is
necessary based upon the following: (A) short-term and long-term market rates
and indices of short-term and long-term rates, (B) the amounts, maturities,
redemption terms and interest or dividend rates on the then-outstanding
securities of the Corporation or its subsidiaries, (C) market supply and demand
for short-term and long-term securities and market conditions generally, (D)
yield curves for short-term and long-term securities comparable to such Series
of Auction Preferred, (E) industry and financial conditions which may affect
such Series of Auction Preferred including the Corporation's expectations with
respect thereto, (F) the number of Units of such Series of Auction Preferred
Outstanding on the next Auction Date, (G) the number of potential purchasers and
(H) the Corporation's current and projected funding requirements based on its
asset and liability position, tax position and current financing objectives and
the current financial condition of the Corporation. The Corporation may not
revoke a Notice of Percentage Increase and the percentages specified therein
will be the applicable percentages for the determination of the Maximum
Applicable Rate with respect to such Series for subsequent Dividend
-19-
<PAGE>
Periods until a new Notice of Percentage Increase shall be delivered in
accordance with the terms hereof.
Except as described below, the Corporation may not increase the
percentage used to calculate the Maximum Applicable Rate to above the
percentages set forth in the third column of the table below corresponding to
the applicable credit ratings set forth in the first two columns of the table
below.
<TABLE>
<CAPTION>
Maximum Percentage
Credit Rating Permitted to be
- --------------------------------- Used to Calculate
Standard & Maximum Applicable
Moody's Poor's Rate
- ------- ------------ --------------------
<S> <C> <C>
"aa3" or Above AA- or Above 175%
"a3" to "a1" A- to A+ 200%
"baa3" to "baa1" BBB- to BBB+ 225%
Below "baa3" Below BBB- 275%
</TABLE>
The maximum percentages set forth in the third column of the above table
may be increased by the Corporation upon receipt of an opinion of counsel to the
Corporation that the use of such higher percentages to calculate the Maximum
Applicable Rate will not adversely affect the tax treatment of the Auction
Preferred.
(d) (i) Except as hereinafter provided, no dividends shall be
declared or paid or set apart for payment on the shares of any Series for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid on each of the other Series through the most recent applicable
Dividend Payment Date for such other Series. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on the shares of Auction Preferred which may be in arrears.
(ii) So long as any shares of Auction Preferred are outstanding, the
Corporation shall not declare, pay or set aside for payment any dividend or
other distribution in respect of its Junior Capital Stock, or call for
redemption, redeem, purchase or otherwise acquire for consideration any shares
of its Junior Capital Stock unless (A) full cumulative dividends on all shares
of the Auction Preferred for all past Dividend Periods and all Dividend Payment
Dates occurring on or prior to the date of the transaction (and for all past
Dividend Quarters) for each Series shall have been declared and paid (or
declared and a sum sufficient for the payment of the dividends set apart for
payment) and (B) the Corporation has redeemed the full number of Shares required
to be redeemed as a result of
-20-
<PAGE>
any Mandatory Redemption or after giving any notice of an Optional Redemption.
(iii) Any dividend payment made on any Series of Auction Preferred shall
first be credited against the dividends accumulated with respect to the earliest
Dividend Period (or, if applicable, the earliest Dividend Quarter) for which
dividends have not been paid with respect to such Series.
(iv) The Corporation may not purchase or otherwise acquire any shares
of Auction Preferred during any period when dividend payments on the shares of
any Series are in arrears.
4. Liquidation Rights. (a) Upon the liquidation, dissolution or
------------------
winding up of the affairs of the Corporation, whether voluntary or involuntary,
Holders shall be entitled to receive, out of assets of the Corporation available
for distribution to shareholders after satisfying claims of creditors but before
any payment or distribution on the Common Stock or on any other class of stock
ranking junior to the shares of Auction Preferred upon liquidation, a
liquidation distribution in the amount of $1,000 per share plus an amount equal
to accumulated and unpaid dividends on each such share (whether or not declared)
to and including the date of final distribution. Unless and until payment in
full has been made to Holders of the liquidation distributions to which they are
entitled as provided in this Section 4, no dividends or distributions shall be
made to holders of the Common Stock or any other stock ranking junior to the
shares of Auction Preferred on liquidation, no payment or delivery or commitment
to make payment or delivery of any money or assets to any Affiliate shall be
made and no purchase, redemption or other acquisition for any consideration by
the Corporation shall be made in respect of the Common Stock or any other stock
ranking junior to the shares of Auction Preferred upon liquidation. After the
payment to Holders of the full amount of the liquidation distributions to which
they are entitled pursuant to the preceding sentence, Holders (in their capacity
as such Holders) shall have no right or claim to any of the remaining assets of
the Corporation.
(b) Neither the sale, lease or exchange (for cash, stock, securities or
other consideration) of all or substantially all of the property and assets of
the Corporation, nor the merger or consolidation of the Corporation with or into
any other corporation, nor the merger or consolidation of any other corporation
with or into the Corporation, shall be deemed to be a dissolution, liquidation
or winding up, voluntary or involuntary, for the purposes of this Section 4.
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<PAGE>
(c) If the assets of the Corporation available for distribution to the
Holders upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay the full amount
of the liquidation distributions to which the Holders are entitled pursuant to
Section 4(a) above, then such assets shall be distributed among the Holders
ratably in proportion to the full amount of distributions to which each Holder
would have been entitled under such Section 4(a).
5. Voting Rights. (a) General. Holders of the Auction Preferred will
------------- -------
have no voting rights except as hereinafter described.
(b) Right to Elect two Additional Members of the Board of Directors.
---------------------------------------------------------------
(i) During any period when dividends on the Shares of Auction Preferred or any
other Parity Capital Stock of the Corporation which have voting rights
comparable to the Auction Preferred which are then exercisable (the Auction
Preferred and all such other shares being referred to as the "Parity
Securities") shall be in arrears for at least 180 consecutive days and shall not
have been paid in full (a "Default Period") the authorized number of members of
the Board of Directors shall automatically be increased by two and the holders
of record of the Parity Securities voting as described below will be entitled to
fill the vacancies so created by electing two additional directors of the
Company. The directors so elected (the "Additional Directors") will have only
the normal powers of members of the Board of Directors except that the
Additional Directors will comprise the majority of the members of a special
committee of the Board of Directors consisting of three directors that shall be
empowered during any Default Period, except as provided below, to declare and
cause to be paid, out of funds available therefor (determined in accordance with
the provisions of Section 3(a)), accumulated and unpaid dividends on the Parity
Securities.
(ii) As soon as practicable after the beginning of a Default Period,
the Board of Directors will call or cause to be called a special meeting of the
holders of Parity Securities by mailing or causing to be mailed to such holders
a notice of such special meeting to be held not less than 10 and not more than
45 days after the date such notice is given. If the Board of Directors does not
call or cause to be called such a special meeting, it may be called by any of
such holders on like notice. The record date for determining holders of the
Parity Securities entitled to notice of and to vote at such special meeting will
be the close of business on the Business Day preceding the day on which such
notice is mailed. At any such special meeting, such holders, by plurality vote,
voting together as a single class without regard to series (to the exclusion of
the holders of Junior Capital Stock) will be
-22
<PAGE>
entitled to elect two directors on the basis of one vote per $1,000 liquidation
preference (excluding amounts in respect of accumulated and unpaid dividends)
and not cumulatively. The holder or holders of one-third of the Parity
Securities then outstanding present in person or by proxy, will constitute a
quorum for the election of the Additional Directors except as otherwise provided
by law. Notice of all meetings at which Holders of the Shares of Auction
Preferred shall be entitled to vote will be given to such Holders at their
addresses as they appear in the Stock Books. At any such meeting or adjournment
thereof in the absence of a quorum, subject to the provisions of any applicable
law, a majority of the holders of the Parity Securities present in person or by
proxy shall have the power to adjourn the meeting for the election of the two
directors, without notice, other than an announcement at the meeting, until a
quorum is present. If a Default Period shall terminate after the notice of a
special meeting has been given but before such special meeting has been held,
the Corporation shall, as soon as practicable after such termination, mail or
cause to be mailed notice of such termination to Holders of the Parity
Securities that would have been entitled to vote at such special meeting.
(iii) The term of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of Parity Securities to
elect directors shall continue, notwithstanding the election of the Additional
Directors at such meeting by such holders. The Additional Directors, together
with the incumbent directors elected by holders of the Corporation's Common
Stock or other shares of the Corporation that are entitled to vote generally for
the election of directors shall constitute the duly elected directors of the
Corporation.
(iv) So long as a Default Period continues, (A) any vacancy in the
office of an Additional Director may be filled (except as provided in the
following clause (B)) by the person appointed in an instrument in writing signed
by the remaining Additional Director and filed with the secretary of the
Corporation or, in the event there is no remaining Additional Director, by the
vote of the holders of the outstanding Parity Securities, voting together as a
single class without regard to series, in a meeting of shareholders or at a
meeting of holders of Parity Securities called for such purpose, and (B) in the
case of the removal of any Additional Director, the vacancy may be filled by the
person elected by the vote of the holders of the outstanding Parity Securities,
voting together as a single class without regard to series, at the same meeting
at which such removal shall be voted upon or any subsequent meeting. Each
director who shall be elected or appointed by the remaining Additional Director
as aforesaid shall be an Additional Director.
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<PAGE>
(v) At such time as a Default Period shall terminate, (A) the term of
office of the Additional Directors shall terminate, (B) the voting rights of the
holders of the Parity Securities to elect directors shall cease (subject to the
recurrence of a subsequent Default Period) and (C) the number of members of the
Board of Directors shall be such as may be provided for by or pursuant to the
Corporation's Bylaws irrespective of any increase made as provided herein.
(c) Right to Vote in Certain Events. (i) So long as any shares of
-------------------------------
Auction Preferred remain Outstanding, the Corporation shall not, without the
consent of the holders of at least two-thirds of the then-Outstanding shares of
Auction Preferred, given in person or by proxy, either in writing or at a
meeting (voting separately as a single class), (A) authorize, create or issue,
or increase the authorized amount of, any shares of the Corporation of any class
ranking, as to dividends or upon the liquidation, dissolution or winding up of
the Corporation, prior to shares of Auction Preferred, or reclassify any
authorized shares of the Corporation into any such shares, or authorize, create
or issue any obligation or security convertible into or evidencing the right to
purchase any such shares, or (B) amend, alter or repeal the provisions of the
Articles of Incorporation of the Corporation including this Part B, whether by
merger, consolidation, share exchange, division or otherwise, so as to adversely
affect any preference, limitation or special right of the Auction Preferred;
provided, however, that the authorization, creation, issuance or increase in the
- -------- -------
authorized amount of the Common Stock, Auction Preferred of additional series or
any shares of the Corporation of any class ranking, as to dividends and upon the
liquidation, dissolution or winding up of the Corporation, on a parity with or
junior to the Auction Preferred shall not be deemed to adversely affect such
preferences, limitations or special rights; and provided further that upon any
-------- -------
merger, consolidation, share exchange or division of the Corporation (or any
successor corporation) with or into another corporation, the Auction Preferred
that may be outstanding from time to time may be junior to any preferred shares
of such other corporation as to dividends and upon the liquidation, dissolution
or winding up of the surviving corporation, provided that on or prior to the
--------
date of effectiveness of such merger or consolidation, the Corporation shall
have given Moody's and S&P written notice of such merger or consolidation and
Moody's and S&P shall have confirmed in writing that the transaction will not
adversely affect the then-existing rating for the Auction Preferred.
(ii) If either Moody's or S&P shall change its rating categories for
preferred stock, then the determination of whether the requirements of the final
proviso in the preceding paragraph have been satisfied shall be made based upon
the
-24-
<PAGE>
substantially equivalent new rating categories for preferred stock of such
rating agency. If either Moody's or S&P, or both, shall not make a rating
available for the shares of Auction Preferred necessary to make such a
determination or neither Moody's nor S&P shall make such a rating available,
such determination will be made based upon the substantial equivalent of either
or both of such ratings by a Substitute Rating Agency or two Substitute Rating
Agencies or, in the event that only one such rating shall be available, based
upon such available rating. If an alternative nationally recognized securities
rating agency or agencies is not available, then for the purposes of such
determination, the rating for the shares of Auction Preferred shall be deemed to
be the highest relevant rating last published by Moody's, S&P or any such
Substitute Rating Agency.
6. Redemption of the Auction Preferred. (a) Optional Redemption. At
----------------------------------- -------------------
the option of the Corporation, the Units of each Series of Auction Preferred may
be redeemed (an "Optional Redemption"), as a whole or from time to time in part,
out of funds legally available therefor under 15 Pa.C.S. (S) 1551 or any
corresponding superseding provision of law, on the Business Day immediately
preceding any Dividend Payment Date for the shares of such Series of Auction
Preferred, upon at least 10 but not more than 45 days' notice pursuant to a
Notice of Redemption, at a redemption price per share equal to the sum of $1,000
plus an amount equal to accumulated and unpaid dividends thereon (whether or not
earned or declared) to the date that the Corporation pays the full amount
payable upon redemption of such Units; provided that such Redemption Date shall
be the Dividend Payment Date for such Units if the payment on the Business Day
immediately preceding such date would reduce the holding period for such Units
since the Auction Date preceding such payment below the Minimum Holding Period.
In connection with the establishment of a Long Dividend Period, the Corporation
may establish, in accordance with Section 3(b)(viii), a redemption price per
share of the Series subject to such Long Dividend Period in excess of the price
per share referred to in the preceding sentence and may fix a period of time
during which the shares of such Series may not be redeemed at the option of the
Corporation. Pursuant to such right of Optional Redemption, the Corporation may
elect to redeem some or all of the Units of any Series of Auction Preferred
without redeeming Units of any other Series.
(b) Mandatory Redemption. The Corporation shall redeem (a "Mandatory
--------------------
Redemption") all Outstanding Auction Preferred, to the extent of funds legally
available therefor under 15 Pa.C.S. (S) 1551 or any corresponding superseding
provision of law, if (i) the Articles of Incorporation shall not have been
amended to permit the rate and other terms of dividends on the Auction Preferred
to be determined in the
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<PAGE>
manner provided in this Part B on or prior to February 3, 1992 (the "Charter
Default"); or (ii) RP shall at any time fail to comply with the terms of, or
fulfill its obligations under, paragraph 1 or paragraph 2(c) of the Support
Agreement (a "Major Support Agreement Default"); or (iii) (A) RP shall at any
time fail to comply with the terms of, or fulfill its obligations under, the
Support Agreement (except for paragraph 1 or 2(c) thereof) or the Company shall
at any time fail to comply with the terms of, or fulfill its obligations under,
paragraph 2(d) of the Support Agreement (a "Support Agreement Default"), and (B)
(I) either Moody's or S&P shall have lowered its credit rating then assigned to
the shares of Auction Preferred of any Series (and shall not have subsequently
increased such rating to such previously assigned rating or higher) and Moody's
or S&P, as the case may be, shall have issued a written statement stating that
it lowered such rating as a result, in whole or in part, of such Support
Agreement Default and (II) such rating shall have been lowered and such
statement shall have been issued within 60 calendar days of Moody's and S&P
receiving notice of the occurrence of such Support Agreement Default ((I) and
(II) together shall be referred to herein as a "Downgrade"). Any such Mandatory
Redemption shall be made (x) in the case of a Charter Default, with respect to
each Series of Auction Preferred, on the Business Day immediately prior to the
initial Dividend Payment Date of such Series, and (y) in the case of a Major
Support Agreement Default or Downgrade, within 30 days of such Major Support
Agreement Default or Downgrade, as the case may be, and (z) in any case, upon at
least 10 days' (except, in the case of a Mandatory Redemption required because
of a Charter Default, upon at least 5 days') but not more than 20 days' notice
pursuant to a Notice of Redemption, at a redemption price per share equal to the
sum of $1,000 and an amount equal to accumulated and unpaid dividends thereon
(whether or not earned or declared) to the date that the Corporation pays the
full amount payable upon redemption of such Units.
(c) Notwithstanding the foregoing Section 6(a) and 6(b), if any
dividends on shares of any Series of Auction Preferred are in arrears, no Units
of such Series of Auction Preferred nor any other Series of Auction Preferred
shall be redeemed unless all outstanding Units of each Series of Auction
Preferred are simultaneously redeemed and the Corporation shall not purchase or
otherwise acquire any shares of Auction Preferred; provided, however, that the
-------- -------
foregoing shall not prevent the purchase or acquisition of shares of each Series
of Auction Preferred pursuant to an otherwise lawful purchase or exchange offer
made on the same terms to holders of outstanding shares of each Series of
Auction Preferred.
(d) Redemption Procedures. (i) If any Units of Auction Preferred are
---------------------
to be redeemed, the Auction Agent will,
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<PAGE>
at the direction of the Corporation, cause to be sent, by first-class or air
mail, postage prepaid, telex or facsimile, a notice (the "Notice of Redemption")
to each Holder and Existing Holder of Auction Preferred to be redeemed. Such
Notice of Redemption shall be sent not fewer than 10 (or 5 in the case of a
Mandatory Redemption required because of the occurrence of a Charter Default)
nor more than 45 days (or 20 days in the case of a Mandatory Redemption) prior
to the Redemption Date. Each Notice of Redemption will state (A) the Redemption
Date, (B) the redemption price for each Unit of each Series and (C) the number
of Units of Auction Preferred and the Series thereof to be redeemed. Each
Notice of Redemption shall also be published, concurrently with the delivery
thereof, in The Wall Street Journal.
-----------------------
(ii) No defect in the Notice of Redemption or in the mailing thereof
will affect the validity of the redemption proceedings, except as required by
applicable law. A Notice of Redemption will be deemed given on the day that it
is mailed in accordance with the foregoing description.
(iii) In the case of an Optional Redemption, the Corporation may elect
to redeem some or all of the Units of each Series of Auction Preferred. So long
as the Securities Depository's nominee is the Holder of Auction Preferred, the
Auction Agent will give notice to the Securities Depository, and the Securities
Depository will determine the number of Units of each such Series to be redeemed
from the account of the Agent Member of each Existing Holder. An Agent Member
may determine to redeem Units from some Existing Holders (which may include an
Agent Member holding Units for its own account) without redeeming Units from the
accounts of other Existing Holders. Any such redemption will be made in
accordance with applicable securities laws and rules. If the Securities
Depository's nominee is not the holder of all the Auction Preferred of the
Series to be redeemed, the particular Units of the Series of Auction Preferred
to be redeemed shall be selected by the Corporation or the Auction Agent, as the
case may be, by lot or by such other method as such Person shall deem fair and
equitable.
(iv) Upon any Redemption Date (unless the Corporation fails to pay
amounts payable on such Redemption Date), all rights of the Holders of Auction
Preferred of the Series called for redemption will cease and terminate, except
the right of such Holders to receive the amounts payable in respect of such
redemption therefor, but without interest, and such Auction Preferred will be
deemed no longer outstanding.
7. Auction Agent. The Corporation shall use its best efforts to
-------------
maintain, pursuant to a written agreement (the "Auction Agreement"), an Auction
Agent with respect to the
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<PAGE>
Series A Auction Preferred, Series B Auction Preferred, Series C Auction
Preferred and Series D Auction Preferred to act in accordance with the
provisions set forth in this Part B with respect to each such Series.
8. Exclusive Remedy. In the event that dividends are not timely
----------------
declared on the shares of Auction Preferred, the exclusive remedy of Holders
against the Corporation shall be as set forth in this Part B and in no event
shall Holders of such shares have a specifically enforceable right to the
declaration of dividends.
9. Auction Procedures. (a) Certain Definitions. Capitalized terms
------------------ -------------------
not defined in this Section 9 shall have the respective meanings specified in
Sections 1 through 8 above of this Part B. As used in this Section 9, the
following terms shall have the following meanings, unless the context otherwise
requires:
(i) "Agent Member" means the member of the Securities Depository that
------------
will act on behalf of an Existing Holder or a Potential Holder and that is
identified as such in such Existing Holder's or Potential Holder's
Purchaser's Letter.
(ii) "Auction Preferred" means the Auction Preferred being auctioned
-----------------
pursuant to these Auction Procedures.
(iii) "Available Units of Auction Preferred" has the meaning set forth
------------------------------------
in subsection (d)(i) below.
(iv) "Bid" has the meaning set forth in subsection (b)(i) below.
---
(v) "Bidder" has the meaning set forth in subsection (b)(i) below.
------
(vi) "Broker-Dealer" means any broker-dealer, or other entity permitted
-------------
by law to perform the functions required of a Broker-Dealer in these Auction
Procedures, that has been selected by the Corporation and has entered into a
Broker-Dealer Agreement with the Auction Agent that remains effective.
(vii) "Broker-Dealer Agreement" means an agreement between the Auction
-----------------------
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to
follow the procedures specified in these Auction Procedures.
(viii) "Hold Order" has the meaning set forth in subsection (b)(i) below.
----------
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<PAGE>
(ix) "Order" has the meaning set forth in subsection (b)(i) below.
-----
(x) "Potential Holder" means any Person, including any Existing
----------------
Holder, (A) who shall have executed a Purchaser's Letter and (B) who may be
interested in acquiring Units of Auction Preferred (or, in the case of an
Existing Holder, additional Units of Auction Preferred).
(xi) "Sell Order" has the meaning set forth in subsection (b)(i) below.
----------
(xii) "Submission Deadline" means 1:00 p.m., New York City time, on any
-------------------
Auction Date or such other time on any Auction Date as may be specified from
time to time by the Auction Agent as the time prior to which each
Broker-Dealer must submit to the Auction Agent in writing all orders
obtained by it for the Auction to be conducted on such Auction Date.
(xiii) "Submitted Bid" has the meaning set forth in subsection (c)(i)
-------------
below.
(xiv) "Submitted Hold Order" has the meaning set forth in subsection
--------------------
(c)(i) below.
(xv) "Submitted Order" has the meaning set forth in subsection (c)(i)
---------------
below.
(xvi) "Submitted Sell Order" has the meaning set forth in subsection
--------------------
(c)(i) below.
(xvii) "Sufficient Clearing Bids" has the meaning set forth in subsection
------------------------
(d)(i) below.
(xviii) "Winning Bid Rate" has the meaning set forth in subsection (d)(i)
----------------
below.
(b) Orders by Existing Holders and Potential Holders.
------------------------------------------------
(i) Prior to the Submission Deadline on each Auction Date for any
Series of Auction Preferred:
(A) each Existing Holder may submit to a Broker-Dealer information as
to:
(1) the number of Outstanding Units of Auction Preferred, if
any, held by such Existing Holder that such Existing Holder
desires to continue to hold without regard to the Applicable Rate
for the next succeeding Dividend Period;
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<PAGE>
(2) the number of Outstanding Units of Auction Preferred, if
any, held by such Existing Holder that such Existing Holder
desires to sell, provided that the Applicable Rate for the next
succeeding Dividend Period is less than the rate per annum
specified by such Existing Holder; and/or
(3) the number of Outstanding Units of Auction Preferred, if
any, held by such Existing Holder that such Existing Holder
desires to sell without regard to the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Holders that shall
be maintained in accordance with the provisions set forth in the
Broker-Dealer Agreement for the purpose of conducting a
competitive Auction, shall contact both Existing Holders and
Potential Holders, including Existing Holders with respect to an
offer by any such Existing Holder to purchase additional Units of
Auction Preferred, on such list to notify such Existing Holders
and Potential Holders as to the length of the next Dividend Period
and (1) with respect to any Short Dividend Period or Long Dividend
Period, the Dividend Payment Date(s) and (2) with respect to any
Long Dividend Period, any dates before which Units of Auction
Preferred may not be redeemed and any redemption premium
applicable in an Optional Redemption and the number of Auction
Preferred of such Series comprising a Unit (if less than 100) and
to determine the number of Outstanding Units of Auction Preferred,
if any, with respect to which each such Existing Holder and each
such Potential Holder desires to submit offers to purchase,
provided that the Applicable Rate for the next succeeding Dividend
Period shall not be less than the rate per annum specified by such
Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (A) or (B) of this subsection (b)(i) is
hereinafter referred to as an "Order" and each Existing Holder and each
Potential Holder placing an Order is hereinafter referred to as a "Bidder"; an
Order containing the information referred to in clause (A)(1) of this subsection
(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this subsection (b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
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<PAGE>
referred to in clause (A)(3) of this subsection (b)(i) is hereinafter referred
to as a "Sell Order."
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding Units of Auction Preferred specified
in such Bid if the Applicable Rate determined on such Auction Date
shall be less than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding Units of Auction
Preferred to be determined as set forth in subsections (e)(i)(D) and
(e)(iii) if the Applicable Rate determined on such Auction Date shall
be equal to the rate per annum specified therein; or
(3) a lesser number of Outstanding Units of Auction Preferred to
be determined as set forth in subsections (e)(ii)(C) and (e)(iii) if
such specified rate per annum shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding Units of Auction Preferred
specified in such Sell Order; or
(2) such number or a lesser number of Outstanding Units of Auction
Preferred to be determined as set forth in subsections (e)(i)(C) and
(e)(iii) if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of Outstanding Units of Auction Preferred specified
in such Bid if the Applicable Rate determined on such Auction Date
shall be higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding Units of Auction
Preferred to be determined as set forth in subsections (e)(i)(E) and
(e)(iv) if the Applicable Rate determined on such Auction Date shall be
equal to the rate per annum specified therein.
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<PAGE>
(c) Submission of Orders by Broker-Dealers to Auction Agent.
-------------------------------------------------------
(i) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date for any Series of
Auction Preferred all Orders obtained by such Broker-Dealer, specifying with
respect to each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of Outstanding Units of Auction Preferred
that are the subject of such order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding Units of Auction Preferred, if
any, subject to any Hold Order placed by such Existing Holder;
(2) the number of Outstanding Units of Auction Preferred, if
any, subject to any Bid placed by such Existing Holder and the
rate per annum specified in such Bid; and
(3) the number of Outstanding Units of Auction Preferred, if
any, subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(Each "Hold Order," "Bid" or "Sell Order" as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to
individually as a "Submitted Hold Order," a "Submitted Bid" or a
"Submitted Sell Order," as the case may be, or as a "Submitted
Order.")
(ii) If any rate per annum specified in any Submitted Bid contains more
than three figures to the right of the decimal point, the Auction Agent
shall round such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If one or more Orders covering in the aggregate all of the
Outstanding Units of Auction Preferred held by an Existing Holder are not
submitted to the Auction Agent prior to the Submission Deadline for any
reason (including the failure of a Broker-Dealer to contact such Existing
-32-
<PAGE>
Holder or to submit such Existing Holder's Order or Orders), such Existing
Holder shall be deemed to have submitted a Hold Order covering the number of
Outstanding Units of Auction Preferred held by such Existing Holder that are
not subject to Orders submitted to the Auction Agent.
(iv) A Submitted Order or Submitted Orders of an Existing Holder that
cover in the aggregate more than the number of Outstanding Units of Auction
Preferred held by such Existing Holder will be considered valid in the
following order of priority:
(A) any Submitted Hold Order of such Existing Holder will be
considered valid up to and including the number of Outstanding
Units of Auction Preferred held by such Existing Holder, provided
that, if there is more than one such Submitted Hold Order and the
aggregate number of Auction Preferred subject to such Submitted
Hold Orders exceeds the number of Outstanding Units of Auction
Preferred held by such Existing Holder, the number of Units of
Auction Preferred subject to each of such Submitted Hold Orders
will be reduced pro rata so that such Submitted Hold Orders in the
aggregate will cover exactly the number of Outstanding Units of
Auction Preferred held by such Existing Holder;
(B) any Submitted Bids of such Existing Holder will be considered
valid (in the ascending order of their respective rates per annum
if there is more than one Submitted Bid of such Existing Holder)
for the number of Outstanding Units of Auction Preferred held by
such Existing Holder equal to the difference between (i) the
number of Outstanding Units of Auction Preferred held by such
Existing Holder and (ii) the number of Outstanding Units of
Auction Preferred subject to any Submitted Hold Order of such
Existing Holder referred to in clause (iv)(A) above (and, if more
than one Submitted Bid of such Existing Holder specifies the same
rate per annum and together they cover more than the remaining
number of Units of Auction Preferred that can be the subject of
valid Submitted Bids of such Existing Holder after application of
clause (iv)(A) above and of the foregoing portion of this clause
(iv)(B) to any Submitted Bid or Submitted Bids of such Existing
Holder specifying a lower rate or rates per annum, the number of
Units of Auction Preferred subject to each of such Submitted Bids
-33-
<PAGE>
specifying the same rate per annum will be reduced pro rata so
that such Submitted Bids, in the aggregate, cover exactly such
remaining number of Outstanding Units of Auction Preferred of such
Existing Holder); and
(C) any Submitted Sell Order of an Existing Holder will be considered
valid up to and including the excess of the number of Outstanding
Units of Auction Preferred held by such Existing Holder over the
sum of (a) the number of Units of Auction Preferred subject to
Submitted Hold Orders by such Existing Holder referred to in
clause (iv)(A) above and (b) the number of Units of Auction
Preferred subject to valid Submitted Bids by such Existing Holder
referred to in clause (iv)(B) above; provided that, if there is
--------
more than one Submitted Sell Order of such Existing Holder and the
number of Units of Auction Preferred subject to such Submitted
Sell orders is greater than such excess, the number of Units of
Auction Preferred subject to each of such Submitted Sell Orders
will be reduced pro rata so that such Submitted Sell Orders, in
the aggregate, will cover exactly the number of Units of Auction
Preferred equal to such excess.
The number of Outstanding Units of Auction Preferred, if any, subject to
Submitted Bids of such Existing Holder not valid under clause (iv)(B) above
shall be treated as the subject of a Submitted Bid by a Potential Holder at the
rate per annum specified in such Submitted Bids.
(v) If there is more than one Submitted Bid by any Potential Holder in
any Auction, each such Submitted Bid shall be considered a separate
Submitted Bid with respect to the rate per annum and number of Units of
Auction Preferred specified therein.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
---------------------------------------------------------------
Applicable Rate.
- ---------------
(i) Not earlier than the Submission Deadline on each Auction Date for
any Series of Auction Preferred, the Auction Agent shall assemble all Orders
submitted or deemed submitted to it by the Broker-Dealers and shall
determine:
(A) the excess of the total number of Outstanding Units of Auction
Preferred over the number of Units of Auction Preferred that are
the subject of Submitted Hold Orders (such excess being
-34-
<PAGE>
hereinafter referred to as the "Available Units of Auction
Preferred");
(B) from the Submitted Orders, whether the number of Outstanding Units
of Auction Preferred that are the subject of Submitted Bids by
Potential Holders specifying one or more rates per annum equal to
or lower than the Maximum Applicable Rate exceeds or is equal to
the sum of:
(1) the number of Outstanding Units of Auction Preferred that
are the subject of Submitted Bids by Existing Holders specifying
one or more rates per annum higher than the Maximum Applicable
Rate, and
(2) the number of Outstanding Units of Auction Preferred that
are subject to Submitted Sell Orders.
(if such excess or such equality exists (other than because the
number of Outstanding Units of Auction Preferred in clauses (1)
and (2) above are each zero because all of the Outstanding Units
of Auction Preferred are the subject of Submitted Hold Orders),
there shall exist "Sufficient Clearing Bids" and such Submitted
Bids by Potential Holders shall be hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the winning bid rate (the
"Winning Bid Rate"), which shall be the lowest rate per annum
specified in the Submitted Bids that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing
Holders specifying lower rates per annum were accepted, thus
entitling such Existing Holders to continue to hold the Units of
Auction Preferred that are the subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential
Holders specifying lower rates per annum were accepted, thus
entitling such Potential Holders to purchase the Units of Auction
Preferred that are the subject of such Submitted Bids,
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<PAGE>
would result in such Existing Holders described in subclause (C)(1) continuing
to hold an aggregate number of Outstanding Units of Auction Preferred that, when
added to the number of Outstanding Units of Auction Preferred to be purchased by
such Potential Holders described in subclause (C)(2), would equal or exceed the
number of Available Units of Auction Preferred.
(ii) In connection with any Auction and promptly after the Auction
Agent has made the determinations pursuant to subsection (d)(i), the Auction
Agent shall advise the Corporation of the Maximum Applicable Rate and, based
on such determinations, the Applicable Rate for the next succeeding Dividend
Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning
Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all
of the Outstanding Units of Auction Preferred are the subject of
Submitted Hold Orders), that the next succeeding Dividend Period
will be a Standard Dividend Period and the Applicable Rate for the
next succeeding Dividend Period shall be equal to the Maximum
Applicable Rate for a Standard Dividend Period determined on the
Business Day immediately preceding such Auction; or
(C) if all of the Outstanding Units of Auction Preferred are the
subject of Submitted Hold Orders, that the Applicable Rate for the
next succeeding Dividend Period shall be equal to 59% of the
Applicable "AA" Composite Commercial Paper Rate, in the case of
Auction Preferred with a Standard Dividend Period or a Short
Dividend Period of 183 days or less, 59% of the Applicable
Treasury Bill Rate in the case of Auction Preferred with a Short
Dividend Period of 184 to 364 days, or 59% of the Applicable
Treasury Note Rate, in the case of Auction Preferred with a Long
Dividend Period, in effect on the Auction Date.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
-------------------------------------------------------------
Orders and Allocation of Auction Preferred. Based on the determinations made
- ------------------------------------------
pursuant to subsection (d)(i), the Submitted Bids and Submitted Sell Orders
shall be accepted or rejected and the Auction Agent shall take such other action
as set forth below:
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<PAGE>
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of subsections (e)(iii) and (e)(iv), Submitted Bids and Submitted
Sell Orders shall be accepted or rejected in the following order of priority
and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying
any rate per annum that is higher than the Winning Bid Rate shall
be rejected, thus requiring each such Existing Holder to sell the
Outstanding Units of Auction Preferred that are the subject of
such Submitted Sell order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be
accepted, thus entitling each such Existing Holder to continue to
hold the Outstanding Units of Auction Preferred that are the
subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be
accepted, thus entitling each such Existing Holder to continue to
hold the Outstanding Units of Auction Preferred that are the
subject of such Submitted Bid, unless the number of Outstanding
Units of Auction Preferred subject to all such Submitted Bids
shall be greater than the number of Outstanding Units of Auction
Preferred ("Remaining Units of Auction Preferred") equal to the
excess of the Available Units of Auction Preferred over the number
of Outstanding Units of Auction Preferred subject to Submitted
Bids described in subsections (e)(i)(B) and (e)(i)(C), in which
event the Submitted Bids of each such Existing Holder shall be
rejected, and each such Existing Holder shall be required to sell
Outstanding Units of Auction Preferred, but only in an amount
equal to the difference between (1) the number of Outstanding
Units of Auction Preferred then held by such Existing Holder
subject to such Submitted Bid and (2) the number of Units of
Auction Preferred obtained
-37-
<PAGE>
by multiplying (x) the number of Remaining Units of Auction
Preferred by (y) a fraction, the numerator of which shall be the
number of Outstanding Units of Auction Preferred held by such
Existing Holder subject to such Submitted Bid and the denominator
of which shall be the aggregate number of Outstanding Units of
Auction Preferred subject to such Submitted Bids made by all such
Existing Holders that specified a rate per annum equal to the
Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be
accepted, but only in an amount equal to the number of Outstanding
Units of Auction Preferred obtained by multiplying (x) the
difference between the Available Units of Auction Preferred and
the number of Outstanding Units of Auction Preferred subject to
Submitted Bids described in subsections (e)(i)(B), (e)(i)(C) and
(e)(i)(D) by (y) a fraction, the numerator of which shall be the
number of Outstanding Units of Auction Preferred subject to such
Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding Units of Auction Preferred subject to such
Submitted Bids made by all such Potential Holders that specified
rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because
all of the Outstanding Units of Auction Preferred are subject to Submitted
Hold Orders), subject to the provisions of subsection (e)(iii), Submitted
Orders shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids of Potential Holders shall be
rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate per
annum that is equal to or lower than the Maximum Applicable Rate
shall be accepted, thus entitling such Existing Holder to continue
to hold the Outstanding Units of Auction Preferred that are the
subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate per
annum that is equal to or lower than the Maximum Applicable Rate
shall be accepted, thus requiring such Potential Holder to
purchase the Outstanding Units of Auction
-38-
<PAGE>
Preferred that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate per
annum that is higher than the Maximum Applicable Rate shall be
rejected, thus requiring each such Existing Holder to sell the
Outstanding Units of Auction Preferred that are the subject of
such Submitted Bid, and the Submitted Sell Orders of each Existing
Holder shall be accepted, in both cases only in an amount equal to
the difference between (1) the number of Outstanding Units of
Auction Preferred then held by such Existing Holder subject to
such Submitted Bid or Submitted Sell Order and (2) the number of
Units of Auction Preferred obtained by multiplying (x) the
difference between the Available Units of Auction Preferred and
the aggregate number of Outstanding Units of Auction Preferred
subject to Submitted Bids described in subsections (e)(ii)(A) and
(e)(ii)(B) by (y) a fraction, the numerator of which shall be the
number of Outstanding Units of Auction Preferred held by such
Existing Holder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which shall be the aggregate number
of Outstanding Units of Auction Preferred subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in subsection (e)(i)
or (e)(ii), any Existing Holder would be entitled or required to sell or any
Potential Holder would be entitled or required to purchase, a fraction of a
Unit of Auction Preferred on any Auction Date, the Auction Agent shall, in
such manner as in its sole discretion it shall determine, round up or down
the number of Units of Auction Preferred to be purchased or sold by any
Existing Holder or Potential Holder on such Auction Date so that only whole
Units of Auction Preferred will be entitled or required to be sold or
purchased.
(iv) If, as a result of the procedures described in subsection (e)(i),
any Potential Holder would be entitled or required to purchase less than a
whole Unit of Auction Preferred on any Auction Date, the Auction Agent
shall, in such manner as in its sole discretion it shall determine, allocate
Units of Auction Preferred for purchase among Potential Holders so that only
whole Units of Auction Preferred are purchased on such Auction Date by any
Potential Holder, even if such allocation results in one or
-39-
<PAGE>
more of such Potential Holders not purchasing any Units of Auction Preferred
on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate
number of Outstanding Units of Auction Preferred to be purchased and the
aggregate number of Outstanding Units of Auction Preferred to be sold by
such Potential Holders and Existing Holders and, to the extent that such
aggregate number of Outstanding Units of Auction Preferred to be purchased
and such aggregate number of Outstanding Units of Auction Preferred to be
sold differ, the Auction Agent shall determine to which other Broker-Dealer
or Broker-Dealers acting for one or more purchasers such Broker-Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers acting for one
or more sellers such Broker-Dealer shall receive, as the case may be,
Outstanding Units of Auction Preferred.
(f) Miscellaneous. The Board of Directors may designate, in
-------------
accordance with the terms of Section 3(b)(viii), that the Auction Preferred may
be sold in Units of less than 100 shares. An Existing Holder (A) may sell,
transfer or otherwise dispose of Units of Auction Preferred only pursuant to a
Bid or Sell Order in accordance with the procedures described in this Section 9
or to or through a Broker-Dealer or to a Person that has delivered a signed copy
of a Purchaser's Letter to a Broker-Dealer, provided that in the case of all
--------
transfers other than pursuant to Auctions such Existing Holder, its
Broker-Dealer or its Agent Member advises the Auction Agent of such transfer and
(B) unless otherwise required by law, shall have the beneficial ownership of the
Units of Auction Preferred held by it maintained in book-entry form by the
Securities Depository in the account of its Agent Member, which in turn shall
maintain records of such Existing Holder's beneficial ownership. The
Corporation and its Affiliates shall not submit any Order in any Auction except
as set forth in the next sentence. Any Broker-Dealer that is an affiliate of
the Corporation may submit Orders in Auctions but only if such Orders are not
for its own account, except that if such affiliated Broker-Dealer holds Units of
Auction Preferred for its own account, it must submit a Sell Order in the next
Auction with respect to such Units of Auction Preferred. All of the Outstanding
Units of Auction Preferred of each Series shall be represented by a single
certificate for each Series registered in the name of the nominee of the
Securities Depository unless otherwise required by law or unless there is no
Securities Depository. If there is no Securities Depository, Units of Auction
Preferred shall be registered in the Stock Books in the name of the Existing
Holder thereof and
-40-
<PAGE>
such Existing Holder thereupon will be entitled to receive a certificate
therefor and be required to deliver a certificate therefor upon transfer or
exchange thereof.
10. Additional Terms. (a) The amendment of the Articles of
----------------
Incorporation to permit the rate and other terms of dividends on the Auction
Preferred to be determined in the manner provided in this Part B shall not be
deemed to be an adverse change in the preferences, limitations or special rights
of the Auction Preferred or any Series thereof within the meaning of any
provision of law.
(b) The Board of Directors may interpret the provisions of this Part B
to resolve any inconsistency or ambiguity, remedy any formal defect or make any
other change or modification which does not adversely affect the rights of
Existing Holders of Auction Preferred.
(c) The headings of the various subdivisions of this Part B are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
DIVISION TWO -- COMMON SHARES
1. Dividends. The holders of Common Shares shall be entitled to
---------
receive such dividends as may be declared by the Board of Directors.
2. Liquidation of the Corporation. In the event of voluntary or
------------------------------
involuntary liquidation of the Corporation, the holders of Common Shares shall
be entitled to receive pro rata all of the remaining assets of the Corporation
available for distribution to its shareholders after all amounts to which the
holders of Preferred Shares are entitled have been paid or set aside in cash for
payment.
3. Voting Rights. Each holder of record of Common Shares shall have
-------------
the right to one vote for each Common Share standing in his name on the books of
the Corporation. No holder of Common Shares shall have cumulative voting
rights.
SIXTH: Section 1. Personal Liability of Directors. A director of the
-------------------------------
Corporation shall not be personally liable as such for monetary damages
(including, without limitation, any judgment, amount paid in settlement,
penalty, punitive damages or expense of any nature (including, without
limitation, attorneys' fees and disbursements)) for any action taken, or any
failure to take any action, unless the director has breached or failed to
perform the duties of his or her office under these Articles, the Bylaws of the
Corporation or applicable provisions of law and the breach or failure to
-41-
<PAGE>
perform constitutes self-dealing, willful misconduct or recklessness.
Section 2. Personal Liability of Officers. An officer of the
------------------------------
Corporation shall not be personally liable as such to the Corporation or its
shareholders for monetary damages (including, without limitation, any judgment,
amount paid in settlement, penalty, punitive damages or expense of any nature
(including, without limitation, attorneys' fees and disbursements)) for any
action, or any failure to take any action, unless the officer has breached or
failed to perform the duties of his or her office under these Articles, the
Bylaws of the Corporation or applicable provisions of law and the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
Section 3. Interpretation of Article. The provisions of Sections 1 and
-------------------------
2 of this Article Sixth shall not apply to the responsibility or liability of a
director or officer, as such, pursuant to any criminal statute or for the
payment of taxes pursuant to local, state or Federal law. The provisions of
this Article Sixth shall be deemed to be a contract with each director or
officer of the Corporation who serves as such at any time while this article is
in effect, and such provisions are cumulative of and shall be in addition to and
independent of any and all other limitations on the liabilities of directors or
officers of the Corporation, as such, or rights of indemnification by the
Corporation to which a director or officer of the Corporation may be entitled,
whether such limitations or rights arise under or are created by any statute,
rule of law, By-law, agreement, vote of shareholders or disinterested directors
or otherwise. Each person who serves as a director or officer of the
Corporation while this Article Sixth is in effect shall be deemed to be doing so
in reliance on the provisions of this Article. No amendment to or repeal of
this Article Sixth, nor the adoption of any provision of these Articles
inconsistent with this Article Sixth, shall apply to or have any effect on the
liability or alleged liability of any director or officer of the Corporation for
or with respect to any acts or omissions of such director or officer occurring
prior to such amendment, repeal or adoption of an inconsistent provision. In
any action, suit or proceeding involving the application of the provisions of
this Article Sixth, the party or parties challenging the right of a director or
officer to the benefits of this Article Sixth shall have the burden of proof.
SEVENTH: Subchapter 25E (relating to control transactions) of the
Pennsylvania Business Corporation Law of 1988, or any corresponding provisions
of succeeding law, shall not be applicable to the Corporation.
-42-
<PAGE>
EIGHTH: If and to the extent provided by the express terms of any
series of the Preferred Shares, the Board of Directors may, without the consent
of the holders of the outstanding shares of such series or of the holders of any
other shares of the Corporation (unless otherwise provided in the express terms
of any such other shares), interpret the provisions of such series to resolve
any inconsistency or ambiguity, remedy any formal defect or make any other
change or modification that does not adversely affect the rights of the existing
holders of such series.
-43-
<PAGE>
EXHIBIT 3(c)
Microfilm Number____________ Filed with the Department of State on __________
Entity Number_______________ __________________________________________
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 91)
In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The NAME of the corporation is: Rhone-Poulenc Rorer Inc.
--------------------------------------------
----------------------------------------------------------------------------
2. The (a) ADDRESS of this corporation's current registered office in this
Commonwealth or (b) NAME of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
(a) 500 Virginia Drive Fort Washington PA 19034 Montgomery
-----------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o: ___________________________________________________________________
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The STATUTE by or under which it was incorporated is: Act of May 5, 1933,
-----------------------
P.L. 364, as amended
----------------------------------------------------------------------------
4. The DATE of its incorporation is: July 1, 1968
-------------------------------------------
5. (CHECK, and if appropriate complete, one of the following):
[X] The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
[ ] The amendment shall be effective on: _________________________
Date
at ___________________
Hour
6. (CHECK one of the following):
[ ] The amendment was adopted by the shareholders (or members)
pursuant to 15 Pa.C.S. Section 1914(a) and (b).
[X] The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. Section 1914(c).
7. (CHECK, and if appropriate complete, one of the following):
[X] The amendment adopted by the corporation, set forth in full, is as
follows: RESOLVED, that the Articles of Incorporation of the Company be
and they are hereby amended by adding to Article FIFTH, DIVISION ONE a
new Part C to read in full as set forth in Exhibit A attached hereto
and made a part hereof.
[ ] The amendment adopted by the corporation is set forth in full in
Exhibit A and attached hereto and made a part hereof.
<PAGE>
DSCB:15-1915(Rev 91)-2
8. (CHECK if the amendment restates the Articles):
[ ] The restated Articles of Incorporation supercede the original Articles
and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by a duly authorized officer thereof this
16th day of July, 1993.
- ---- ---- --
RHONE-POULENC RORER INC.
_______________________________________
(Name of Corporation)___________
BY: /s/ John B. Bartlett
____________________________________
John B. Bartlett
TITLE: Senior Vice President
________________________________
General Counsel and Secretary
<PAGE>
Exhibit A
Part C - Designation and Statement of
the Voting Rights, Preferences,
Limitations and Special Rights of the
Flexible Money Market Preferred Stock,
Series 1 through 3.
1. Designation; Amount and Series. The three Series of Preferred
------------------------------
Shares authorized in this Part C are 1,750 shares designated as "Flexible Money
Market Preferred Stock" (referred to as the "Flex MMP") issuable in the
--------
following Series: 750 shares designated "Flexible Money Market Preferred Stock,
Series 1" (the "Series 1 Flex MMP"), 500 shares designated "Flexible Money
-----------------
Market Preferred Stock, Series 2" (the "Series 2 Flex MMP") and 500 shares
-----------------
designated "Flexible Money Market Preferred Stock, Series 3" (the "Series 3 Flex
-------------
MMP"). Each share of each separate Series of Flex MMP shall be identical and
- ---
equal in all respects to every other share of such Series, and the shares of all
of the Series shall, except as expressly provided in this Part C be identical
and equal in all respects. The shares of Flex MMP shall be represented by
Depositary Shares (as defined below), each such Depositary Share representing
one-one thousandth (1/1000) of a share of Flex MMP.
2. Definitions. Any references to Sections or subsections that are
-----------
made in this Part C shall be to Sections or subsections contained in this Part
C. Unless the context or use indicates another or different meaning or intent,
the following terms shall have the following meanings when used in this Part C,
whether used in the singular or plural:
"Act" means the Securities Act of 1933, as amended.
---
"Additional Directors" has the meaning specified in Section 5(b) below.
--------------------
"Affiliate" means any Person controlled by, in control of, or under
---------
common control with, the Corporation.
"Agent Member" has the meaning set forth in Section 9(a)(i) below.
------------
"Applicable 'AA' Composite Commercial Paper Rate" means, on any date, in
-----------------------------------------------
the case of any Standard Dividend Period or Short Dividend Period of (1) 49 days
or more but less than 70 days, the interest equivalent of the 60-day rate, (2)
70 days or more but less than 85 days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates, (3) 85 days or more but less than 120
days, the interest equivalent of the 90-day rate, (4) 120 days or more but less
than 148 days, the arithmetic average of the interest equivalent of the 90-day
and 180-day rates, (5) 148
<PAGE>
2
days or more but less than 184 days, the interest equivalent of the 180-day
rate, in each case, on commercial paper placed on behalf of issuers whose
corporate bonds are rated "Aa" by Moody's or "AA" by Standard & Poor's, or the
equivalent of such rating by another rating agency, as made available on a
discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day immediately preceding such date. In the event that the Federal
Reserve Bank of New York does not make available any of the foregoing rates,
then such rates shall be the 60-day rate or the arithmetic average of such
rates, as the case may be, as quoted on a discount basis or otherwise, by the
Commercial Paper Dealers to the Auction Agent as of the close of business on the
Business Day immediately preceding such date. If any Commercial Paper Dealer
does not quote a rate required to determine the Applicable "AA" Composite
Commercial Paper Rate, the Applicable "AA" Composite Commercial Paper Rate shall
be determined on the basis of the quotation or quotations furnished by the
remaining Commercial Paper Dealer or Commercial Paper Dealers (if any) and any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Corporation to provide such rate or rates not being supplied by
any Commercial Paper Dealer or Commercial Paper Dealers, as the case may be, or,
if the Corporation does not select any such Substitute Commercial Paper Dealer
or Substitute Commercial Paper Dealers, by the remaining Commercial Paper Dealer
or Commercial Paper Dealers. For purposes of this definition, the "interest
equivalent" means the equivalent yield on a 360-day basis of a discount-basis
security to an interest-bearing security.
"Applicable Determining Rate" means (i) with respect to Flex MMP with a
---------------------------
Standard Dividend Period or Short Dividend Period of 183 days or less, the
Applicable "AA" Composite Commercial Paper Rate, and (ii) with respect to Flex
MMP with a Short Dividend Period of 184 to 364 days, a Long Dividend Period or a
Mandatory Redemption Period, the Applicable Treasury Index Rate.
"Applicable Rate" means the rate per annum at which dividends are
---------------
payable on a Series for any for such Series established pursuant to Section 3(c)
below.
"Applicable Treasury Index Rate" for any Short Dividend Period in excess
------------------------------
of 183 days, any Long Dividend Period or any Mandatory Redemption Period, on any
date, with respect to any Series of Flex MMP, means the interest equivalent of
the rate for direct obligations of the United States Treasury having an original
maturity which is equal to, or next lower than, the length of such Short
Dividend
<PAGE>
3
Period, Long Dividend Period or Mandatory Redemption Period, as the case may be,
as published weekly by the Federal Reserve Board in "Federal Reserve Statistical
Release H.15 (519)--Selected Interest Rates," or any successor publication by
the Federal Reserve Board, within five Business Days preceding such date. In
the event that the Federal Reserve Board does not publish such rate, or if such
release is not available, the Applicable Treasury Index Rate shall be the
arithmetic mean of the secondary market bid rates as of approximately 3:30 p.m.,
New York City time, on the Business Day next preceding such date of the U.S.
Government Securities Dealers furnished to the Auction Agent for the issue of
direct obligations of the United States Treasury, in an aggregate principal
amount of at least $1,000,000, with a remaining maturity equal to, or next lower
than, the length of such Short Dividend Period, Long Dividend Period or
Mandatory Redemption Period, as the case may be. If any U.S. Government
Securities Dealer does not quote a rate required to determine the Applicable
Treasury Index Rate, such rate shall be determined on the basis of the quotation
or quotations furnished by the remaining U.S. Government Securities Dealer or
Dealers (if any) or any Substitute U.S. Government Securities Dealer or Dealers
selected by the Corporation to provide such rate or rates not being supplied by
any U.S. Government Securities Dealer or Dealers, as the case may be, or, if the
Corporation does not select any such Substitute U.S. Government Securities
Dealer or Dealers, by the remaining U.S. Government Securities Dealer or Dealers
(if any); provided that, if the Corporation is unable to cause such quotations
--------
to be furnished to the Auction Agent by such sources, the Corporation may cause
such rates to be furnished to the Auction Agent by such alternative source or
sources as the Corporation in good faith deems to be reliable. For purposes of
this definition, the "interest equivalent" of a rate stated on a discount basis
shall be equal to the quotient of (A) the discount rate divided by (B) the
difference between 1.00 and the discount rate.
"Auction" means each periodic operation of the Auction Procedures.
-------
"Auction Agent" means Bankers Trust Company, unless or until another
-------------
bank or trust company has been appointed as such by a resolution of the Board of
Directors.
"Auction Agreement" has the meaning set forth in Section 7 below.
-----------------
<PAGE>
4
"Auction Date" means the first Business Day preceding the first day of a
------------
Subsequent Rate Period or Mandatory Redemption Period.
"Auction Procedures" means the procedures for conducting Auctions set
------------------
forth in Section 9 below.
"Board of Directors" means the Board of Directors of the Corporation or
------------------
any duly authorized committee of the Board of Directors acting on behalf
thereof.
"Business Day" means a day on which the New York Stock Exchange is open
------------
for trading and which is not a day on which banks in The City of New York are
authorized or obliged by law to close.
"Calendar Period", with respect to any date, means a period of fourteen
---------------
consecutive days commencing ten calendar days prior to such date.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participations or other equivalents (however designated) of such
Person's capital stock, whether outstanding on the Date of Original Issue or
thereafter.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Commercial Paper Dealers" means Lehman Brothers, First Boston and
------------------------
Morgan Stanley or, in lieu of any thereof, their respective affiliates or
successors.
"Common Stock" means all shares now or hereafter issued of the class of
------------
common stock of the Corporation presently authorized and any other shares of
stock into which such stock may hereinafter be changed from time to time.
"Corporation" means Rhone-Poulenc Rorer Inc., a Pennsylvania
-----------
corporation, or its successor.
"Date of Original Issue", with respect to any share of Flex MMP, means
----------------------
the date on which the Corporation originally issued such share of Flex MMP.
"Default Period" has the meaning set forth in Section 5(b) below.
--------------
"Default Rate" has the meaning set forth in Section 3(c)(i)(B) below.
------------
<PAGE>
5
"Deposit Agreement" means the Deposit Agreement dated as of July 19,
-----------------
1993, among the Corporation, the Depositary and the holders from time to time of
the Depositary Receipts, as amended or supplemented from time to time.
"Depositary" means Bankers Trust Company, and any successor as
----------
depositary under the Deposit Agreement.
"Depositary Receipts" shall mean one of the receipts issued under the
-------------------
Deposit Agreement, whether in definitive or temporary form and evidencing the
number of Depositary Shares specified therein.
"Depositary Shares" means depositary shares issued under the Deposit
-----------------
Agreement. Each Depositary Share shall, as provided in the Deposit Agreement,
represent 1/1000 of a share of the related Series of Flex MMP and shall be
evidenced by a Depositary Receipt.
"Dividend Payment Date" has the meaning set forth in Section 3(b)(v)
---------------------
below.
"Dividend Payment Period" shall mean, for any Series, the periods
-----------------------
commencing on the Date of Original Issue to but excluding the Initial Dividend
Payment Date for such Series and any period thereafter from and including one
Dividend Payment Date for such Series to but excluding the next succeeding
Dividend Payment for such Series.
"Dividend Period" has the meaning set forth in Section 3(b)(vi) below.
---------------
"Dividends - Received Deduction" or "DRD" has the meaning set forth
------------------------------
in Section 3(b)(iv) below.
"Failure to Deposit" means, with respect to any Series of Flex MMP, the
------------------
failure by the Corporation to irrevocably deposit with the Auction Agent by
12:00 noon, New York City time (i) on the Business Day immediately preceding a
Dividend Payment Date sufficient next-day funds for the payment of the full
amount of any dividend (whether or not earned or declared) to be paid on such
Dividend Payment Date on any Series of Flex MMP or (ii) on the Business Day
immediately preceding any Redemption Date sufficient next-day funds for the
payment of the full redemption price (including accumulated and unpaid
dividends, whether or not earned or declared) to be paid on such Redemption Date
on any Series of Flex MMP.
<PAGE>
6
"Federal Reserve Board" means the Board of Governors of the Federal
---------------------
Reserve System.
"First Boston" means The First Boston Corporation.
------------
"Flex MMP" means all of the Series.
--------
"Holder" means the holder of shares of the Flex MMP as the same
------
appears on the Stock Books.
"Initial Dividend Payment Date" has the meaning set forth in Section
-----------------------------
3(b)(vi) below.
"Initial Dividend Rate" has the meaning set forth in Section 3(c)(i)(A)
---------------------
below.
"Initial Rate Period" means the period from and including the Date of
-------------------
Original Issue of each Series of Flex MMP to but excluding August 1, 1995 in the
case of the Series 1 Flex MMP, to but excluding August 1, 1996 in the case of
Series 2 Flex MMP and to but excluding August 1, 1998 in the case of Series 3
Flex MMP.
"Junior Capital Stock" means, with respect to the Corporation, any and
--------------------
all Capital Stock of the Corporation, ranking junior to the Flex MMP with
respect to the payment of dividends and the distribution of assets upon
liquidation.
"Lehman Brothers" means Lehman Brothers, a division of Shearson Lehman
---------------
Brothers Inc.
"Long Dividend Period" has the meaning set forth in Section 3(b)(vi)
--------------------
below.
"Mandatory Redemption Period" has the meaning set forth in Section 6(b)
---------------------------
below.
"MAPS" means the Market Auction Preferred Shares, Series A, Series B,
----
Series C and Series D, without par value, liquidation preference $1,000 per
share, previously issued by the Corporation pursuant to Part B of these Amended
and Restated Articles of Incorporation.
"Maximum Applicable Rate", on any Auction Date, shall mean the rate
-----------------------
obtained by multiplying the Applicable Determining Rate on such Auction Date by
a percentage (as it may be adjusted from time to time by the Corporation in
accordance with the provisions hereof) determined as set
<PAGE>
7
forth below based on the lower of the credit rating or ratings assigned to the
Flex MMP by Moody's and Standard & Poor's (or if Moody's or Standard & Poor's or
both shall not make such rating available, the equivalent of either or both of
such ratings by a Substitute Rating Agency or two Substitute Rating Agencies, as
the case may be, or, in the event that only one such rating shall be available,
the percentage shall be based on such rating) (such percentage being the
"Applicable Percentage").
---------------------
<TABLE>
<CAPTION>
Credit Rating
- --------------------------------- Applicable Percentage of
Standard & Applicable Determining
Moody's Poor's Rate
- ------- ----------- -------------------------
<S> <C> <C>
"aa3" or Above AA- or Above 150%
"a3" to "a1" A- to A+ 200%
"baa3" to "baa1" BBB- to BBB+ 225%
Below "baa3" Below BBB- 275%
</TABLE>
However, if (x) Sufficient Clearing Bids have not been made in an
Auction (other than because all of the Outstanding Depositary Shares were the
subject of Submitted Hold Orders) or if an Auction has not been held on a
scheduled Auction Date for any reason or (y) the Corporation has selected a
Mandatory Redemption Period, the Maximum Applicable Rate with respect to the
next succeeding Auction in the case of clause (x) or the Auction relating to
such Mandatory Redemption Period in the case of clause (y) will be the higher of
(i) the Applicable Percentage of the Applicable "AA" Composite Commercial Paper
Rate for a Standard Dividend Period and (ii) 150% of the highest of (a) the
Treasury Bill Rate, (b) the Ten Year Constant Maturity Rate and (c) the Thirty
Year Constant Maturity Rate on the related Auction Date. In the event that the
Corporation determines in good faith that for any reason:
(i) any one of the Treasury Index Rate, the Ten Year
Constant Maturity Rate or the Thirty Year Constant Maturity Rate
cannot be determined with respect to any date, then the Maximum
Applicable Rate with respect to such date shall be determined on
the basis of the higher of whichever two of such rates can be so
determined;
(ii) only one of the Treasury Index Rate, the Ten Year
Constant Maturity Rate or the Thirty Year Constant Maturity Rate
can be determined with respect to any date, then the Maximum
Applicable Rate with respect to such date shall be determined on
the basis of whichever one of such rates can be so determined; or
<PAGE>
8
(iii) none of the Treasury Index Rate, the Ten Year Constant Maturity
Rate or the Thirty Year Constant Maturity Rate can be determined with
respect to any date, then the Maximum Applicable Rate shall be the rate
otherwise determined under the terms of the Flex MMP.
"Minimum Holding Period" has the meaning set forth in Section 3(b)(iv)
----------------------
below.
"Moody's" means Moody's Investors Service, Inc., or its successor, so
-------
long as such agency (or successor) is in the business of rating securities of
the type of the Flex MMP and, if such agency is not in such business, then a
Substitute Rating Agency.
"Morgan Stanley" means Morgan Stanley & Co. Incorporated.
--------------
"Normal Dividend Payment Date" has the meaning set forth in Section
----------------------------
3(b)(ii) below.
"Notice" has the meaning set forth in Section 3(b)(vii) below.
------
"Notice of Long Dividend Period" has the meaning set forth in Section
------------------------------
3(b)(vii) below.
"Notice of Mandatory Redemption Period" has the meaning set forth in
-------------------------------------
Section 3(b)(vii) below.
"Notice of Percentage Increase" has the meaning set forth in Section
-----------------------------
3(c)(iii) below.
"Notice of Redemption" has the meaning set forth in Section 6(d)(i)
--------------------
below.
"Notice of Revocation" has the meaning set forth in Section 3(b)(vii)
--------------------
below.
"Notice of Short Dividend Period" has the meaning set forth in Section
-------------------------------
3(b)(vii) below.
"Optional Redemption" has the meaning set forth in Section 6(a) below.
-------------------
"Outstanding" means, as of any date, Depositary Shares or shares of Flex
-----------
MMP, as the case may be, theretofore issued except, without duplication, (i) any
Depositary Shares or shares of Flex MMP theretofore cancelled, delivered to the
<PAGE>
9
Corporation for cancellation or redeemed and (ii) as of any Auction Date, any
Depositary Shares or shares of Flex MMP subject to redemption on the next
following Business Day.
"Parity Preferred" means any and all shares of Capital Stock ranking on
----------------
a parity with or equal to the Flex MMP as to the payment of dividends and the
distribution of assets upon liquidation.
"Parity Securities" has the meaning set forth in Section 5(b) below.
-----------------
"Paying Agent" means the Auction Agent unless another bank or trust
------------
company has been appointed for such purpose by resolution of the Board of
Directors.
"Person" means and includes an individual, a partnership, a corporation,
------
a trust, an unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.
"Rating Agencies" means Moody's and Standard & Poor's.
---------------
"Redemption Date" means any date upon which a redemption of shares of
---------------
Flex MMP is scheduled to occur in accordance with the terms hereof and specified
in the related Notice of Redemption.
"Securities Depository" means The Depository Trust Company or any other
---------------------
securities depository selected by the Corporation that agrees to follow the
procedures required to be followed by such securities depository in connection
with the Depositary Shares.
"Series" means any of the Series 1-3 of the Flex MMP authorized by
------
this Part C.
"Short Dividend Period" has the meaning set forth in Section 3(b)(vi)
---------------------
below.
"Special Securities" means securities which can, at the option of the
------------------
holder, be surrendered at face value in payment of any federal estate tax or
which provide tax benefits to the holder and are priced to reflect such tax
benefits or which were originally issued at deep or substantial discount.
<PAGE>
10
"Standard Dividend Period" has the meaning set forth in Section
------------------------
3(b)(vi) below.
"Standard & Poor's" or "S&P" means Standard & Poor's Corporation, or its
----------------- ---
successor, so long as such agency (or successor) is in the business of rating
securities of the type of the Flex MMP and, if such agency is not in such
business, then a Substitute Rating Agency.
"Stock Books" means the stock transfer books of the Corporation
-----------
maintained by the Depositary.
"Subsequent Rate Period" has the meaning set forth in Section 3(b)(vi)
----------------------
below.
"Subsequent Rate Period Days" has the meaning set forth in Section
---------------------------
3(b)(iv) below.
"Substitute Commercial Paper Dealer" means Goldman, Sachs & Co. or
----------------------------------
Merrill Lynch, Pierce, Fenner & Smith Incorporated, or, in lieu of each thereof,
their respective affiliates or successors or, if neither furnishes commercial
paper quotations, a leading dealer in the commercial paper market selected by
the Corporation in good faith.
"Substitute Rating Agency" means a nationally recognized statistical
------------------------
rating organization (as that term is used in the rules and regulations of the
Securities Exchange Act of 1934) selected by the Corporation, subject to
approval by Lehman Brothers, First Boston and Morgan Stanley, such approval not
to be unreasonably withheld.
"Substitute U.S. Government Securities Dealer" means Goldman, Sachs &
--------------------------------------------
Co. or Merrill Lynch, Pierce, Fenner & Smith Incorporated, or, in lieu of each
thereof, their respective affiliates or successors or, if neither provides
quotes in U.S. government securities, a leading dealer in the government
securities market selected by the Corporation in good faith.
"Ten Year Constant Maturity Rate", on any date, means the arithmetic
-------------------------------
average of the two most recent weekly per annum Ten Year Average Yields (or one
weekly per annum average yield to maturity for actively traded marketable U.S.
Treasury fixed interest rate securities (adjusted to constant maturities of ten
years) (the "Ten Year Average Yield"), if only one such Yield shall be published
----------------------
during the Calendar Period with respect to such date), as published weekly by
the
<PAGE>
11
Federal Reserve Board during the Calendar Period with respect to such date.
In the event that the Federal Reserve Board does not publish such a weekly per
annum Ten Year Average Yield during such Calendar Period, then the Ten Year
Constant Maturity Rate with respect to such date shall be the arithmetic average
of the two most recent weekly per annum Ten Year Average Yields (or the one
weekly per annum Ten Year Average Yield, if only one such Yield shall be
published during such Calendar Period), as published weekly during such Calendar
Period by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the Corporation. In the event that a per annum Ten Year
Average Yield shall not be published by the Federal Reserve Board or by any
Federal Reserve Bank or by any U.S. Government department or agency during such
Calendar Period, then the Ten Year Constant Maturity Rate with respect to such
date will be the arithmetic average of the two most recent weekly per annum
average yields to maturity (or the one weekly per annum average yield to
maturity, if only one such yield shall be published during such Calendar Period)
for all of the actively traded marketable U.S. Treasury fixed interest rate
securities (other than Special Securities) then having maturities of not less
than eight nor more than 12 years, as published during such Calendar Period by
the Federal Reserve Board or, if the Federal Reserve Board shall not publish
such yields, by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the Corporation. In the event that the Corporation
determines in good faith that for any reason the Corporation cannot determine
the Ten Year Constant Maturity Rate with respect to such date as provided above
in this paragraph, then the Ten Year Constant Maturity Rate with respect to such
date will be the arithmetic average of the per annum average yields to maturity
based upon the closing bids during such Calendar Period for each of the issues
of actively traded marketable U.S. Treasury fixed interest rate securities
(other than Special Securities) with a final maturity date not less than eight
nor more than 12 years from the date of each such quotation, as quoted daily for
each business day in New York City (or less frequently if daily quotations shall
not be generally available) to the Corporation by U.S. Government Securities
Dealers.
"Thirty Year Constant Maturity Rate", on any date, means the arithmetic
----------------------------------
average of the two most recent weekly per annum average yields to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of 30 years) ("Thirty Year Average Yields") (or
--------------------------
the one weekly per annum Thirty Year
<PAGE>
12
Average Yield, if only one such Yield shall be published during the relevant
Calendar Period), as published weekly by the Federal Reserve Board during the
Calendar Period with respect to such date. In the event that the Federal
Reserve Board does not publish such a weekly per annum Thirty Year Average Yield
during such Calendar Period, then the Thirty Year Constant Maturity Rate with
respect to such date shall be the arithmetic average of the two most recent
weekly per annum Thirty Year Average Yields (or the one weekly per annum Thirty
Year Average Yield, if only one such Yield shall be published weekly during such
Calendar Period), as published weekly during such Calendar Period by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
Corporation. In the event that a per annum Thirty Year Average Yield shall not
be published by the Federal Reserve Board or by any Federal Reserve Bank or by
any U.S Government department or agency during such Calendar Period, then the
Thirty Year Constant Maturity Rate with respect to such date will be the
arithmetic average of the two most recent weekly per annum average yields to
maturity (or the one weekly per annum average yield to maturity, if only one
such yield shall be published during such Calendar Period) for all of the
actively traded marketable U.S. Treasury fixed interest rate securities (other
than Special Securities) then having maturities of not less than 28 nor more
than 30 years, as published during such Calendar Period by the Federal Reserve
Board or, if the Federal Reserve Board shall not publish such yields, by any
Federal Reserve Bank or by any U.S. Government department or agency selected by
the Corporation. In the event that the Corporation determines in good faith
that for any reason the Corporation cannot determine the Thirty Year Constant
Maturity Rate with respect to such date as provided above in this paragraph,
then the Thirty Year Constant Maturity Rate with respect to such date will be
the arithmetic average of the per annum average yields to maturity based upon
the closing bids during such Calendar Period for each of the issues of actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) with a final maturity date not less than 28 nor more than 30
years from the date of each such quotation, as quoted daily for each business
day in New York City (or less frequently if daily quotations shall not be
generally available) to the Corporation by U.S. Government Securities Dealers.
"Treasury Bill Rate", on any date, means the interest equivalent of the
------------------
arithmetic average of the two most recent weekly per annum market discount rates
(or the one
<PAGE>
13
weekly per annum market discount rate, if only one such rate shall be published
during the Calendar Period with respect to such date) for three-month U.S.
Treasury bills, as published weekly by the Federal Reserve Board during the
Calendar Period with respect to such date. In the event that the Federal
Reserve Board does not publish such weekly per annum market discount rate during
such Calendar Period, then the Treasury Bill Rate for such date will be the
arithmetic average of the two most recent weekly per annum market discount rates
(or the one weekly per annum market discount rate, if only one such rate shall
be published during such Calendar Period) for three-month U.S. Treasury bills,
as published weekly during such Calendar Period by any Federal Reserve Bank or
by any U.S. Government department or agency selected by the Corporation. In the
event that a per annum market discount rate for three-month U.S. Treasury bills
shall not be published by the Federal Reserve Board or by any Federal Reserve
Bank or by any U.S. Government department or agency during such Calendar Period,
then the Treasury Bill Rate with respect to such date shall be the arithmetic
average of the two most recent weekly per annum market discount rates (or the
one weekly per annum market discount rate, if only one such rate shall be
published during such Calendar Period) for all the U.S. Treasury bills then
having maturities of not less than 80 nor more than 100 days, as published
during such Calendar Period by the Federal Reserve Board or, if the Federal
Reserve Board shall not publish such rates, by any Federal Reserve Bank or by
any U.S. Government department or agency selected by the Corporation. In the
event that the Corporation determines in good faith that for any reason no such
U.S. Treasury bill rates are published as provided above during such Calendar
Period, then the Treasury Bill Rate for such date will be the arithmetic average
of the per annum market discount rates based upon the closing bids during such
Calendar Period for each of the issues of marketable non-interest bearing U.S.
Treasury securities with a maturity of not less than 80 nor more than 100 days
from the date of each such quotation, as quoted daily for each business day in
New York City (or less frequently if daily quotations shall not be generally
available) to the Corporation by U.S. Government Securities Dealers. In the
event that the Corporation determines in good faith that for any reason the
Corporation cannot determine the Treasury Bill Rate for any Dividend Period as
provided above in this paragraph, the Treasury Bill Rate for such Dividend
Period will be the arithmetic average of the per annum market discount rates
based upon the closing bids during such Calendar Period for each of the issues
of marketable
<PAGE>
14
interest-bearing U.S. Treasury securities with a maturity of not less than 80
nor more than 100 days from the date of such quotation, as quoted daily for each
business day in New York City (or less frequently if daily quotations shall not
be generally available) to the Corporation by U.S. Government Securities
Dealers. For purposes of this definition, "interest equivalent" means the
equivalent yield on a 360-day basis of a discount basis security to an interest
bearing security.
"Unit" means a unit of 1,000 Depositary Shares.
----
"U.S. Government Securities Dealers" means Lehman Brothers, First Boston
----------------------------------
and Morgan Stanley or, in lieu of any thereof, their respective affiliates or
successors.
"Voting Preferred" has the meaning set forth in Section 5(c)(i) below.
----------------
3. Dividends. (a) Holders of shares of Flex MMP shall be entitled to
---------
receive, when, as and if declared by the Board of Directors, out of funds
legally available for the purpose under 15 Pa. C.S. Section 1551 (relating to
distributions to shareholders) or any superceding provision of law, cumulative
cash dividends at the Applicable Rate per annum determined as set forth in
Section 3(c)(i) below, and no more, payable on the respective dates set forth
below.
(b) (i) Dividends on the shares of each Series shall accumulate at the
respective Applicable Rates for such Series (whether or not earned or declared)
from the Date of Original Issue.
(ii) Dividends on the shares of each Series shall be payable commencing
on the Initial Dividend Payment Date for such Series and thereafter on February
1, May 1, August 1 and November 1 of each year during the Initial Rate Period
for such Series, and thereafter, except as provided below in this Section 3(b),
on each seventh Tuesday following the preceding Dividend Payment Date for such
Series. Dividends on the shares of any Series with a Short Dividend Period
shall be payable, except as provided below in this Section 3(b), on the day
following the last day of such Short Dividend Period and shall also be payable
on such other Dividend Payment Dates as may be established by the Board of
Directors at the time such Short Dividend Period is determined. Dividends on
<PAGE>
15
the shares of any Series with a Long Dividend Period shall be payable, except as
provided below in this Section 3(b), on the day following the last day of such
Long Dividend Period, and, if occurring prior to the last day of such Long
Dividend Period, on each February 1, May 1, August 1 and November 1, commencing
on the first of such dates occurring after the commencement of such Long
Dividend Period, unless otherwise specified by the Corporation in the related
Notice. Dividends on the shares of each Series with a Mandatory Redemption
Period shall be payable, except as provided below in this Section 3(b), on each
February 1, May 1, August 1, and November 1, commencing on the first of such
dates occurring after the commencement of such Mandatory Redemption Period,
unless otherwise specified by the Corporation in the related Notice. Each day
on which dividends on shares of a Series would be payable as determined as set
forth in this clause (ii) but for the provisions set forth below in this Section
3(b) is referred to herein as a "Normal Dividend Payment Date."
----------------------------
(iii) In the case of dividends payable on the shares of a Series, if:
(A) (I) The Securities Depository shall continue to make available to
Agent Members the amounts due as dividends on the Depositary Shares
representing Flex MMP of such Series in next-day funds on the dates on which
such dividends are payable and (II) a Normal Dividend Payment Date for such
Series is not a Business Day, or the day next succeeding such Normal Dividend
Payment Date is not a Business Day, then dividends shall be payable on the
first Business Day preceding such Normal Dividend Payment Date that is next
succeeded by a Business Day; or
(B) (I) The Securities Depository shall make available to Agent
Members the amounts due as dividends on the Depositary Shares representing
Flex MMP of such Series in immediately available funds on the dates on which
such dividends are payable (and the Securities Depository shall have so
advised the Auction Agent) and (II) a Normal Dividend Payment Date for such
Series is not a Business Day, then dividends shall be payable on the first
Business Day following such Normal Dividend Payment Date.
(iv) Notwithstanding the foregoing, in case of payment in next-day
funds, if the date on which dividends on the shares of any Series of Flex
MMP would be payable as
<PAGE>
16
determined as set forth in clause (ii) or (iii) above is a day that would
result in the number of days between successive Auction Dates for such Series
(determined by excluding the first Auction Date and including the second Auction
Date) not being at least equal to the then-current minimum holding period
(currently set forth in Section 246(c) of the Code) (the "Minimum Holding
---------------
Period") required for corporate taxpayers to be entitled to the
- ------
dividends-received deduction for corporate income tax purposes in respect of
dividends (other than extraordinary dividends) paid on preferred stock held by
nonaffiliated corporations (currently set forth in Section 243(a) of the Code)
(the "Dividends-Received Deduction" or "DRD"), then dividends on such shares
---------------------------- ---
shall be payable on the first Business Day following such date on which
dividends would be so payable that is next succeeded by a Business Day that
results in the number of days between such successive Auction Dates for such
Series (determined as set forth above) being at least equal to the then-current
Minimum Holding Period.
In addition, notwithstanding the foregoing, in the event of a change in
law altering the Minimum Holding Period, the period of time between Dividend
Payment Dates for each Series shall automatically be adjusted so that there
shall be a uniform number of days in Subsequent Rate Periods (such number of
days without giving effect to the provisions in Section 3(b)(iii) being
hereinafter referred to as "Subsequent Rate Period Days") for each Series
---------------------------
commencing after the date of such change in law equal to or, to the extent
necessary, in excess of the then-current Minimum Holding Period, provided that
--------
the number of Subsequent Rate Period Days shall not exceed by more than nine
days the length of such then-current Minimum Holding Period and shall be evenly
divisible by seven, and the maximum number of Subsequent Rate Period Days, as
adjusted pursuant to this Section 3(b)(iv), in no event shall exceed 119 days.
Upon any such change in the number of Subsequent Rate Period Days as a result of
a change in law, the Corporation shall mail notice of such change by first-class
mail, postage prepaid, to the Auction Agent and the Paying Agent.
(v) Each date on which dividends on the shares of a Series shall be
payable as determined as set forth above is referred to herein as a "Dividend
--------
Payment Date" for such Series. Although any particular Dividend Payment Date
- ------------
for a Series may not occur on the originally scheduled Normal Dividend Payment
Date for such Series because of the foregoing provisions, each succeeding
Dividend Payment Date for such Series shall be, subject to such provisions, the
<PAGE>
17
date determined as set forth in clause (ii) above as if each preceding Dividend
Payment Date had occurred on the respective originally scheduled Normal Dividend
Payment Date.
(vi) The initial Dividend Payment Date (the "Initial Dividend Payment
------------------------
Date") for Series 1 Flex MMP, Series 2 Flex MMP and Series 3 Flex MMP shall be
- ----
August 1, 1993. After the Initial Rate Period for each Series, each Subsequent
Rate Period for such Series shall (except for the adjustments for non-Business
Days provided in clause (iii) above) be 49 days (each such 49-day period,
subject to any adjustment as a result of a change in law lengthening the Minimum
Holding Period as provided in clause (iv) above, being referred to herein as a
"Standard Dividend Period"), unless as provided in clause (vii) below, (A) the
------------------------
Corporation specifies that any such Subsequent Rate Period for a particular
Series shall be a Dividend Period of (x) 50 to 364 days and consisting of a
whole number of weeks (a "Short Dividend Period") or (y) any period with a
---------------------
maturity, if any, equal to or in excess of one year (a "Long Dividend Period"),
--------------------
or (B) the Corporation at its option selects a Mandatory Redemption Period (each
such Initial Rate Period, Standard Dividend Period, Short Dividend Period, Long
Dividend Period and Mandatory Redemption Period being referred to herein as a
"Dividend Period"). After the Initial Rate Period for a Series, each successive
---------------
Dividend Period (excluding a Mandatory Redemption Period) (each, a "Subsequent
----------
Rate Period") for such series shall commence on the final Dividend Payment Date
- -----------
for the preceding Dividend Period for such Series and shall end (A) in the case
of any Series with a Standard Dividend Period, on the day preceding the next
Dividend Payment Date for such Series and (B) in the case of any Series with a
Short Dividend Period or a Long Dividend Period, on the last day of the Short
Dividend Period or the Long Dividend Period, as the case may be, specified by
the Corporation in the related notice of Short Dividend Period or Long Dividend
Period, as the case may be. A Mandatory Redemption Period with respect to a
Series of Flex MMP will commence on the final Dividend Payment Date for the
preceding Dividend Period for such Series and will end on the last day of the
Mandatory Redemption Period specified by the Corporation in the related Notice.
(vii) The Corporation may give telephonic and written notice, not less
than 10 and not more than 30 days prior to an Auction Date for any Series and
based on the criteria set forth below, to the Auction Agent and the Securities
Depository that the next succeeding Dividend Period for such Series will be a
Short Dividend Period (a "Notice of Short Dividend Period"), a Long Dividend
-------------------------------
Period (a "Notice of Long Dividend Period") or a Mandatory Redemption Period (a
------------------------------
"Notice
------
<PAGE>
18
of Mandatory Redemption Period") (a Notice of Short Dividend Period, a
- ------------------------------
Notice of Long Dividend Period and a Notice of Mandatory Redemption Period are
herein collectively referred to as a "Notice"). Each such Notice shall be in
------
substantially the form of Exhibit D or Exhibit F to the Auction Agreement and
shall specify the following terms, which shall be established by the Board of
Directors, (A) the next succeeding Dividend Period for such Series as a Short
Dividend Period, a Long Dividend Period or a Mandatory Redemption Period, as the
case may be, (B) the term thereof, (C) any additional redemption provisions or
restrictions on redemption, if any, provided, that any mandatory redemption
--------
provisions must be in conformity with the limitations on mandatory redemption
for a Mandatory Redemption Period set forth in subsection 6(b)(iv), and (D) the
Dividend Payment Dates; provided that for any Auction occurring after the
--------
initial Auction, the Corporation may not give a Notice of a Short Dividend
Period or a Long Dividend Period for any Series (and any such notice shall be
null and void) unless Sufficient Clearing Bids were made in the last occurring
Auction for any Series and full cumulative dividends for all Series payable
prior to such date have been paid in full.
The Board of Directors of the Corporation may establish a Short Dividend
Period, a Long Dividend Period or a Mandatory Redemption Period, as the case may
be, for the shares of a Series of Flex MMP, if it determines that such Dividend
Period and, in the case of a Long Dividend Period or a Mandatory Redemption
Period, such additional redemption provisions as it may establish pursuant to
Section 6(a), provide the Corporation with the most favorable financing
alternative based upon the following: (A) short-term and long-term market rates
and indices of such short-term and long-term rates, (B) the amounts, maturities,
redemption terms and interest or dividend rates on the then-outstanding
securities of the Corporation or its subsidiaries, (C) market supply and demand
for short-term and long-term securities, (D) yield curves for short-term and
long-term securities comparable to such Series of Flex MMP, (E) industry and
financial conditions which may affect such Series of Flex MMP including the
Corporation's expectations with respect thereto, (F) then-current tax laws and
administrative interpretations with respect thereto, (G) the number of shares of
Flex MMP of such Series Outstanding on the next Auction Date, (H) the number of
potential purchasers and (I) the Corporation's current and projected funding
requirements based on its asset and liability position, tax position and current
financing objectives. Any Notice may be revoked by the Corporation on or prior
to 10:00 a.m., New York City time, on the day of the related Auction by
<PAGE>
19
telephonic and written notice (a "Notice of Revocation"), in substantially the
--------------------
form of Exhibit E to the Auction Agreement, to the Auction Agent and the
Securities Depository, specifying that the Corporation has determined that
because of subsequent changes in any of the foregoing factors, such Short
Dividend Period, Long Dividend Period or Mandatory Redemption Period would not
result in the most favorable financing alternative for the Corporation. Except
with respect to a Notice that is revoked, any Short Dividend Period, Long
Dividend Period or Mandatory Redemption Period, as the case may be, specified by
the Board of Directors for each Series of Flex MMP and any revocation thereof
shall be conclusive and binding on the Corporation and the Holders.
If the Corporation does not give a Notice with respect to the next
succeeding Dividend Period for any Series of Flex MMP or has given a Notice but
has also delivered a Notice of Revocation with respect thereto, such next
succeeding Dividend Period for such Series shall be a Standard Dividend Period.
In addition, in the event the Corporation has given a Notice with respect to the
next succeeding Dividend Period for any Series of Flex MMP and has not given a
Notice of Revocation with respect thereto, but Sufficient Clearing Bids are not
made in the related Auction for such Series or such Auction is not held for any
reason, such next succeeding Dividend Period for such Series shall,
notwithstanding such Notice, be a Standard Dividend Period or Mandatory
Redemption Period and the Corporation may not again give a Notice (and any such
Notice shall be null and void), other than a Notice of Mandatory Redemption
Period, for any Series until Sufficient Clearing Bids have been made in an
Auction.
(viii) Not later than 12:00 noon, New York City time on the Business
Day immediately preceding each Dividend Payment Date with respect to which
dividends on any shares of Flex MMP have been declared, the Corporation shall
irrevocably deposit with the Auction Agent sufficient next-day funds for the
payment of such dividends.
(ix) Each dividend on the shares of any Series declared by the Board of
Directors shall be paid to Holders of such shares as such Holders' names appear
on the Stock Books on the related record date, which shall be the opening of
business on the Business Day immediately preceding the Dividend Payment Date for
such dividend. Subject to Section
<PAGE>
20
3(d)(i) below, dividends on the shares of any Series of Flex MMP in arrears for
any past Dividend Payment Period may be declared by the Board of Directors and
paid on any date fixed by the Board of Directors, on a regular Dividend Payment
Date or otherwise, to Holders of such shares as such Holders' names appear on
the Stock Books on the related record date fixed by the Board of Directors,
which shall be not more than 15 (fifteen) days before the date fixed for the
payment of such dividends.
(c) (i) (A) The dividend rate during the Initial Rate Period (the
"Initial Dividend Rate") for Series 1 Flex MMP shall be 4.700% per annum, for
---------------------
Series 2 Flex MMP shall be 5.125% per annum and for Series 3 Flex MMP shall be
5.840% per annum, and the dividend rate on the shares of each Series for each
Subsequent Rate Period or Mandatory Redemption Period shall be the rate per
annum determined for such Series pursuant to the Auction Procedures; provided,
--------
however, that subject to subsection (c)(i)(B), the dividend rate on each Series
- -------
of Flex MMP shall not exceed the Maximum Applicable Rate per annum for any
Subsequent Rate Period or Mandatory Redemption Period. The dividend rate on the
shares of any Series for any Subsequent Rate Period or Mandatory Redemption
Period or part thereof determined as set forth in this Section 3(c) is referred
to herein as the "Applicable Rate" for such Series for such Subsequent Rate
---------------
Period or Mandatory Redemption Period or part thereof.
(B) Notwithstanding subsection (c)(i)(A), in the event a Failure to
Deposit occurs and is not cured in accordance with the next succeeding sentence
within three Business Days after the occurrence of such Failure to Deposit, then
the next succeeding Auction for such Series and all Auctions thereafter for such
Series shall be suspended, until such time as set forth below. Regardless of
any Notice by the Corporation to the contrary, except for a Notice of Mandatory
Redemption Period, each subsequent Dividend Period, including the Dividend
Period commencing on the date of the Failure to Deposit (until Auctions are
resumed or the commencement of a Mandatory Redemption Period) commencing after
such Failure to Deposit shall be a Standard Dividend Period. The Applicable
Rate for shares of such Series for each Dividend Payment Period in respect of
which such Failure to Deposit occurs (except during a Mandatory Redemption
Period) or commencing on or after any such Dividend Payment Date and remains not
cured within three Business Days
<PAGE>
21
thereafter (or redemption date, as the case may be) in respect of such Failure
to Deposit shall be equal to the Default Rate for such Dividend Period. The
foregoing shall continue in effect until the first to occur of (i) a Dividend
Payment Date at least one Business Day prior to which the full amount of any
dividends (whether or not earned or declared) payable on each Dividend Payment
Date prior to and including such Dividend Payment Date, and the full amount of
any redemption price (including accumulated and unpaid dividends, whether or not
earned or declared) then due shall have been paid to the Auction Agent, and
thereupon Auctions shall resume on the terms stated herein for Subsequent Rate
Periods commencing with such Dividend Payment Date, or (ii) the commencement of
a Mandatory Redemption Period. With respect to any such Failure to Deposit, the
"Default Rate" will be the higher of the Maximum Applicable Rate obtained by
------------
multiplying the Applicable Determining Rate, determined as of the Business Day
next preceding the date of such Failure to Deposit, by the percentage (as it may
be adjusted from time to time) for the credit rating category of below
baa3/BBB-, and (i) if the Corporation has failed timely to pay dividends, the
dividend rate in effect for the Subsequent Rate Period in respect of which such
Failure to Deposit occurred, or (ii) if the Corporation has failed timely to pay
the redemption price (including accumulated and unpaid dividends, whether or not
earned or declared) of shares of any Series of Flex MMP called for redemption,
the dividend rate in effect on the applicable redemption date. If an Auction is
not held on an Auction Date for any reason (other than because of the suspension
of Auctions due to a Failure to Deposit as described above), the dividend rate
therefor shall be the Maximum Applicable Rate determined as of such Auction
Date. If a Failure to Deposit occurs during the Mandatory Redemption Period,
the dividend rate with respect to the Mandatory Redemption Period will not
change, and dividends will continue to accrue at the then current rate.
Any such Failure to Deposit with respect to the shares of any Series
shall be deemed to be cured if, prior to the commencement of a Mandatory
Redemption Period with respect to a Failure to Deposit relating to the (I)
payment of dividends on such Series, the Corporation deposits with the Auction
Agent by 12:00 noon, New York City time, all accumulated and unpaid dividends on
such Series, including the full amount of any dividends to be paid with respect
to the Dividend Period with respect to which the Failure to Deposit occurred,
plus an amount computed by multiplying the Default Rate by a fraction, the
numerator of which shall
<PAGE>
22
be the number of days for which such Failure to Deposit is not cured in
accordance with this paragraph (including the day such Failure to Deposit occurs
and excluding the day such Failure to Deposit is cured) and the denominator of
which shall be 360, and applying the rate obtained against the aggregate
liquidation preference of the shares then Outstanding in such Series and (II)
the redemption of shares of any Series, the deposit by the Corporation with the
Auction Agent of funds sufficient to pay the redemption price (including
accumulated and unpaid dividends, whether or not earned or declared) of such
shares plus an amount computed by multiplying the Default Rate, by a fraction,
the numerator of which shall be the number of days for which such Failure to
Deposit is not cured in accordance with this paragraph (including the day such
Failure to Deposit occurs and excluding the day such Failure to Deposit is
cured) and the denominator of which shall be 360, and applying the rate obtained
against the aggregate liquidation preference of the shares in such Series to be
redeemed, and the giving of irrevocable instructions by the Corporation to apply
such funds and, if applicable, the income and proceeds therefrom, to the payment
of the redemption price (including accumulated and unpaid dividends, whether or
not earned or declared) for such shares.
(C) If prior to an Auction Date for shares of such Series, full and
cumulative dividends and the full amount of any redemption price (including
accumulated and unpaid dividends, whether or not earned or declared) and
dividends accrued at the Default Rate as provided in subsection 3(c)(i)(B) above
shall have been paid in full or funds sufficient for the payment thereof shall
have been irrevocably deposited with the Paying Agent, Auctions for such Series
will resume.
(ii) The amount of dividends per share of any Series of Flex MMP
payable on each Dividend Payment Date in respect of a Dividend Payment Period
shall be computed by multiplying the Applicable Rate for such Dividend Payment
Period by a fraction the numerator of which shall be the number of days in the
Dividend Payment Period (calculated by counting both the last day and first day
thereof) such share was Outstanding and the denominator of which shall be 360
and multiplying the amount so obtained by $100,000.
(iii) The Corporation may from time to time give telephonic and written
notice, not later than 10:00 a.m., New York City time, on the related Auction
Date and based on the criteria set forth below, to the Auction Agent and the
<PAGE>
23
Securities Depository of an increase in the percentage used to calculate the
Maximum Applicable Rate for any Series of Flex MMP (a "Notice of Percentage
--------------------
Increase"). Such Notice of Percentage Increase shall specify the new
- --------
percentages to be used to calculate the Maximum Applicable Rate and shall be in
substantially the form of Exhibit G to the Auction Agreement. The Board of
Directors may establish an increase in such percentages if it determines that
such increase is necessary based upon the following: (A) short-term and
long-term market rates and indices of short-term and long-term rates, (B) the
amounts, maturities, redemption terms and interest or dividend rates on the
then-outstanding securities of the Corporation or its subsidiaries, (C) market
supply and demand for short-term and long-term securities and market conditions
generally, (D) yield curves for short-term and long-term securities comparable
to such Series of Flex MMP, (E) industry and financial conditions which may
affect such Series of Flex MMP including the Corporation's expectations with
respect thereto, (F) the number of shares of such Series of Flex MMP Outstanding
on the next Auction Date, (G) the number of potential purchasers and (H) the
Corporation's current and projected funding requirements based on its asset and
liability position, tax position and current financing objectives and the
current financial condition of the Corporation. The Corporation may not revoke
a Notice of Percentage Increase and the percentages specified therein will be
the applicable percentages for the determination of the Maximum Applicable Rate
with respect to such Series for subsequent Dividend Periods until a new Notice
of Percentage Increase shall be delivered in accordance with the terms hereof.
Except as described below, the Corporation may not increase the
percentage used to calculate the Maximum Applicable Rate to above the
percentages set forth in the third column of the table below corresponding to
the applicable credit ratings set forth in the first two columns of the table
below.
<TABLE>
<CAPTION>
Maximum Percentage
Credit Rating Permitted to be
- ---------------------------------- Used to Calculate
Standard & Maximum Applicable
Moody's Poor's Rate
- ------- ---------- ------------------
<S> <C> <C>
"aa3" or Above AA- or Above 175%
"a3" to "a1" A- to A+ 225%
"baa3" to baa1" BBB- to BBB+ 250%
Below "baa3" Below BBB- 275%
</TABLE>
<PAGE>
24
The maximum percentages set forth in the third column of the above table
may be increased by the Corporation upon receipt of an opinion of counsel to the
Corporation that the use of such higher percentages to calculate the Maximum
Applicable Rate will not adversely affect the tax treatment of the Flex MMP.
(d) (i) Except as hereinafter provided, no dividends shall be
declared or paid or set apart for payment on the shares of any Series of Flex
MMP or Parity Preferred for any period if dividends on any shares of Flex MMP or
Parity Preferred are accumulated and unpaid for any prior Dividend Payment
Period unless full cumulative dividends have been or contemporaneously are
declared and paid on each series of Flex MMP and Parity Preferred through the
most recent applicable Dividend Payment Date for such shares. No interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the shares of Flex MMP which may be in arrears. For
purposes hereof, dividend accumulations and arrearages do not include any
dividends which have not yet become payable or dividends for any Dividend
Payment Date that has not occurred.
(ii) So long as any shares of Flex MMP are outstanding, the
Corporation shall not declare, pay or set aside for payment any dividend or
other distribution in respect of its Junior Capital Stock (other than
dividends in Junior Capital Stock), or call for redemption, redeem, purchase
or otherwise acquire for consideration any shares of its Junior Capital Stock
(or any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such Junior Capital Stock) unless (A) full
cumulative dividends on all shares of the Flex MMP for all past Dividend
Payment Periods and all Dividend Payment Dates occurring on or prior to the
date of the transaction for each Series shall have been declared and paid (or
declared and a sum sufficient for the payment of the dividends set apart for
payment) and (B) the Corporation has redeemed the full number of Shares
required to be redeemed after giving any notice of an Optional Redemption;
provided that the Corporation may at any time redeem, purchase or otherwise
- --------
acquire shares of Junior Capital Stock with shares of Junior Capital Stock.
(iii) Any dividend payment made on any Series of Flex MMP shall first
be credited against the dividends accumulated with respect to the earliest
Dividend Payment Period for which dividends have not been paid with respect to
such Series.
<PAGE>
25
4. Liquidation Rights. (a) Upon the liquidation, dissolution or
------------------
winding up of the affairs of the Corporation, whether voluntary or involuntary,
Holders shall be entitled to receive, out of assets of the Corporation available
for distribution to shareholders after satisfying claims of creditors but before
any payment or distribution is made to holders of Junior Capital Stock, a
preferential liquidation distribution in the amount of $100,000 per share of
Flex MMP plus an amount equal to accumulated and unpaid dividends on each such
share (whether or not earned or declared) for the then-current Dividend Payment
Period and for all Dividend Payment Periods prior thereto. Unless and until
payment in full of the preferential liquidation distributions to which they are
entitled as provided in this Section 4 has been made to Holders, and to holders
of any shares of Parity Preferred, no dividends or distributions shall be made
to holders of Junior Capital Stock, no payment or delivery or commitment to make
payment or delivery of any money or assets to any Affiliate shall be made and no
purchase, redemption or other acquisition for any consideration by the
Corporation shall be made in respect of Junior Capital Stock. After the payment
to Holders of the full amount of the preferential liquidation distributions to
which they are entitled as provided in this Section 4, Holders (in their
capacity as such Holders) shall have no right or claim to any of the remaining
assets of the Corporation.
(b) Neither the sale, lease or exchange (for cash, stock, securities or
other consideration) of all or substantially all of the property and assets of
the Corporation, nor the merger or consolidation of the Corporation with or into
any other corporation, nor the merger or consolidation of any other corporation
with or into the Corporation, shall be deemed to be a dissolution, liquidation
or winding up, voluntary or involuntary, for the purposes of this Section 4.
(c) If the assets of the Corporation available for distribution to the
Holders upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay the Holders and
the holders of any other class of Parity Preferred the full amount of the
preferential liquidation distributions to which they are entitled pursuant to
Section 4(a) above in the case of the Holders or otherwise in the case of
holders of Capital Stock ranking, upon liquidation, on a parity with Flex MMP,
then such assets shall be distributed among them Holders
<PAGE>
26
ratably in proportion to the full amount of preferential liquidation
distributions to which each Holder would have been entitled under such Section
4(a) in the case of the Holders or otherwise in the case of holders of Capital
Stock ranking, upon liquidation, on a parity with the Flex MMP.
5. Voting Rights. (a) General. Holders of the Flex MMP will have no
------------- -------
voting rights except as hereinafter described. In determining whether holders of
the required amount of any Series of Flex MMP or Parity Preferred, including
Voting Preferred, have taken any action, Flex MMP and other Parity Preferred
owned by the Corporation or any corporation or other entity directly or
indirectly controlling the Corporation or controlled by or under common control
with the Corporation will be disregarded.
(b) Right to Elect two Additional Members of the Board of Directors.
---------------------------------------------------------------
(i) During any period when dividends on the Shares of Flex MMP or any other
shares of Parity Preferred of the Corporation which have voting rights
comparable to the Flex MMP which are then exercisable (the Flex MMP and all such
other shares of Parity Preferred (including the MAPS) being referred to as
"Parity Securities") shall be in arrears for at least 180 consecutive days and
-----------------
shall not have been paid in full (a "Default Period") the authorized number of
--------------
members of the Board of Directors shall automatically be increased by two and
the holders of record of the Parity Securities voting as described below will be
entitled to fill the vacancies so created by electing two additional directors
of the Corporation. The directors so elected (the "Additional Directors") will
--------------------
have only the normal powers of members of the Board of Directors except that the
Additional Directors will comprise the majority of the members of a special
committee of the Board of Directors consisting of three directors that shall be
empowered during any Default Period, except as provided below, to declare and
cause to be paid, out of funds available therefor (determined in accordance with
the provisions of Section 3(a)), accumulated and unpaid dividends on the Parity
Securities.
(ii) As soon as practicable after the beginning of a Default Period,
the Board of Directors will call or cause to be called a special meeting of the
holders of Parity Securities by mailing or causing to be mailed to such holders
a notice of such special meeting to be held not less than 10 and not more than
45 days after the date such notice is given. If the Board of Directors does not
call or cause to be called such a special meeting, it may be called by any of
such holders on like
<PAGE>
27
notice. The record date for determining holders of the Parity Securities
entitled to notice of and to vote at such special meeting will be the close of
business on the Business Day preceding the day on which such notice is mailed.
At any such special meeting, such holders, by plurality vote, voting together as
a single class without regard to series (to the exclusion of the holders of
Junior Capital Stock) will be entitled to elect two directors on the basis of
one vote per $1,000 liquidation preference (excluding amounts in respect of
accumulated and unpaid dividends) and not cumulatively. The holder or holders
of one-third of the Parity Securities then outstanding present in person or by
proxy, will constitute a quorum for the election of the Additional Directors
except as otherwise provided by law. Notice of all meetings at which Holders of
the Shares of Flex MMP shall be entitled to vote will be given to such Holders
at their addresses as they appear in the Stock Books. At any such meeting or
adjournment thereof in the absence of a quorum, subject to the provisions of any
applicable law, a majority of the holders of the Parity Securities present in
person or by proxy shall have the power to adjourn the meeting for the election
of the two directors, without notice, other than an announcement at the meeting,
until a quorum is present. If a Default Period shall terminate after the notice
of a special meeting has been given but before such special meeting has been
held, the Corporation shall, as soon as practicable after such termination, mail
or cause to be mailed notice of such termination to Holders of the Parity
Securities that would have been entitled to vote at such special meeting.
(iii) The term of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of Parity Securities to
elect directors shall continue, notwithstanding the election of the Additional
Directors at such meeting by such holders. The Additional Directors, together
with the incumbent directors elected by holders of the Corporation's Common
Stock or other shares of the Corporation that are entitled to vote generally for
the election of directors shall constitute the duly elected directors of the
Corporation.
(iv) So long as a Default Period continues, (A) any vacancy in the
office of an Additional Director may be filled (except as provided in the
following clause (B)) by the person appointed in an instrument in writing signed
by the remaining Additional Director and filed with the secretary of the
Corporation or, in the event there is no remaining Additional Director, by the
vote of the holders of the outstanding Parity Securities, voting together as a
single
<PAGE>
28
class without regard to series, in a meeting of shareholders or at a meeting of
holders of Parity Securities called for such purpose, and (B) in the case of the
removal of any Additional Director, the vacancy may be filled by the person
elected by the vote of the holders of the outstanding Parity Securities, voting
together as a single class without regard to series, at the same meeting at
which such removal shall be voted upon or any subsequent meeting. Each director
who shall be elected or appointed by the remaining Additional Director as
aforesaid shall be an Additional Director.
(v) At such time as a Default Period shall terminate, (A) the term of
office of the Additional Directors shall terminate, (B) the voting rights of the
holders of the Parity Securities to elect directors shall cease (subject to the
recurrence of a subsequent Default Period) and (C) the number of members of the
Board of Directors shall be such as may be provided for by or pursuant to the
Corporation's Bylaws irrespective of any increase made as provided herein.
(c) Right to Vote in Certain Events. (i) So long as any shares of Flex
-------------------------------
MMP remain Outstanding, the Corporation shall not, without the consent of the
holders of at least two-thirds of the then-Outstanding shares of Flex MMP and
Parity Preferred excluding the MAPS (the "Voting Preferred"), given in person or
----------------
by proxy, either in writing or at a meeting (voting together as a single class),
(A) authorize, create or issue, or increase the authorized amount of, any shares
of the Corporation of any class ranking, as to dividends or upon the
liquidation, dissolution or winding up of the Corporation, prior to shares of
Flex MMP and Voting Preferred, or reclassify any authorized shares of the
Corporation into any such shares, or authorize, create or issue any obligation
or security convertible into or evidencing the right to purchase any such
shares, or (B) amend, alter or repeal the provisions of the Articles of
Incorporation of the Corporation including this Part C, whether by merger,
consolidation, share exchange, division or otherwise, so as to adversely affect
any preference, limitation or special right of the Flex MMP and Voting
Preferred; provided, however, that the authorization, creation, issuance or
-------- -------
increase in the authorized amount of the Common Stock, Flex MMP or Voting
Preferred or any other Capital Stock of the Corporation of any class ranking, as
to dividends and upon the liquidation, dissolution or winding up of the
Corporation, on a parity with or junior to the Flex MMP or Voting Preferred,
shall not be deemed to adversely affect such preferences, limitations or special
rights; and provided further that upon any merger, consolidation, share exchange
----------------
or division of the Corporation (or any successor
<PAGE>
29
corporation) with or into another corporation, the Flex MMP and Voting Preferred
that may be outstanding from time to time may be junior to any preferred shares
of such other corporation as to dividends and upon the liquidation, dissolution
or winding up of the surviving corporation, provided that on or prior to the
--------
date of effectiveness of such merger or consolidation, the Corporation shall
have given Moody's and S&P written notice of such merger or consolidation and
Moody's and S&P shall have confirmed in writing that the transaction will not
adversely affect the then-existing rating for the Flex MMP and Voting Preferred.
(ii) If either Moody's or S&P shall change its rating categories for
preferred stock, then the determination of whether the requirements of the final
proviso in the preceding paragraph have been satisfied shall be made based upon
the substantially equivalent new rating categories for preferred stock of such
rating agency. If either Moody's or S&P, or both, shall not make a rating
available for the shares of Flex MMP and Voting Preferred necessary to make such
a determination or neither Moody's nor S&P shall make such a rating available,
such determination will be made based upon the substantial equivalent of either
or both of such ratings by a Substitute Rating Agency or two Substitute Rating
Agencies or, in the event that only one such rating shall be available, based
upon such available rating. If an alternative nationally recognized securities
rating agency or agencies is not available, then for the purposes of such
determination, the rating for the shares of Flex MMP and Voting Preferred shall
be deemed to be the highest relevant rating last published by Moody's, S&P or
any such Substitute Rating Agency.
6. Redemption of the Flex MMP. (a) Optional Redemption. During the
-------------------------- -------------------
Initial Rate Period, no Series of Flex MMP may be redeemed as a whole or in
part. During any Subsequent Rate Period or Mandatory Redemption Period, except
as otherwise specified in the related Notice, at the option of the Corporation,
the shares of each Series of Flex MMP may be redeemed (an "Optional
--------
Redemption"), as a whole or from time to time in part, out of funds legally
- ----------
available therefor under 15 Pa.C.S. Section 1551 or any corresponding
superseding provision of law, on the Business Day immediately preceding any
Dividend Payment Date in respect of a Subsequent Rate Period or a Mandatory
Redemption Period, as the case may be, for the shares of such Series of Flex
MMP, upon at least 10 but not more than 45 days' notice pursuant to a Notice of
Redemption, at a redemption price per share equal to the sum of $100,000 plus an
amount equal to accumulated and unpaid
<PAGE>
30
dividends thereon (whether or not earned or declared) to the date that the
Corporation pays the full amount payable upon redemption of such shares;
provided that such Redemption Date shall be the Dividend Payment Date for such
- --------
Series if the payment on the Business Day immediately preceding such date would
reduce the holding period for such Series since the Auction Date preceding such
payment below the Minimum Holding Period. Pursuant to such right of Optional
Redemption, the Corporation may elect to redeem some or all of the shares of any
Series of Flex MMP without redeeming shares of any other Series. In connection
with the selection of a Short Dividend Period, a Long Dividend Period or a
Mandatory Redemption Period for any Series of Flex MMP, the Corporation may
establish, in accordance with Section 3(b)(vii), a redemption price per share of
the Series subject to such Short Dividend Period, Long Dividend Period or
Mandatory Redemption Period, as the case may be, in excess of the price per
share referred to in the preceding sentence and may fix a period of time during
which the shares of such Series may not be redeemed at the option of the
Corporation.
(b) Mandatory Redemption Period. (i) The Corporation may at its
---------------------------
option select a Mandatory Redemption Period with respect to a particular Series
of Flex MMP not less than ten days and not more than 30 days prior to an Auction
Date, in accordance with Section 3(b)(vii). The redemption provisions for any
Mandatory Redemption Period that the Corporation selects for any Series of Flex
MMP in accordance with Section 3(b)(vii) must provide that such Series will be
fully redeemed not later than the tenth anniversary of the commencement of the
Mandatory Redemption Period.
(ii) If the Corporation selects a Mandatory Redemption Period (a
"Mandatory Redemption Period") for any Series of Flex MMP: (A) mandatory
---------------------------
redemption or sinking fund requirements with respect to such Series of Flex MMP
shall be provided by the Corporation; (B) the Auction relating thereto will be
the final Auction with respect to such Series of Flex MMP; (C) the services of
the Auction Agent (except in its capacities as paying agent, registrar and
transfer agent) and of the Broker-Dealers with respect to such Series of Flex
MMP will end; (D) there will be no requirement that Depositary Shares
representing such Series of Flex MMP be redeemed or transferred only in Units;
(E) there will be no adjustment to the dividend rate following the commencement
of such Mandatory Redemption Period, whether upon a Failure to Deposit or
otherwise; and (F) the Corporation must make available upon request Depositary
Receipts representing the Depositary Shares.
<PAGE>
31
(iii) In its Notice of Mandatory Redemption Period, the Corporation
will specify (A) that Depositary Receipts representing Depositary Shares will be
made available upon request, (B) that the Depositary Shares will not be required
to be held or transferred in Units, (C) the optional redemption and sinking fund
provisions relating to the Mandatory Redemption Period and (D) the length of the
Mandatory Redemption Period, which may not exceed ten years. The Corporation may
change the optional redemption and sinking fund provisions and the length of
such Mandatory Redemption Period upon prior written notice to the Auction Agent
and the Securities Depository not later than 10:00 a.m., New York City time, on
the related Auction Date. If the Corporation fails to provide notice of
optional redemption and sinking fund provisions and length of the Mandatory
Redemption Period, as described in clauses (C) and (D) of the second preceding
sentence, the length of such Mandatory Redemption Period will be six years, the
Series of Flex MMP will be redeemable in whole or in part at the option of the
Corporation on any date during the Mandatory Redemption Period and the
Corporation will be required to redeem the Series of Flex MMP in equal
installments on the fourth, fifth and sixth anniversaries of the commencement of
such Mandatory Redemption Period.
(iv) In connection with the selection of a Mandatory Redemption Period,
the Corporation may also specify any additional terms upon, and additional times
at which, the shares of Flex MMP will be subject to mandatory redemption or
sinking fund requirements; provided, however, that the redemption price will not
-------- -------
be less than $100,000 per share of Flex MMP, plus the amount of any dividends
accumulated and unpaid thereon to the date of redemption (whether or not earned
or declared). Such mandatory redemption or sinking fund requirements will
become effective in the same manner as the optional redemption provisions
described in Section 6(a) above. During any Mandatory Redemption Period, the
Corporation will not be permitted to commence mandatory redemption of shares of
Flex MMP prior to the third anniversary of the commencement of such Mandatory
Redemption Period, any such mandatory redemptions may not cause the Mandatory
Redemption Period to have a weighted average life of less than five years and
the Flex MMP may be fully redeemed pursuant to such mandatory redemption
requirements not earlier than the fifth anniversary of the commencement of the
Mandatory Redemption Period, unless, in each case, the Corporation obtains an
opinion of counsel to the effect that mandatory redemption having such terms
will not adversely affect the tax treatment of the Flex MMP.
<PAGE>
32
(v) If the Corporation specifies such mandatory redemption or sinking
fund requirements, then the Corporation will redeem, out of funds legally
available therefor under 15 Pa.C.S. Section 1551 or any corresponding or
superseding provision of law, the number of shares so specified, on the dates
and at the prices so specified. If the required number of shares is not
redeemed on any date on which such a redemption is required, the unsatisfied
mandatory redemption or sinking fund requirement will be cumulative until
discharged. In addition, if so provided in the Notice of Mandatory Redemption
Period, the Corporation will have the right (which will be noncumulative unless
otherwise specified in such notice) to redeem through the mandatory redemption
or sinking fund requirement such additional number or percentage of shares as
may be specified in such notice on the same terms and dates applicable to the
mandatory redemption or sinking fund requirement. The Corporation may apply as
credit against the number of shares of Flex MMP required to be redeemed pursuant
to the mandatory redemption or sinking fund requirements shares of Flex MMP that
have been purchased, redeemed (other than pursuant to the operation of the
mandatory redemption or sinking fund requirements) or otherwise acquired for
value by the Corporation and that have not previously been used for any such
credit. Unless the Corporation has satisfied its mandatory redemption or
sinking fund requirements with respect to a Series of Flex MMP in connection
with its selection of a Mandatory Redemption Period, (i) no dividends may be
declared or paid on any Common Shares or any other Junior Capital Stock and (ii)
no shares of any other Parity Preferred may be redeemed, purchased or otherwise
acquired for value, nor may monies be paid or set aside for a sinking fund for
the redemption, purchase or other acquisition thereof, except as otherwise
provided in Section 6(c) below.
(c) Notwithstanding the foregoing Section 6(a) and 6(b), if any
dividends, including accumulations in the case of shares of any Series of Flex
MMP or any Series of cumulative Parity Preferred, on shares of any Series of
Flex MMP or Parity Preferred are in arrears, or if the Corporation has not
satisfied its mandatory redemption or sinking fund requirements with respect to
a Series of Flex MMP with a Mandatory Redemption Period, no shares of such
Series of Flex MMP, any other Series of Flex MMP or any Series of Parity
Preferred shall be redeemed as a whole or in part unless all outstanding shares
of each Series of Flex MMP and all shares of Parity Preferred are simultaneously
redeemed and the Corporation shall not purchase or otherwise acquire any shares
of Flex MMP or any shares of Parity Preferred otherwise than pursuant to an
exchange offer made on the same terms to all holders of a Series of Flex MMP or
Parity Preferred, provided, however, that the Corporation may (i) redeem shares
-------- -------
of MAPS in whole
<PAGE>
33
or in part if such redemption is required pursuant to Section 6(b) of Part B,
(ii) redeem shares of Flex MMP as required during a Mandatory Redemption Period,
or (iii) redeem any other shares of Parity Preferred as required by any similar
provisions.
(d) Redemption Procedures. (i) If any shares of Flex MMP are to be
---------------------
redeemed, the Auction Agent will, at the direction of the Corporation, cause to
be sent, by first-class or air mail, postage prepaid, telex or facsimile, a
notice (the "Notice of Redemption") to each holder of record of Depositary
--------------------
Shares representing the Flex MMP to be redeemed. Such Notice of Redemption
shall be sent not fewer than ten nor more than 45 days prior to the Redemption
Date. Each Notice of Redemption will state (A) the Redemption Date, (B) the
redemption price for each share of each Series and (C) the number of Depositary
Shares representing the shares of Flex MMP and the Series thereof to be
redeemed. Each Notice of Redemption shall also be published, concurrently with
the delivery thereof, in The Wall Street Journal.
-----------------------
(ii) No defect in the Notice of Redemption or in the mailing thereof
will affect the validity of the redemption proceedings, except as required by
applicable law. A Notice of Redemption will be deemed given on the day that it
is mailed in accordance with the foregoing description.
(iii) So long as the Securities Depository's nominee is the record
holder of Depositary Shares, the Auction Agent will give notice to the
Depositary and the Securities Depository, and the Securities Depository will
determine the number of Depositary Shares representing shares of each such
Series to be redeemed from the account of the Agent Members of each Beneficial
Holder. Agent Members in turn may determine to redeem Depositary Shares from
some Persons listed on their records as Beneficial Owners (which may include
an Agent Member holding shares for its own account) without redeeming shares
from the accounts of other Persons listed on their records as Beneficial
Owners. Any such redemption will be made in accordance with applicable
securities laws and rules. If the Securities Depositary's nominee is not the
holder of all the Depositary Shares representing shares of Flex MMP of the
Series to be redeemed, the particular Depositary Shares of the Series of Flex
MMP to be redeemed shall be selected by the Corporation or the Auction Agent,
as the case may be, by lot or by such other method as such Person shall deem
fair and equitable.
<PAGE>
34
(iv) Upon any Redemption Date (unless a failure to Deposit occurs), all
rights of the Holders of Flex MMP of the Series called for redemption will cease
and terminate, except the right of such Holders to receive the amounts payable
in respect of such redemption therefor, but without interest, and such shares of
Flex MMP will be deemed no longer outstanding.
7. Auction Agent. The Corporation shall use its best efforts to
-------------
maintain, pursuant to a written agreement (the "Auction Agreement"), an Auction
Agent with respect to the Series 1 Flex MMP, Series 2 Flex MMP, and Series 3
Flex MMP to act in accordance with the provisions set forth in this Part C with
respect to each such Series.
8. Exclusive Remedy. In the event that dividends are not timely
----------------
declared on the shares of Flex MMP, the exclusive remedy of Holders against the
Corporation shall be as set forth in this Part C and in no event shall Holders
of such shares have any right to maintain a suit or proceeding against the
Corporation in respect of such dividends or damages for the failure to receive
the same or resulting from such noncompliance.
9. Auction Procedures. (a) Certain Definitions. Capitalized terms
------------------ -------------------
not defined in this Section 9 shall have the respective meanings specified in
Sections 1 through 8 above of this Part C. As used in this Section 9, the
following terms shall have the following meanings, unless the context otherwise
requires:
(i) "Agent Member" means the member of the Securities
------------
Depository that will act on behalf of an Existing Holder, a
Beneficial Owner, a Potential Holder or a Potential Beneficial
Owner.
(ii) "Available Depositary Shares" has the meaning set
---------------------------
forth in subsection (d)(i) below.
(iii) "Beneficial Owner" means a customer of a
----------------
Broker-Dealer who is listed on the records of such Broker-Dealer
(or, if applicable, the Auction Agent) as a holder of Depositary
Shares.
(iv) "Bid" has the meaning set forth in subsection
---
(b)(i) below.
<PAGE>
35
(v) "Bidder" has the meaning set forth in subsection
------
(b)(i) below.
(vi) "Broker-Dealer" means any broker-dealer, or other
-------------
entity permitted by law to perform the functions required of a
Broker-Dealer in these Auction Procedures, that has been selected
by the Corporation and has entered into a Broker-Dealer Agreement
with the Auction Agent that remains effective.
(vii) "Broker-Dealer Agreement" means an agreement
-----------------------
between the Auction Agent and a Broker-Dealer pursuant to which
such Broker-Dealer agrees to follow the procedures specified in
these Auction Procedures.
(viii) "Existing Holder" means a Broker-Dealer (or any
---------------
other person as may be permitted by the Corporation with the
consent of the Broker-Dealers and subject to execution by such
person of a purchaser's letter satisfactory in form and substance
to the Corporation and the Broker-Dealers) that is listed on the
records of the Auction Agent as a holder of Depositary Shares.
(ix) "Hold Order" has the meaning set forth in
----------
subsection (b)(i) below.
(x) "Order" has the meaning set forth in subsection
-----
(b)(i) below.
(xi) "Potential Beneficial Owner" means a customer of a
--------------------------
Broker-Dealer that is not a Beneficial Owner of Depositary Shares
but wishes to purchase Depositary Shares or that is a Beneficial
Owner of Depositary Shares that wishes to purchase additional
Depositary Shares.
(xii) "Potential Holder" means a Broker-Dealer (or any
----------------
such other person as may be permitted by the Corporation with the
consent of the Broker-Dealers and subject to execution by such
person of a purchaser's letter satisfactory in form and substance
to the Corporation and the Broker-Dealers) that is not an
Existing Holder of Depositary Shares or that is an Existing
Holder of Depositary Shares that wishes to become an Existing
Holder of additional Depositary Shares.
(xiii) "Sell Order" has the meaning set forth in
----------
subsection (b)(i) below.
(xiv) "Submission Deadline" means 1:00 p.m., New York
-------------------
City time, on any Auction Date or such other time on any Auction
Date as may be specified from time to time by the
<PAGE>
36
Auction Agent as the time prior to which each Broker-Dealer must
submit to the Auction Agent in writing all orders obtained by it
for the Auction to be conducted on such Auction Date.
(xv) "Submitted Bid" has the meaning set forth in
-------------
subsection (c)(i) below.
(xvi) "Submitted Hold Order" has the meaning set forth
--------------------
in subsection (c)(i) below.
(xvii) "Submitted Order" has the meaning set forth in
---------------
subsection (c)(i) below.
(xvii) "Submitted Sell Order" has the meaning set forth
--------------------
in subsection (c)(i) below.
(xix) "Sufficient Clearing Bids" has the meaning set
------------------------
forth in subsection (d)(i) below.
(xx) "Winning Bid Rate" has the meaning set forth in
----------------
subsection (d)(i) below.
(b) Orders by Beneficial Owners and Potential Beneficial
----------------------------------------------------
Owners.
------
(i) Prior to the Submission Deadline on each Auction
Date for any Series of Depositary Shares representing a
particular Series of Flex MMP:
(A) each Beneficial Owner may submit to a
Broker-Dealer information as to:
(1) the number of Outstanding
Depositary Shares, if any, held by such
Beneficial Owner that such Beneficial Owner
desires to continue to hold without regard
to the Applicable Rate for the next
succeeding Dividend Period;
(2) the number of Outstanding
Depositary Shares, if any, held by such
Beneficial Owner that such Beneficial Owner
desires to sell, provided that the
--------
Applicable Rate for the next succeeding
Dividend Period is less than the rate per
annum specified by such Beneficial Owner;
and/or
<PAGE>
37
(3) the number of Outstanding
Depositary Shares, if any, held by such
Beneficial Owner that such Beneficial Owner
desires to sell without regard to the
Applicable Rate for the next succeeding
Dividend Period; and
(B) each Broker-Dealer, using a list of
Potential Beneficial Owners that shall be maintained in
accordance with the provisions set forth in the
Broker-Dealer Agreement for the purpose of conducting a
competitive Auction, shall contact both Beneficial
Owners and Potential Beneficial Owners, including
Beneficial Owners with respect to an offer by any such
Beneficial Owner to purchase additional Depositary
Shares representing a particular Series of Flex MMP, on
such list to notify such Beneficial Owners and
Potential Beneficial Owners as to the length of the
next Dividend Period and with respect to any Short
Dividend Period, Long Dividend Period or Mandatory
Redemption Period, the Dividend Payment Date(s) and any
dates before which shares of Flex MMP may not be
redeemed and any redemption premium applicable in an
Optional Redemption, and to determine the number of
Outstanding Depositary Shares, if any, with respect to
which each such Beneficial Owner and each such
Potential Beneficial Owner desires to submit offers to
purchase, provided that the Applicable Rate for the
--------
next succeeding Dividend Period shall not be less than
the rate per annum specified by such Potential
Beneficial Owner.
For the purposes hereof, the communication to a
Broker-Dealer of information referred to in clause (A) or
(B) of this subsection (b)(i) is hereinafter referred to as
an "Order" and each Beneficial Owner and each Potential
-----
Beneficial Owner placing an Order with a Broker-Dealer is
hereinafter referred to as a "Bidder"; the submission by a
------
Broker-Dealer of an Order to the Auction Agent shall
likewise be referred to herein as an "Order", and an
Existing Holder or Potential Holder who places an Order with
the Auction Agent or on whose behalf an Order is placed with
the Auction Agent shall likewise be referred to herein as a
"Bidder"; an Order containing the information referred to in
------
clause (A)(1) of this subsection (b)(i) is hereinafter
referred to as a "Hold Order"; an Order containing the
----------
information referred to in clause (A)(2) or (B) of this
subsection (b)(i) is hereinafter referred to as a "Bid"; and
---
an Order
<PAGE>
38
containing the information referred to in clause (A)(3) of this
subsection (b)(i) is hereinafter referred to as a "Sell Order."
----------
(ii) (A) A Bid by a Beneficial Owner or an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of Outstanding Depositary Shares
specified in such Bid if the Applicable Rate determined on
such Auction Date shall be less than the rate per annum
specified in such Bid; or
(2) such number or a lesser number of Outstanding
Depositary Shares to be determined as set forth in
subsections (e)(i)(D) and (e)(iii) if the Applicable Rate
determined on such Auction Date shall be equal to the rate
per annum specified therein; or
(3) the number of Outstanding Depositary Shares
specified in such Bid if the rate specified therein shall be
higher than the Maximum Applicable Rate for Depositary
Shares or such number or a lesser number of Outstanding
Depositary Shares to be determined as set forth in
subsections (e)(ii)(C) and (e)(iii) if such specified rate
per annum shall be higher than the Maximum Applicable Rate
and Sufficient Clearing Bids do not exist.
(B) A Sell Order by a Beneficial Owner or an Existing Holder
shall constitute an irrevocable offer to sell:
(1) the number of Outstanding Depositary Shares
specified in such Sell Order; or
(2) such number or a lesser number of Outstanding
Depositary Shares to be determined as set forth in
subsections (e)(i)(C) and (e)(iii) if Sufficient Clearing
Bids do not exist.
(C) A Bid by a Potential Beneficial Owner or a Potential
Holder shall constitute an irrevocable offer to purchase:
(1) the number of Outstanding Depositary Shares
specified in such Bid if the Applicable Rate determined on
such Auction Date shall be higher than the rate per annum
specified in such Bid; or
<PAGE>
39
(2) such number or a lesser number of Outstanding
Depositary Shares to be determined as set forth in
subsections (e)(i)(E) and (e)(iv) if the Applicable Rate
determined on such Auction Date shall be equal to the rate
per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction
-------------------------------------------------
Agent.
-----
(i) Each Broker-Dealer shall submit in writing to the
Auction Agent prior to the Submission Deadline on each Auction
Date for any Series of Depositary Shares representing a
particular Series of Flex MMP all Orders obtained by such
Broker-Dealer, designating itself as the Existing Holder in
respect of Depositary Shares subject to Orders submitted or
deemed submitted to it by Beneficial Owners and as a Potential
Holder in respect of Depositary Shares subject to Orders
submitted to it by Potential Beneficial Owners, and specifying
with respect to each Order:
(A) the name of the Bidder placing such Order (which
shall be the Broker-Dealer unless otherwise permitted by the
Corporation);
(B) the aggregate number of Outstanding Depositary
Shares that are the subject of such Order;
(C) to the extent that such Bidder is an Existing
Holder:
(1) the number of Outstanding Depositary
Shares, if any, subject to any Hold Order placed by such
Existing Holder;
(2) the number of Outstanding Depositary Shares, if
any, subject to any Bid placed by such Existing Holder and
the rate per annum specified in such Bid; and
(3) the number of Outstanding Depositary Shares, if
any, subject to any Sell Order placed by such Existing
Holder; and
(D) to the extent such Bidder is a Potential Holder,
the rate per annum and the number of Depositary Shares specified
in such Potential Holder's Bid.
<PAGE>
40
(Each "Hold Order," "Bid" or "Sell Order" as submitted or deemed
submitted by a Broker-Dealer is hereinafter referred to individually
as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell
-------------------- ------------- --------------
Order," as the case may be, or as a "Submitted Order.")
---- ---------------
(ii) If any rate per annum specified in any Submitted Bid
contains more than three figures to the right of the decimal point,
the Auction Agent shall round such rate up to the next highest
one-thousandth (.001) of 1%.
(iii) If one or more Orders covering in the aggregate all of the
Outstanding Depositary Shares held by an Existing Holder are not
submitted to the Auction Agent prior to the Submission Deadline for
any reason (including the failure of a Broker-Dealer to contact such
Existing Holder or to submit such Existing Holder's Order or Orders),
such Existing Holder shall be deemed to have submitted a Hold Order
covering the number of Outstanding Depositary Shares held by such
Existing Holder that are not subject to Orders submitted to the
Auction Agent, except as provided in the next succeeding paragraph.
(iv) A Submitted Order or Submitted Orders of an Existing Holder
that cover in the aggregate more than the number of Outstanding
Depositary Shares held by such Existing Holder will be considered
valid in the following order of priority:
(A) any Submitted Hold Order of such Existing Holder
will be considered valid up to and including the number of
Outstanding Depositary Shares held by such Existing Holder,
provided that, if there is more than one such Submitted Hold
Order and the aggregate number of Depositary Shares subject to
such Submitted Hold Orders exceeds the number of Outstanding
Depositary Shares held by such Existing Holder, the number of
Depositary Shares subject to each of such Submitted Hold Orders
will be reduced pro rata so that such Submitted Hold Orders in
the aggregate will cover exactly the number of Outstanding
Depositary Shares held by such Existing Holder;
(B) any Submitted Bids of such Existing Holder will be
considered valid (in the ascending order of their respective
rates per annum if there is more
<PAGE>
41
than one Submitted Bid of such Existing Holder) for the number of
Outstanding Depositary Shares held by such Existing Holder equal
to the difference between (i) the number of Outstanding
Depositary Shares held by such Existing Holder and (ii) the
number of Outstanding Depositary Shares subject to any Submitted
Hold Order of such Existing Holder referred to in clause (iv)(A)
above (and, if more than one Submitted Bid of such Existing
Holder specifies the same rate per annum and together they cover
more than the remaining number of Depositary Shares that can be
the subject of valid Submitted Bids of such Existing Holder after
application of clause (iv)(A) above and of the foregoing portion
of this clause (iv)(B) to any Submitted Bid or Submitted Bids of
such Existing Holder specifying a lower rate or rates per annum,
the number of Depositary Shares subject to each of such Submitted
Bids specifying the same rate per annum will be reduced pro rata
so that such Submitted Bids, in the aggregate, cover exactly such
remaining number of Outstanding Depositary Shares of such
Existing Holder); and
(C) any Submitted Sell Order of an Existing Holder will
be considered valid up to and including the excess of the number
of Outstanding Depositary Shares held by such Existing Holder
over the sum of (a) the number of Depositary Shares subject to
Submitted Hold Orders by such Existing Holder referred to in
clause (iv)(A) above and (b) the number of Depositary Shares
subject to valid Submitted Bids by such Existing Holder referred
to in clause (iv)(B) above; provided that, if there is more than
--------
one Submitted Sell Order of such Existing Holder and the number
of Depositary Shares subject to such Submitted Sell orders is
greater than such excess, the number of Depositary Shares subject
to each of such Submitted Sell Orders will be reduced pro rata so
that such Submitted Sell Orders, in the aggregate, will cover
exactly the number of Depositary Shares equal to such excess.
The number of Outstanding Depositary Shares, if any, subject to
Submitted Bids of such Existing Holder not valid under clause (iv)(B)
above shall be treated as the subject of a Submitted Bid by a
Potential Holder at the rate per annum specified in such Submitted
Bids.
<PAGE>
42
(v) If there is more than one Submitted Bid by any Potential
Holder in any Auction, each such Submitted Bid shall be considered a
separate Submitted Bid with respect to the rate per annum and number
of Depositary Shares specified therein.
(vi) Any Order submitted by a Beneficial Owner or a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, prior to the Submission Deadline on any Auction Date,
shall be irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid
------------------------------------------------------
Rate and Applicable Rate.
- ------------------------
(i) Not earlier than the Submission Deadline on each Auction
Date for any Series of Depositary Shares representing a particular
Series of Flex MMP, the Auction Agent shall assemble all Orders
submitted or deemed submitted to it by the Broker-Dealers and shall
determine:
(A) the excess of the total number of Outstanding
Depositary Shares over the number of Depositary Shares that are
the subject of Submitted Hold Orders (such excess being
hereinafter referred to as the "Available Depositary Shares");
---------------------------
(B) from the Submitted Orders, whether the number of
Outstanding Depositary Shares that are the subject of Submitted
Bids by Potential Holders specifying one or more rates per annum
not higher than the Maximum Applicable Rate exceeds or is equal
to the sum of:
(1) the number of Outstanding Depositary Shares that
are the subject of Submitted Bids by Existing Holders
specifying one or more rates per annum higher than the
Maximum Applicable Rate, and
(2) the number of Outstanding Depositary Shares that
are subject to Submitted Sell Orders
(if such excess or such equality exists (other than because the
number of Outstanding Depositary Shares in clauses (1) and (2)
above are each zero because all of the Outstanding Depositary
Shares are the subject of Submitted Hold Orders), there shall
exist
<PAGE>
43
"Sufficient Clearing Bids" and such Submitted Bids by
Potential Holders shall be hereinafter referred to collectively
as "Sufficient Clearing Bids"); and
------------------------
(C) if Sufficient Clearing Bids exist, the winning bid rate
(the "Winning Bid Rate"), which shall be the lowest rate per annum
----------------
specified in the Submitted Bids that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing
Holders specifying lower rates per annum were accepted, thus
entitling such Existing Holders to continue to hold the
Depositary Shares that are the subject of such Submitted Bids,
and
(2) each Submitted Bid from Potential Holders specifying
the Winning Bid Rate and all other Submitted Bids from Potential
Holders specifying lower rates per annum were accepted, thus
entitling such Potential Holders to purchase the Depositary
Shares that are the subject of such Submitted Bids, would result
in such Existing Holders described in subclause (C)(1) continuing
to hold an aggregate number of Outstanding Depositary Shares
which, when added to the number of Outstanding Depositary Shares
to be purchased by such Potential Holders described in subclause
(C)(2), would equal or exceed the number of Available Depositary
Shares.
(ii) In connection with any Auction and promptly after the Auction
Agent has made the determinations pursuant to subsection (d)(i), the
Auction Agent shall advise the Corporation of the Maximum Applicable Rate
and, based on such determinations, the Applicable Rate for the next
succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable
Rate for the next succeeding Subsequent Rate Period for all Depositary
Shares of such Series shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding Depositary Shares are the subject of
Submitted Hold Orders), then the Maximum Applicable Rate shall apply
with respect to the next succeeding Auction; or
<PAGE>
44
(C) if all of the Outstanding Depositary Shares are the
subject of Submitted Hold Orders, that the Applicable Rate for the
next succeeding Subsequent Rate Period shall be equal to 59% of the
Applicable "AA" Composite Commercial Paper Rate, in the case of Flex
MMP with a Standard Dividend Period or a Short Dividend Period of 183
days or less, 59% of the Applicable Treasury Index Rate in the case of
Flex MMP with a Short Dividend Period of 184 to 364 days, a Long
Dividend Period or a Mandatory Redemption Period, in each case in
effect on the Auction Date.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
-------------------------------------------------------------
Orders and Allocation of Depositary Shares. Based on the determinations made
- ------------------------------------------
pursuant to subsection (d)(i), the Submitted Bids and Submitted Sell Orders
shall be accepted or rejected and the Auction Agent shall take such other action
as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of subsections (e)(iii) and (e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order
of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the Winning Bid Rate
shall be rejected, thus requiring each such Existing Holder to sell
the Outstanding Depositary Shares that are the subject of such
Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is lower than the Winning Bid
Rate shall be accepted, thus entitling each such Existing Holder to
continue to hold the Outstanding Depositary Shares that are the
subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate per annum that is lower than the Winning Bid Rate
shall be accepted, thus requiring each such Potential Holder to
purchase the Outstanding Depositary Shares that are the subject of
such Submitted Bid;
<PAGE>
45
(D) the Submitted Bid of each of the Existing Holders
specifying a rate per annum that is equal to the Winning Bid Rate
shall be accepted, thus entitling each such Existing Holder to
continue to hold the Outstanding Depositary Shares that are the
subject of such Submitted Bid, unless the number of Outstanding
Depositary Shares subject to all such Submitted Bids shall be greater
than the number of Outstanding Depositary Shares ("Remaining
---------
Depositary Shares") equal to the excess of the Available Depositary
-----------------
Shares over the number of Outstanding Depositary Shares subject to
Submitted Bids described in subsections (e)(i)(B) and (e)(i)(C), in
which event the Submitted Bids of each such Existing Holder shall be
rejected in part, and each such Existing Holder shall be required to
sell Outstanding Depositary Shares, but only in an amount equal to the
difference between (1) the number of Outstanding Depositary Shares
then held by such Existing Holder subject to such Submitted Bid and
(2) the number of Depositary Shares obtained by multiplying (x) the
number of Remaining Depositary Shares by (y) a fraction, the numerator
of which shall be the number of Outstanding Depositary Shares held by
such Existing Holder subject to such Submitted Bid and the denominator
of which shall be the aggregate number of Outstanding Depositary
Shares subject to such Submitted Bids made by all such Existing
Holders that specified a rate per annum equal to the Winning Bid Rate;
and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate per annum that is equal to the Winning Bid Rate
shall be accepted, but only in an amount equal to the number of
Outstanding Depositary Shares obtained by multiplying (x) the
difference between the Available Depositary Shares and the number of
Outstanding Depositary Shares subject to Submitted Bids described in
subsections (e)(i)(B), (e)(i)(C) and (e)(i)(D) by (y) a fraction, the
numerator of which shall be the number of Outstanding Depositary
Shares subject to such Submitted Bid and the denominator of which
shall be the aggregate number of Outstanding Depositary Shares subject
to such Submitted Bids made by all such Potential Holders that
specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding Depositary
<PAGE>
46
Shares are subject to Submitted Hold Orders), subject to the provisions of
subsection (e)(iii), Submitted Orders shall be accepted or rejected as
follows in the following order of priority and all other Submitted Bids of
Potential Holders shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be accepted, thus entitling such Existing Holder to
continue to hold the Outstanding Depositary Shares that are the
subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying
any rate per annum that is equal to or lower than the Maximum
Applicable Rate shall be accepted, thus requiring such Potential
Holder to purchase the Outstanding Depositary Shares that are the
subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying
any rate per annum that is higher than the Maximum Applicable Rate
shall be rejected, thus requiring each such Existing Holder to sell
the Outstanding Depositary Shares that are the subject of such
Submitted Bid, and the Submitted Sell Orders of each Existing Holder
shall be accepted, in both cases only in an amount equal to the
difference between (1) the number of Outstanding Depositary Shares
then held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of Depositary Shares obtained
by multiplying (x) the difference between the Available Depositary
Shares and the aggregate number of Outstanding Depositary Shares
subject to Submitted Bids described in subsections (e)(ii)(A) and
(e)(ii)(B) by (y) a fraction, the numerator of which shall be the
number of Outstanding Depositary Shares held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the aggregate number of Outstanding
Depositary Shares subject to all such Submitted Bids and Submitted
Sell Orders.
(iii) If, as a result of the procedures described in subsection
(e)(i) or (e)(ii), any Existing Holder would be entitled or required to
sell or any Potential Holder would be entitled or required to purchase, a
fraction of a Depositary Share on any Auction Date, or any Existing Holder
or Potential Holder would own a fraction of a Unit
<PAGE>
47
(except with respect to an Auction relating to a Mandatory Redemption
Period), the Auction Agent shall, in such manner as in its sole discretion
it shall determine, round up or down the number of Depositary Shares to be
purchased or sold by any Existing Holder or Potential Holder on such
Auction Date so that only whole Depositary Shares will be entitled or
required to be sold or purchased and, other than with respect to an Auction
relating to a Mandatory Redemption Period, so as to result in each Existing
Holder or Potential Holder owning whole Units.
(iv) If, as a result of the procedures described in subsection
(e)(i), any Potential Holder would be entitled or required to purchase less
than a whole Depositary Share on any Auction Date, or any Potential Holder
would own a fraction of a Unit (except with respect to an Auction relating
to a Mandatory Redemption Period), the Auction Agent shall, in such manner
as in its sole discretion it shall determine, allocate Depositary Shares
for purchase among Potential Holders so that only whole Depositary Shares
and, other than with respect to an Auction relating to a Mandatory
Redemption Period, whole Units, are purchased on such Auction Date by any
Potential Holder, even if such allocation results in one or more of such
Potential Holders not purchasing any Depositary Shares on such Auction
Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate
number of Outstanding Depositary Shares to be purchased and the aggregate
number of Outstanding Depositary Shares to be sold by such Potential
Holders and Existing Holders and, to the extent that such aggregate number
of Outstanding Depositary Shares to be purchased and such aggregate number
of Outstanding Depositary Shares to be sold differ, the Auction Agent shall
determine to which other Broker-Dealer or Broker-Dealers acting for one or
more purchasers such Broker-Dealer shall deliver, or from which other
Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding Depositary
Shares.
(f) Miscellaneous. Except during a Mandatory Redemption Period, an
-------------
Existing Holder or Beneficial Owner (A) may sell, transfer or otherwise dispose
of Depositary Shares only pursuant to a Bid or Sell Order in accordance with the
<PAGE>
48
procedures described in this Section 9 or to or through a Broker-Dealer,
provided that in the case of all transfers other than pursuant to Auctions such
- --------
Existing Holder, its Broker-Dealer or its Agent Member advises the Auction Agent
of such transfer and (B) unless otherwise required by law, shall have the
beneficial ownership of the Depositary Shares held by it maintained in
book-entry form by the Securities Depository in the account of its Agent Member,
which in turn shall maintain records of such Existing Holder's beneficial
ownership. The Corporation and its Affiliates shall not submit any Order in any
Auction except as set forth in the next sentence. Any Broker-Dealer that is an
affiliate of the Corporation may submit Orders in Auctions but only if such
Orders are not for its own account, except that if such affiliated Broker-Dealer
holds Depositary Shares for its own account, it must submit a Sell Order in the
next Auction with respect to such Depositary Shares. All of the Outstanding
Depositary Shares of each Series shall be represented by a single certificate
for each Series registered in the name of the nominee of the Securities
Depository unless otherwise required by law or unless there is no Securities
Depository. If there is no Securities Depository, Depositary Shares shall be
registered in the register of the Corporation in the name of the Existing Holder
thereof and such Existing Holder thereupon will be entitled to receive a
certificate therefor and be required to deliver a certificate therefor upon
transfer or exchange thereof.
Except as provided in the next sentence, Depositary Shares must be held
or transferred, and all Bid, Sell or Hold Orders in an Auction must be placed,
only in whole Units (consisting of 1,000 Depositary Shares). During a Mandatory
Redemption Period, Depositary Shares will not be required to be held or
transferred in Units and in an Auction relating to a Mandatory Redemption
Period, Bid, Sell or Hold Orders will not be required to be placed in Units.
10. Additional Terms. (a) The Board of Directors may interpret the
----------------
provisions of this Part C to resolve any inconsistency or ambiguity, remedy any
formal defect or make any other change or modification which does not adversely
affect the rights of Holders of Flex MMP or Existing Holders of Depositary
Shares.
(b) The headings of the various subdivisions of this Part C are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
<PAGE>
EXHIBIT 10g
AMENDMENT 1993-1 TO THE
RHONE-POULENC RORER EMPLOYEE SAVINGS PLAN
1. Section 5.1 of the Plan is amended to read, in its entirety, as follows:
"5.1 Matching Contributions. Subject to the limitations set forth in
Article VI, each Participant's Basic Contributions shall be matched on an
annual basis by an Employer Contribution up to a maximum Employer
Contribution of $3,000 for a Participant in a Plan Year. The Basic
Contributions shall be matched by Employer Contributions in accordance with
the following schedule:
<TABLE>
<CAPTION>
BASIC CONTRIBUTION EMPLOYER CONTRIBUTION
(AS A % OF COMPENSATION) (AS A % OF BASIC CONTRIBUTION)
------------------------ ------------------------------
<S> <C>
1st 1% 100%
2nd 1% 90%
3rd 1% 80%
4th-6th 1% 50%
</TABLE>
The Company shall, with respect to the first Plan Year in which an
Employee elects to become a Participant pursuant to Article III hereof,
make an additional Employer Contribution of $100 on behalf of the
Participant. The Company may, in its sole discretion, elect to make an
Employer Contribution that is in excess of the amount required to be
contributed by the Company; provided, however, that in no event shall the
total Employer Contributions for any Participant for any Plan Year exceed
the $3,000 limitation referenced above."
2. This Amendment 1993-1 shall be effective as of September 1, 1993.
<PAGE>
EXHIBIT 11
RHONE-POULENC RORER INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1993 1992 1991
----------------- ----------------- -----------------
DOLLARS PER SHARE DOLLARS PER SHARE DOLLARS PER SHARE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME PER COMMON
SHARE, PRIMARY:
Net income before
preferred dividend and
cumulative effect of
accounting change....... $ 421.1 $ 423.3 $ 326.5
Less: Preferred dividend. 12.4 10.1 .4
------- ------- -------
Net income before
cumulative effect of
accounting change....... 408.7 $ 2.96 413.2 $ 2.99 326.1 $ 2.37
Cumulative effect of ac-
counting change......... -- -- 15.0 .11 -- --
------- ------ ------- ------ ------- ------
Net income............... $ 408.7 $ 2.96 $ 428.2 $ 3.10 $ 326.1 $ 2.37
======= ====== ======= ====== ======= ======
Average shares outstand-
ing..................... 138.2 138.1 137.7
======= ======= =======
NET INCOME PER COMMON
SHARE, FULLY DILUTED:
Net income before
preferred dividend and
cumulative effect of
accounting change....... $ 421.1 $ 423.3 $ 326.5
Less: Preferred dividend. 12.4 10.1 .4
------- ------- -------
Net income before
cumulative effect of
accounting change....... 408.7 $ 2.94 413.2 $ 2.96 326.1 $ 2.33
Cumulative effect of ac-
counting change......... -- -- 15.0 .11 -- --
------- ------ ------- ------ ------- ------
Net income............... $ 408.7 $ 2.94 $ 428.2 $ 3.07 $ 326.1 $ 2.33
======= ====== ======= ====== ======= ======
Average shares outstand-
ing..................... 138.2 138.1 137.7
Shares contingently issu-
able for stock plan..... .7 1.4 2.2
------- ------- -------
Average shares
outstanding, assuming
full dilution........... 138.9 139.5 139.9
======= ======= =======
</TABLE>
This calculation is submitted in accordance with the regulations of the
Securities and Exchange Commission although not required by APB Opinion No. 15
because it results in dilution of less than 3 percent in all years presented.
<PAGE>
EXHIBIT 12
RHONE-POULENC RORER INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
ACTUAL PROFORMA
1993 1992 1991 1990 1990 1989
---- ---- ---- ------ -------- ----
(IN MILLIONS EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes and minority
interest.............................. $594 $584 $486 $ 17 $232 $125
Add:
Portion of rents representative of
the interest factor................. 16 9 9 7 8 5
Interest on indebtedness............... 71 125 165 183 247 58
Amortization of capitalized interest... 6 3 2 2 2 2
---- ---- ---- ---- ---- ----
Income as adjusted..................... $687 $721 $662 $209 $489 $190
==== ==== ==== ==== ==== ====
Interest on indebtedness............... $ 71 $125 $165 $183 $247 $ 58
Capitalized interest................... 4 15 21 8 9 4
Portion of rents representative of the
interest factor....................... 16 9 9 7 8 5
---- ---- ---- ---- ---- ----
Fixed charges.......................... $ 91 $149 $195 $198 $264 $ 67
Preferred dividends.................... 16 14 -- -- -- 2
---- ---- ---- ---- ---- ----
Fixed charges and preferred dividends.. $107 $163 $195 $198 $264 $ 69
==== ==== ==== ==== ==== ====
Ratio of earnings to fixed charges..... 7.5 4.8 3.4 1.1 1.9 2.8
==== ==== ==== ==== ==== ====
Ratio of earnings to fixed charges and
preferred dividends................... 6.4 4.4 3.4 1.1 1.9 2.8
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
EXHIBIT 21
RHONE-POULENC RORER INC.
SUBSIDIARIES
Agrico Limited (U.K.)
Approved Prescription Services Limited (U.K.)
APS Health Ltd. (U.K.)
Armour Pharmaceutical Holdings Limited (U.K.)
Armour Pharmaceutical Company Ltd. (U.K.)
Armour Pharmaceutical Co. (De)
Armour Pharmaceutica LTDA (Brazil)
Armour Pharma GmbH (Germany)
Armour Pharmaceutical Products Inc. (De)
Barcroft Company (De)
Bellon (France)
Berk Pharmaceuticals Limited (U.K.)
Berk Pharma A/S (Denmark)
Biovital Laboratoires (France)
Bottu (France)
BRG Partnership (De)
Co-Frusamil Limited (U.K.)
Dermik Labs, Inc. (De)
Dermik II (De)
DeRoc Partnership (De)
Dicoss A.G. (Switzerland)
Dipharm A.G. (Switzerland)
Dr. Schieffer Arznei GmbH (Germany)
Dr. Schieffer Arzneimittel A.G. (Switzerland)
Dr. Schieffer International Arzneimittel GmbH (Germany)
Inmobiliaria RPR, S.A. de C.V. (Mexico)
May & Baker Pharma Inc. (Canada)
May & Baker Pharmaceuticals Limited (U.K.)
May & Baker Limited (U.K.)
May & Baker Limited U.K. (U.K.)
Natrapharm (Ireland) LTD
Nattermann de Mexico (Mexico)
Nattermann Espana S.A. (Spain)
Nattermann & CIE GmbH (Germany)
Nattermann International GmbH (Germany)
Performances Chimiques (France)
Pharmatec Limited (U.K.)
Pharmindustrie S.A. (France)
Piraud A.G. (Switzerland)
Plasma Alliance Inc. (De)
R-PR IPL Group Inc. (De)
R-PR BRG Group Inc. (De)
Rhodiapharm Inc. (Canada)
Rhone-Poulenc Rorer Pharmaceuticals Inc. (De)
Rhone-Poulenc Rorer Pharm Products (De)
Rhone-Poulenc Rorer Pharmaceutical Limited (Ireland)
<PAGE>
EXHIBIT 21
RHONE-POULENC RORER INC.
SUBSIDIARIES
Rhone-Poulenc Rorer Philippines Inc. (Philippines)
Rhone-Poulenc Rorer Pharmaservices (France)
Rhone-Poulenc Rorer Pakistan (PVT) Ltd. (Pakistan)
Rhone-Poulenc Rorer New Zealand Ltd. (New Zealand)
Rhone-Poulenc Rorer Panama S.A. (Panama)
Rhone-Poulenc Rorer Participations (France)
Rhone-Poulenc Rorer Pharma Specialties (France)
Rhone-Poulenc Rorer (Morocco)
Rhone-Poulenc Rorer S.A. (Spain)
Rhone-Poulenc Rorer S.A. De C.V. (Mexico)
Rhone-Poulenc Rorer S.p.A. (Italy)
Rhone-Poulenc Rorer Thailand
Rhone-Poulenc Rorer S.A. (Pty.) Ltd. (South Africa)
Rhone-Poulenc Rorer S.A. (France)
Rhone-Poulenc Rorer Propharm (France)
Rhone-Poulenc Rorer R&D (France)
Rhone-Poulenc Rorer S.A. (Argentina)
Rhone-Poulenc Rorer S.A. (Chile)
Rhone-Poulenc Rorer Principes Actifs (France)
Rhone-Poulenc Rorer Doma (France)
Rhone-Poulenc Rorer Aebe (Greece)
Rhone-Poulenc Rorer S.A. (Uruguay)
Rhone-Poulenc Rorer A.G. (Switzerland)
Rhone-Poulenc Rorer AS (Denmark)
Rhone-Poulenc Rorer Belgium (Belgium)
Rhone-Poulenc Rorer Australia Pty. Ltd. (Australia)
Rhone-Poulenc Pharma AB (Sweden)
Rhone-Poulenc Pharma GmbH (Germany)
Rhone-Poulenc Rorer Limited (U.K.)
Rhone-Poulenc Indonesia Pharma (Indonesia)
Rhone-Poulenc Bangladesh Ltd. (Bangladesh)
Rhone-Poulenc Pharma (Cameroon)
Rhone-Poulenc Pharma AG (Switzerland)
Rhone-Poulenc Labo (France)
Rhone-Poulenc Rorer B.V. (Netherlands)
Rhone-Poulenc Rorer Inc. (Pa)
Rhone-Poulenc Rorer Holdings LTD (U.K.)
Rhone-Poulenc Rorer International Holdings Inc. (De)
Rhone-Poulenc Rorer Ireland Ltd. (Ireland)
Rhone-Poulenc Rorer Korea (Korea)
Rhone-Poulenc Rorer Japan, Inc. (Japan)
Rhone-Poulenc Rorer Canada Inc. (Canada)
Rhone-Poulenc Rorer GmbH (Germany)
Rhone-Poulenc Rorer de Venezuela, S.A.
Rhone-Poulenc Rorer Caribbean Inc. (Puerto Rico)
Rhone-Poulenc Rorer (El Salvador) S.A. DE C.V. (El Salvador)
Rhone-Poulenc Rorer Export LTD (UK)
<PAGE>
EXHIBIT 21
RHONE-POULENC RORER INC.
SUBSIDIARIES
Rhone-Poulenc Rorer De Centro America (Guatemala) S.A. (Guatemala)
Rorer International Ltd. (Hong Kong)
Rorer International Corporation (Pa)
Rorer S.A. Zug (Switzerland)
Rorer S.A. (Colombia)
Rorer Pharmaceuticals Limited (U.K.)
Rorer Pharmaceutical Pte. Ltd. (Singapore)
Rorer Ges.m.b.h. (Austria)
Rorer De Equador S.A. (Equador)
Rorer Biofarma S.A (Portugal)
Rorer A.G. (Switzerland)
Rorer Holdings B.V. (Netherlands)
Rorer Finanziaria S.p.A. (Italy)
Rorer (U.K.) Limited
Rorer Health Care Limited (U.K.)
Rorer Health Care Staff Pension Trustee Co. Limited (U.K.)
Rorer Health Care Staff Pensions Limited (U.K.)
Rorer GmbH (Germany)
Rorer Health Care Holdings Limited (U.K.)
RPC Inc. (De)
S.I.P.O.A. (Senegal)
Sedapharm (France)
Sopar Pharma (Belgium)
SPCA--Barcroft E.U.R.L. (France)
Specia (France)
Theraplix (France)
U.S. Ethicals Inc. (N.Y.)
Wampole Inc. (Canada)
Whitney Bay Insurance LTD. (Bermuda)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Rhone-Poulenc Rorer Inc. (formerly Rorer Group Inc.) on Form S-3
(Registration No. 33-62052, Registration No. 33-36558, Registration No. 33-
30795, Registration No. 33-23754, Registration No. 33-4876, Registration No.
33-19936, Registration No. 22-18034, Registration No. 33-43941, Registration
No. 33-53378 and Registration No. 33-55694) and on Form S-8 (Registration No.
33-58998, Registration No. 33-24537, Registration No. 2-61635, Registration No.
2-78374 and Registration No. 33-2403) of our report, which includes an
explanatory paragraph on the Company's change in its method of accounting for
income taxes in 1992, dated January 26, 1994 on our audits of the consolidated
financial statements and financial statement schedules of Rhone-Poulenc Rorer
Inc. and subsidiaries as of December 31, 1993 and 1992, and for the years ended
December 31, 1993, 1992 and 1991, which report is included in this Annual
Report on Form 10-K.
/s/ Coopers & Lybrand
_____________________________________
Coopers & Lybrand
Philadelphia, Pennsylvania
March 16, 1994
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Jean-Jacques Bertrand
_____________________________________
Jean-Jacques Bertrand
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Jean-Marc Bruel
_____________________________________
Jean-Marc Bruel
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Michel de Rosen
_____________________________________
Michel de Rosen
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Charles-Henri Filippi
_____________________________________
Charles-Henri Filippi
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Claude Helene
_____________________________________
Claude Helene
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Michael H. Jordan
_____________________________________
Michael H. Jordan
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Manfred E. Karobath, MD
_____________________________________
Manfred E. Karobath, MD
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Igor Landau
_____________________________________
Igor Landau
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Peter J. Neff
_____________________________________
Peter J. Neff
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ James S. Riepe
_____________________________________
James S. Riepe
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Edward J. Stemmler, MD
_____________________________________
Edward J. Stemmler, MD
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Rhone-
Poulenc Rorer Inc. (the "Company"), hereby appoints John B. Bartlett, Patrick
Langlois and Richard B. Young, and each of them severally, his true and lawful
attorney-in-fact and agent, with full power of substitution, acting in the name
and on behalf of the undersigned, to execute and to file with the Securities
and Exchange Commission the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 under the Securities Exchange Act of 1934, as amended
(the " '34 Act"), and to do all such other acts in compliance with the '34 Act
and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith .
/s/ Jean-Pierre Tirouflet
_____________________________________
Jean-Pierre Tirouflet
Dated: March 8, 1994
/s/ Richard B. Young
WITNESS: ____________________________
