SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission File No.
1-8593
December 31, 1998
ALPHARMA INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2095212
(State of Incorporation) (I.R.S. Employer
Identification No.)
One Executive Drive, Fort Lee, New Jersey 07024
(Address of principal executive offices) zip
code
(201) 947-7774
(Registrant's Telephone Number Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange on
Title of each Class which Registered
Class A Common Stock, New York Stock Exchange
$.20 par value
Subordinated Convertible Notes New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for
such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. YES X NO .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock of the Registrant
(Class A Common Stock, $.20 par value) as of March 10, 1999 was
$734,958,000.
The number of shares outstanding of each of the Registrant's
classes of common stock as of March 10, 1999 was:
Class A Common Stock, $.20 par value - 17,763,347 shares;
Class B Common Stock, $.20 par value - 9,500,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held on June 10, 1999 are incorporated by
reference into Part III of this report. Other documents
incorporated by reference are listed in the Exhibit index.
PART I
Item 1. Business
GENERAL
The Company is a multinational pharmaceutical company that
develops, manufactures and markets specialty human pharmaceutical
and animal health products. The Company manufactures and markets
approximately 600 pharmaceutical products for human use and 40
animal health products. The Company conducts business in more
than 60 countries and has approximately 3,000 employees at 38
sites in 22 countries. For the year ended December 31, 1998, the
Company generated revenue and operating income of over $600
million and $65 million, respectively.
Formation
The Company was originally organized as A.L. Laboratories,
Inc., a wholly owned subsidiary of Apothekernes Laboratorium
A.S., a Norwegian healthcare company (the predecessor company to
A.L. Industrier). In 1994, the Company acquired the complementary
human pharmaceutical and animal health business of its parent
company and subsequently changed its name to Alpharma Inc. to
operate worldwide as one corporate entity (the "Combination
Transaction").
Controlling Stockholder
A.L. Industrier beneficially owns all of the outstanding
shares of the Company's Class B Common Stock, or 35.2% of the
Company's total common stock outstanding at December 31, 1998.
The Class B Common Stock bears the right to elect more than a
majority of the Company's Board of Directors and to cast a
majority of the votes in any vote of the Company's stockholders.
Mr. Einar Sissener, Chairman of the Board of the Company and a
controlling stockholder of A.L. Industrier, and members of his
immediate family, also beneficially own 346,668 shares of the
Company's Class A Common Stock. (See "Purchase of Outstanding
Warrants"). As a result, A.L. Industrier, and ultimately Mr.
Sissener, can control the Company. In addition, A.L. Industrier
may, under certain circumstances, convert the Company's Class B
Notes into 2,372,896 shares of the Company's Class B Common Stock
(see "Convertible Subordinated Note Offering").
Convertible Subordinated Note Offering
On March 30, 1998, the Company sold $125,000,000 and
$67,850,000 of Convertible Subordinated Notes convertible at
$28.59375 per share into shares of the Company's Class A and
Class B Common Stock, respectively (the "Class A and Class B
Notes"). A.L. Industrier purchased all of the Class B Notes.
The Class A Notes were sold to unaffiliated parties and,
substantially all of the Class A Notes have been registered with
the Securities and Exchange Commission and listed on the New York
Stock Exchange. The Class B Notes are automatically convertible
into Class B Common Stock on or after March 30, 2001 if at least
75% of the Class A Notes have been converted into Class A Common
Stock.
Purchase of Outstanding Warrants
In connection with the Combination Transaction, the Company
issued warrants which allowed the holders to purchase 3,819,600
shares of the Company's Class A Common Stock at an exercise price
of $20.69 with an expiration date of January 3, 1999 (the
"Warrants"). On October 21, 1998, the Company offered to
exchange the Warrants for newly issued shares of the Company's
Class A Common Stock based upon an exchange formula which
approximated $1.00 plus the "spread" between the $20.69 warrant
exercise price and the market price of the Company's stock for
the ten days immediately after the Company filed its Form 10-Q
for the quarter ended September 30, 1998. Based upon this
formula, 3,345,921 warrants to purchase shares were tendered to
the Company for which 1,230,448 shares of the Company's Class A
Common Stock were issued. Of this amount, 346,668 shares were
issued to Mr. Sissener, members of his immediate family or other
entities under his control. This is Mr. Sissener's initial
ownership of Class A Common Stock. Additionally, warrants for
237,680 shares were exercised prior to January 3, 1999 in
accordance with the original warrant terms.
Forward-Looking Statements
This annual report contains "forward-looking statements," or
statements that are based on current expectations, estimates, and
projections rather than historical facts. The Company offers
forward-looking statements in reliance on the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements may prove, in hindsight, to
have been inaccurate because of risks and uncertainties that are
difficult to predict. Many of the risks and uncertainties that
the Company faces are included under the caption "Risk Factors"
in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Financial Information About Industry Segments
The Company operates in the human pharmaceutical and animal
health industries. It has five business segments within these
industries. The table that follows shows how much each of these
segments contributed to revenues and operating income in the past
three years.
($ in Millions) REVENUES OPERATING INCOME
(lOSS)
1998 1997 1996 1998 1997 1996
U.S. Pharmaceutical
Division 178.8 155.4 152.3 11.1 4.1 (19.2)
International
Pharmaceuticals
Division 193.1 134.1 142.0 8.0 11.0 2.5
Fine Chemicals 53.0 38.7 36.0 17.5 9.4 8.5
Division
Animal Health 166.3 158.4 146.0 37.8 32.0 21.0
Division
Aquatic Animal Health
Division 19.0 15.3 12.2 3.6 2.8 (.3)
For additional financial information concerning the
Company's business segments see Note 20 of the Notes to the
Consolidated Financial Statements included in Item 8 of this
Report.
NARRATIVE DESCRIPTION OF BUSINESS
Human Pharmaceuticals
The Company's human pharmaceuticals business is comprised of
the U.S. Pharmaceuticals Division, International Pharmaceuticals
Division and Fine Chemicals Division. Each of these Divisions is
managed by a separate senior management team. The Company's human
pharmaceutical business had sales of approximately $424.9 million
in 1998, before elimination of intercompany sales, with operating
profit of approximately $36.6 million.
U.S. Pharmaceuticals Division ("USPD")
The U.S. Pharmaceuticals Division develops, manufactures, and
markets specialty generic prescription and over-the-counter
("OTC") pharmaceuticals for human use. With approximately 170
products, the Division is a market leader in generic liquid and
topical pharmaceuticals with what the Company believes to be
the broadest portfolio of manufactured products in the generic
industry. In addition, the Company believes it is the only major
U.S. generic prescription drug manufacturer with a substantial
presence in generic OTC pharmaceuticals. With approximately 60
OTC products, the Company is increasing its presence as a
significant supplier to major retailers. The Company believes
that its broad product lines gives the Company a competitive
advantage by providing large customers the ability to buy a
significant line of products from a single source.
Generic pharmaceuticals are the chemical and therapeutic
equivalents of brand-name drugs. Although typically less
expensive, they are required to meet the same governmental
standards as brand-name drugs and most must receive approval from
the FDA prior to manufacture and sale. A manufacturer cannot
produce or market a generic pharmaceutical until all relevant
patents (and any additional government-mandated market
exclusivity periods) covering the original brand-name product
have expired.
Sales of generic pharmaceuticals have continued to increase.
The Company has identified four reasons for this trend: (i) laws
permitting and/or requiring pharmacists to substitute generics
for brand-name drugs; (ii) pressure from managed care and third
party payors to encourage health care providers and consumers to
contain costs; (iii) increased acceptance of generic drugs by
physicians, pharmacists, and consumers; and (iv) an increase in
the number of formerly patented drugs which have become available
to off-patent competition.
Product Lines. The Company's U.S. Pharmaceutical
Division (excluding its telemarketing operation)
manufactures and/or markets approximately 170 generic
products, primarily in liquid, cream and ointment,
respiratory and suppository dosage forms. Each product
represents a different chemical entity. These products are
sold in over 300 product presentations under the "Alpharma",
"Barre" or "NMC" labels and private labels.
Liquid Pharmaceuticals. The U.S. Pharmaceuticals
Division is the leading U.S. manufacturer of generic
pharmaceutical products in liquid form with approximately
110 products. The experience and technical know-how of the
Division enables it to formulate therapeutic equivalent
drugs in liquid forms and to refine product characteristics
such as taste, texture, appearance and fragrance.
Cough and cold remedies constitute a significant
portion of the Division's liquid pharmaceuticals business.
This business is seasonal in nature, and sales volume is
higher in the fall and winter months and is affected, from
year to year, by the incidence of colds, respiratory
diseases, and influenza.
Creams, Lotions and Ointments. The Division
manufactures approximately 50 cream, lotion and ointment
products for topical use. Most of these creams, lotions and
ointments are sold only by prescription.
Suppositories, Aerosols and Other Specialty Generic
Products. The Division also manufactures five suppository
products and markets certain other specialty generic
products, including two aerosols and two nebulizer products.
In 1998, the Company continued the strategy of entering into
third party alliances to market certain of its U.S.
pharmaceutical products under licenses to third parties or under
third party brands. In addition, in February of 1999, the
Company reached an agreement with Ascent Pediatrics, Inc. to lend
that entity a maximum of $40 million; $12 million of which can be
used for working capital purposes with the remainder to be used
to execute projects reasonably designed for intermediate term
growth. The Company also received an option to purchase all of
the capital stock of Ascent in 2002 for approximately 12.2 times
Ascent's 2001 operating earnings. Except for $4 million of the
aforesaid loan presently advanced, the Ascent transaction is
subject to the approval of a majority of Ascent's stockholders.
Ascent would add a branded pediatric product line to the U.S.
Pharmaceuticals Division along with a strong direct sales force
dedicated to the pediatric market.
Facilities. The Company maintains two manufacturing
facilities for its U.S. pharmaceutical operations, a research and
development center, three telemarketing facilities and an
automated central distribution center. The Division's largest
manufacturing facility is located in Baltimore, Maryland and is
designed to manufacture high volumes of liquid pharmaceuticals.
The Company's facility in Lincolnton, North Carolina manufactures
creams, ointments and suppositories. Pursuant to the Company's
plan to reduce manufacturing costs and improve efficiencies, the
Company closed two facilities in New York and New Jersey and
transferred the operations conducted at those facilities to its
facility in Lincolnton. The Company's Lincolnton facility's
production was increased and its operations have become more
efficient as a result of production consolidation plans announced
in May 1996.
Competition. Although the Company is a market leader in the
U.S. in the manufacture and marketing of specialty generic
pharmaceuticals, it operates in a highly competitive market. The
Company competes with other companies that specialize in generic
products and with the generic drug divisions of major
international branded drug companies and encounters market entry
resistance from branded drug manufacturers.
Sales and Distribution. The Company maintains a sales force
of approximately ten sales professionals to market the U.S.
Pharmaceutical Division's products. The Company supplements its
sales effort through its use of selected independent sales
representatives. In addition, the Company's advanced
telemarketing operation, which employs approximately 75 sales
personnel, markets and distributes products manufactured by third
parties and, to a limited extent, the Division. The Company has
recently increased the use of its telemarketing operations for
the sale of its own products by adding a third facility for this
expanded activity. This business also provides certain custom
marketing services, such as order processing, and distribution,
to the pharmaceutical and certain other industries.
Customers. The Company has historically sold its U.S.
pharmaceutical products to pharmaceutical wholesalers,
distributors, mass merchandising and retail chains, and, to a
lesser extent, grocery stores, hospitals and managed care
providers. In response to the general trend of consolidation
among pharmaceutical customers and greater amount of products
sold through wholesalers, the Company is placing an increased
emphasis on marketing its products directly to managed care
organizations, purchasing groups, mass merchandisers and chain
drug stores to gain market share and enhance margins.
International Pharmaceuticals Division ("IPD")
The Company's International Pharmaceuticals Division develops,
manufactures, and markets a broad range of pharmaceuticals for
human use. The Company believes that it has a leading market
position for branded generic pharmaceuticals in the Nordic
countries, the United Kingdom, and the Netherlands with a strong
presence in Indonesia.
Product Lines. The International Pharmaceuticals Division
manufactures approximately 290 products which are sold in
approximately 670 product presentations including tablets,
ointments, creams, liquids, suppositories and injectable dosage
forms.
Prescription Pharmaceuticals. The Division has a broad range
of products with a concentration on prescription drug
antibiotics, analgesics/antirheumatics, psychotropics,
cardiovascular and oral healthcare products. The predominant
number of these products are sold on a generic basis.
OTC Products. The Division also has a broad range of OTC
products, such as those for skin care, gastrointestinal care and
pain relief, and including such products as vitamins, fluoride
tablets, adhesive bandages and surgical tapes. Substantially all
of these products are sold on a branded basis.
On May 7, 1998, the Company acquired a substantial generic
pharmaceutical presence in the United Kingdom through the
purchase of all of the capital stock of Arthur H. Cox and Co.
Ltd. ("Cox") from Hoechst AG for a total purchase price including
direct costs of acquisition of approximately $198 million in
cash. Cox's main operations (which consist primarily of a
manufacturing plant, warehousing facilities and a sales
organization) are located in Barnstaple, England. Cox is a
generic pharmaceutical manufacturer and marketer of tablets,
capsules, suppositories, liquids, ointments and creams. Cox
distributes its products to pharmacy retailers and pharmaceutical
wholesalers primarily in the United Kingdom and the Netherlands.
In addition, in November, 1998, the Company acquired, in a
substantially smaller transaction, a generic pharmaceutical
product line in Germany. All of the products purchased in this
transaction are manufactured under contract by third parties.
The Company intends to continue the operations of Cox and the
acquired German generic product line to achieve benefits from
leveraging these new activities with the other European
businesses of the International Pharmaceutical Division. In
addition, the Company plans to expand the scope of the acquired
operations by adding to the acquired product base certain other
pharmaceutical products of the Company. The Company is continuing
to review market expansion opportunities in Europe.
Facilities. The Company maintains five manufacturing facilities
for its international pharmaceutical products, all of which also
house administrative offices and warehouse space. The Company's
plants in Lier, Norway and Barnstaple, England, include many
technologically advanced applications for the manufacturing of
tablet, liquid and ointment products. The Company's plant in
Copenhagen, Denmark, which it shares with the Fine Chemical
Division, manufactures sterile products. In addition to the
Barnstaple, Copenhagen and Lier facilities, the Company also
operates plants in Vennesla, Norway, for bandages and surgical
tape products, and Jakarta, Indonesia, for tablets, ointments and
liquids. The Jakarta plant has received regulatory approval to
export certain products to Europe.
In 1998, the Company substantially completed the implementation
of a production rationalization plan which commenced in 1996 and
included the transfer of all tablet, ointment and liquid
production from Copenhagen to Lier and the transfer of sterile
production from Norway to the Copenhagen facility. In addition to
increasing available capacity, the Company expects to recognize
manufacturing efficiencies from this reorganization.
Competition. The Division operates in geographic areas that
are highly competitive. Many of the Company's competitors in this
area are substantially larger and have greater financial,
technical, and marketing resources than the Company. Most of the
Company's international pharmaceutical products compete with one
or more other products that contain the same active ingredient.
In the Nordic countries and certain other European countries in
recent years, sales of generic pharmaceuticals have been
increasing relative to sales of patent protected pharmaceuticals.
Generics are gaining market share because, among other things,
governments are attempting to reduce pharmaceutical expenses by
enacting regulations that promote generic pharmaceuticals in lieu
of original formulations. This increased focus on pharmaceutical
prices may lead to increased competition and price pressure for
suppliers of all types of pharmaceuticals, including branded
generics(see "Risk Factors-Government Regulations Affecting the
Company"). The Company's international pharmaceutical products
have also been encountering price pressures from "parallel
imports" (i.e.,imports of identical products from lower priced
markets under EU laws of free movement of goods). (See "Risk
Factors-Generic Pharmaceutical Industry").
Geographic Markets. The principal geographic markets for the
Division's pharmaceutical products are the United Kingdom,
Netherlands, the Nordic and other Western European countries,
Indonesia, and the Middle East.
Sales and Distribution and Customers. Depending on the
characteristics of each geographic market, generic products are
predominantly marketed under either brand or generic names. OTC
products are typically marketed under brand names with
concentration on skin care, tooth cavity prevention, pain relief
and vitamins. The Division employs a specialized sales force of
approximately 310 persons, 150 of whom are in Indonesia, that
markets and promotes products to doctors, dentists, hospitals,
pharmacies and consumers. In each of its international markets,
the Company uses wholesalers to distribute its pharmaceutical
products.
Fine Chemicals Division ("FCD")
The Company's Fine Chemicals Division develops, manufactures
and markets bulk antibiotics to the pharmaceutical industry for
use in finished dose products sold in more than 50 countries and
benefits from over four decades of experience in the use of and
development of fermentation and purification technology. The
Division develops, manufactures and sells active ingredients in
bulk quantities for use in human and veterinary pharmaceuticals
produced by third parties and, to a limited extent, the Company.
In addition, the Company's fermentation expertise in the
production of bulk antibiotics has a direct technological
application to the manufacture of products of the Company's
animal health business.
Product Lines. The Company's fine chemical products
constitute the active substances in certain pharmaceuticals for
the treatment of certain skin, throat, intestinal and systemic
infections. The Company is the world's leading producer of
bacitracin, bacitracin zinc and polymixin, and is a leading
producer of vancomycin; all of which are important pharmaceutical
grade antibiotics. The Company also manufactures other
antibiotics such as amphotericin B and colistin for use
systemically and in specialized topical and surgical human
applications. The Company has substantially expanded its
production capacity and sales of vancomycin through the 1997
approval to sell vancomycin in the U.S., expanded capacity at its
Copenhagen facility, and the December 1998 acquisition of a
facility in Budapest, Hungary.
Facilities. The Company manufactures its fine chemical
products in its plants in Oslo, Norway (which also manufactures
products for the Animal Health Division), Copenhagen, Denmark
(which it shares with the International Pharmaceuticals
Division)and Budapest, Hungary. Each plant includes fermentation,
specialized recovery and purification equipment. The Budapest
facility is presently undergoing a material upgrade in
manufacturing processes and capacity. All these facilities have
been approved as a manufacturer of certain sterile and non-
sterile bulk antibiotics by the FDA and by the health authorities
of certain European countries. (See "Environmental" for a
discussion of an administrative action related to the Budapest
facility)
Competition. The bulk antibiotic industry is highly competitive
and many of the Company's competitors in this area are
substantially larger and have greater financial, technical, and
marketing resources than the Company. Sales are made to
relatively few large customers with prices and quality as the
determining sales factors. The Company believes its fermentation
and purification expertise and established reputation provide it
with a competitive advantage in these antibiotic products.
Geographic Markets and Sales and Distribution. U.S. sales of
fine chemical products represent approximately 50% of the revenue
from these products with significant additional sales in Europe,
Asia and Latin America. The Company distributes and sells its
fine chemical products in the U.S. using its sales force of two
professionals. Sales outside the U.S. are primarily through the
use of local agents and distributors.
Animal Health
The animal health business is comprised of the Animal Health
Division and the Aquatic Animal Health Division. Each of these
divisions is managed by a separate senior management team. In
1998, the Company had animal health product sales of
approximately $185.3 million, before elimination of intercompany
sales, with operating profit of approximately $41.4 million.
Animal Health Division ("AHD")
The Company develops, manufactures and markets feed additive
and animal health products for animals raised for commercial food
production worldwide. The Company believes that its animal health
business is a leading manufacturer and marketer of feed additives
to the worldwide poultry and swine industries.
Product Lines. The Company's principal animal health products
are: (i) BMDT, a bacitracin based feed additive used to promote
growth and feed efficiency and prevent or treat diseases in
poultry and swine; (ii) Albac(TM), a bacitracin based feed
additive to promote growth and prevent or treat diseases in
poultry, swine and calves; (iii) 3-Nitro(R), Histostat(TM),
Zoamix(R), anticoccidials, and chloromax ("CTC"), feed grade
antibiotics, all of which are commonly used in combination or
sequentially with BMD; (iv) Deccox cattle and calf feed
additives; and (v) Vitamin D3, a feed additive used for poultry
and swine. Based upon its fermentation experience and a strong
marketing presence, the Company is the market leader in the
manufacture and sale of bacitracin-based feed additives which are
marketed under the brand names Albac and BMD. (See "Risk Factors
Governmental Actions Affecting the Company" for a discussion of
certain legislative action affecting the sales of Albac.) In
addition, the Company believes that it has a significant market
share with several other of its feed additives, including those
sold under the Company's 3-Nitro brands.
In 1997, the Company acquired the Deccox brand name and certain
related assets from Rhone-Poulenc's Animal Nutrition Division.
Under the agreement pursuant to which Deccox was acquired, Rhone-
Poulenc will continue to manufacture this product for sale by the
Company for a period of 15 years. Deccox is used to prevent and
control coccidiosis (a parasite that adversely affects growth)in
cattle. The acquisition of the Deccox brand has provided the
Company with its initial entry into the cattle and calf market.
In addition to Deccox sales, this has offered the opportunity to
market to the cattle industry several of the Company's
established products which have historically been sold only in
the swine and poultry markets.
The Company believes that the number of products it has
approved to be used in combination with other products is a
significant competitive advantage. FDA regulations require animal
health products to be approved for use in combination with other
products in animal feeds. Therefore, it is generally difficult to
gain market acceptance for new products unless such products are
approved for use with other existing products. The approval for
use of a new product in combination with other products generally
requires the cooperation of the manufacturer of such other
products. When seeking such cooperation from other manufacturers,
the Company believes it is a competitive advantage to have
products with which other manufacturers desire to obtain
combination approval. To date, the Company has been successful in
its ability to obtain the cooperation of third parties in seeking
combination approval for its products. There can be no assurance,
however, that the Company will continue to obtain such
cooperation from others. Presently, the Company has a total of
271 combination approvals in the U.S.
The Company believes that features of BMD have enhanced the
Company's competitive position in the animal health business.
Generally, FDA regulations do not permit animals to be sold for
food production unless their feed has been free of additives that
are absorbed into animal tissue for at least a 14-day period of
time required by FDA rules. BMD is not absorbed into animal
tissue, and therefore need not be withdrawn from feed prior to
the marketing of the food animals. This attribute of BMD allows
producers to avoid the burden of removing these additives from
feed in order to meet the FDA requirement.
Facilities. The Company produces its animal health products in
state-of-the-art manufacturing facilities. The Animal Health
Division produces BMD at its Chicago Heights, Illinois facility,
which contains a modern fermentation and recovery plant. Albac is
manufactured at the Oslo facility shared with the Fine Chemicals
Division. CTC is purchased from foreign suppliers and blended
domestically at the Company's facility in Lowell, Arkansas and at
independent blending facilities. The 3-Nitro product line is
manufactured in accordance with a ten year agreement using the
Company's technology at an unrelated company's facility. The
contract requires the Company to purchase minimum yearly
quantities on a cost plus basis. Blending of 3-Nitro is done at
the Company's Lowell plant. (See "Environmental" for a discussion
of an administrative action related to the Oslo facility").
Competition. The animal health industry is highly competitive
and includes a large number of companies with greater financial,
technical, and marketing resources than the Company. These
companies offer a wide range of products with various therapeutic
and production enhancing qualities. Due to the Company's strong
market position in antibiotic feed additives and its experience
in obtaining requisite FDA approvals for combination therapies,
the Company believes it enjoys a competitive advantage in
commercializing FDA-approved combination animal feed additives.
Geographic Markets. The Company presently sells a major portion
of its animal health products in the U.S. and Europe. With the
opening of sales offices in Canada, Latin America, and the Far
East, the Animal Health Division has expanded its international
sales capability consistent with its strategy for internal
growth.
Sales and Distribution. The Company's animal health products in
the U.S., Canada and Mexico are sold through a staff of
technically trained sales and technical service employees and
distributors located throughout the U.S. In January of 1999, the
Company combined its wholly-owned U.S. distribution company with
two similar third party distribution businesses to form a joint
venture 50% owned by the Company. It is anticipated that
approximately 50% of the Company's U.S. animal health sales will
be made through this joint venture. Sales of the Animal Health
Division's products outside North America are made primarily
through the use of distributors and sales companies. The Company
has sales offices in Norway, Canada, Mexico, Singapore and the
People's Republic of China and in 1997 added sales offices in
Brazil and France and, in 1998, added a sales office in Belgium.
The Company anticipates establishing additional foreign sales
offices.
Customers. Sales are made principally to commercial animal feed
manufacturers and integrated swine and poultry producers.
Although the Division is not dependent on any one customer, the
customer base for animal health products is in a consolidation
phase. Therefore, as consolidation continues, the Company may
become more dependent on certain individual customers as such
customers increase their size and market share.
Aquatic Animal Health Division ("AAHD")
The Company believes it is a leader in the development,
manufacture and marketing of vaccines for use in immunizing
farmed fish against disease. The Company believes it has been,
and expects to continue as, a leading innovator with respect to
the research and development of vaccines to combat newly
developing forms of aquatic disease.
The Company's vaccines for fish are used by fish farms to
control disease in densely populated, artificial growth
environments. The Company believes that the market for vaccines
will continue to grow along with the growth of fish farms as the
worldwide demand for fish continues to increase beyond what can
be supplied from the natural fish habitat.
Product Lines. The Aquatic Animal Health Division is the
leading supplier of injectable vaccines for farm raised salmon.
In addition the Division is a pioneer in the development of
vaccines for trout, sea bass, sea bream, catfish, yellowtail and
other commercially important farm species.
Facilities. The Company manufactures its fish vaccine products
in Bellevue, Washington and at its Overhalla, Norway facility. A
contract manufacturer in Germany provides certain raw materials
for vaccine production.
Competition. The Company has few competitors in the aquatic
animal health industry. However, the industry is subject to rapid
technological change. Competitors could develop new techniques
and products that would render the Company's aquatic animal
health products obsolete if the Company was unable to match the
improvements quickly. In this regard, the Company is presently
developing a new salmon vaccine to meet the market perception
that a competing product may provide better disease protection.
Geographic Markets. The Company sells its aquatic animal health
products in Norway, the United Kingdom, Canada and the U.S.
Sales and Distribution. The Company sells its aquatic animal
health products through its own technically oriented sales staff
of twelve people in Norway and the U.S. In other markets, the
Company operates through distributors. The Company sells its
products to fish farms, usually under a contract which extends
for at least one growing season. There are relatively few
customers for the Division's products.
Information Applicable to all Business Segments
Research, Product Development and Technical Activities
Scientific development is important to each of the Company's
business segments. The Company's research, product development
and technical activities in the Human Pharmaceuticals segment
within the U.S., Norway and Denmark concentrate on the
development of generic equivalents of established branded
products as well as discovering creative uses of existing drugs
for new treatments. The Company's research, product development
and technical activities also focus on developing proprietary
drug delivery systems and on improving existing delivery systems,
fermentation technology and packaging and manufacturing
techniques. In view of the substantial funds which are generally
required to develop new chemical drug entities, the Company does
not anticipate undertaking such activities.
The Company's technical development activities for the Animal
Health segment involve extensive product development and testing
for the primary purpose of establishing clinical support for new
products and additional uses for or variations of existing
products and seeking related FDA and analogous governmental
approvals.
Generally, research and development are conducted on a
divisional basis. The Company conducts its technical product
development activities at its facilities in Copenhagen, Denmark;
Oslo, Norway; Baltimore, Maryland; Bellevue, Washington; and
Chicago Heights, Illinois, as well as through independent
research facilities in the U.S. and Norway.
Research and development expenses were approximately $36.0
million, $32.1 million, and $34.3 million in 1998, 1997, and
1996, respectively. In 1998, the Company received approximately
100 governmental product, market and manufacturing approvals.
Government Regulation
General. The research, development, manufacturing and marketing
of the Company's products are subject to extensive government
regulation by either the FDA or the USDA, as well as by the DEA,
FTC, CPSC, and by comparable authorities in the EU, Norway,
Indonesia and other countries. Although Norway is not a member of
the EU, it is a member of the European Economic Association
and, as such, has accepted all EU regulations with respect to
pharmaceuticals except in the area of feed antibiotics.
Government regulation includes detailed inspection of and
controls over testing, manufacturing, safety, efficacy, labeling,
storage, recordkeeping, approval, advertising, promotion, sale
and distribution of pharmaceutical products. Noncompliance with
applicable requirements can result in civil or criminal fines,
recall or seizure of products, total or partial suspension of
production and/or distribution, debarment of individuals or the
Company from obtaining new generic drug approvals, refusal of the
government to approve new products and criminal prosecution. Such
government regulation substantially increases the cost of
producing human pharmaceutical and animal health products.
The evolving and complex nature of regulatory requirements, the
broad authority and discretion of the FDA and analogous foreign
agencies, and the generally high level of regulatory oversight
results in a continuing possibility that from time to time the
Company will be adversely affected by regulatory actions despite
its ongoing efforts and commitment to achieve and maintain full
compliance with all regulatory requirements. As a result of
actions taken by the Company to respond to the progressively more
demanding regulatory environment in which it operates, the
Company has spent, and will continue to spend, significant funds
and management time on regulatory compliance.
Product Marketing Authority. In the U.S., the FDA regulatory
procedure applicable to the Company's generic pharmaceutical
products depends on whether the branded drug is: (i) the subject
of an approved New Drug Application ("NDA") which has been
reviewed for both safety and effectiveness; (ii) marketed under
an NDA approved for safety only; (iii)marketed without an NDA or
(iv) marketed pursuant to over-the-counter ("OTC") monograph
regulations. If the drug to be offered as a generic version of a
branded product is the subject of an NDA approved for both safety
and effectiveness, the generic product must be the subject of an
Abbreviated New Drug Application ("ANDA") and be approved by FDA
prior to marketing. Drug products which are generic copies of the
other types of branded products may be marketed in accordance
with either an FDA enforcement policy or the over-the-counter
drug review monograph process and currently are not subject to
ANDA filings and approval prior to market introduction. While the
Company believes that all of its current pharmaceutical products
are legally marketed under the applicable FDA procedure, the
Company's marketing authority is subject to revocation by the
agency. All applications for regulatory approval of generic drug
products subject to ANDA requirements must contain data relating
to product formulation, raw material suppliers, stability,
manufacturing, packaging, labeling and quality control. Those
subject to a Waxman-Hatch Act ANDA also must contain
bioequivalency data. Each product approval limits manufacturing
to a specifically identified site. Supplemental filings for
approval to transfer products from one manufacturing site to
another also require review and approval.
Certain of the Company's animal health products are regulated
by the FDA, as described above, while other animal health
products are regulated by the USDA. An EU Directive requires that
medical products must have a marketing authorization before they
are placed on the market in the EU. The criteria upon which grant
of an authorization is assessed are quality, safety and efficacy.
Demonstration of safety and efficacy in particular requires
clinical trials on human subjects and the conduct of such trials
is subject to the standards codified in the EU guideline on Good
Clinical Practice. In addition, the EU requires that such trials
be preceded by adequate pharmacological and toxicological tests
in animals and that clinical trials should use controls, be
carried out double blind and capable of statistical analysis by
using specific criteria wherever possible, rather than relying on
a large sample size. The working party on the Committee of
Proprietary Medicinal Products has also made various
recommendations in this area. Analogous governmental and agency
approvals are similarly required in other countries where the
Company conducts business. There can be no assurance that new
product approvals will be obtained in a timely manner, if ever.
Failure to obtain such approvals, or to obtain them when
expected, could have a material adverse effect on the Company's
business, results of operations and financial condition.
Facility Approvals. The Company's manufacturing operations (in
the U.S. as well as three of the Company's European facilities
that manufacture products for export to the U.S.) are required to
comply with Current Good Manufacturing Practices ("CGMP") as
interpreted by the FDA and EU regulations. CGMP encompasses all
aspects of the production process, including validation and
record keeping, and involves changing and evolving standards.
Consequently, continuing compliance with CGMP can be a
particularly difficult and expensive part of regulatory
compliance, especially since the FDA and certain other analogous
governmental agencies have increased the number of regular
inspections to determine compliance. There are similar
regulations in other countries where the Company has
manufacturing operations. The EU requires that before a medicinal
product can be manufactured and assembled, each person or company
who carries out such an operation must hold a manufacturer's
license, a product license must be held by the person responsible
for the composition of the product, and the manufacture and
assembly must be in accordance with the product license. There is
also a Directive relating to Good Manufacturing Practice ("GMP")
which makes compliance with the principles of GMP compulsory
throughout the EU.
Potential Liability for Current Products. Continuing studies of
the proper utilization, safety, and efficacy of pharmaceuticals
and other health care products are being conducted by the
industry, government agencies and others. Such studies, which
increasingly employ sophisticated methods and techniques,
can call into question the utilization, safety and efficacy of
previously marketed products and in some cases have resulted, and
may in the future result, in the discontinuance of their
marketing and, in certain countries, give rise to claims for
damages from persons who believe they have been injured as a
result of their use.
Extended Protection for Branded Products. The Drug Price
Competition and Patent Term Restoration Act of 1984 ("Waxman-
Hatch Act") amended both the Patent Code and the Federal Food,
Drug, and Cosmetic Act (the "FDC Act"). The Waxman-Hatch Act
codified and expanded application procedures for obtaining FDA
approval for generic forms of brand-name pharmaceuticals which
are off-patent and/or whose market exclusivity has expired. The
Waxman-Hatch Act also provides patent extension and market
exclusivity provisions for innovator drug manufacturers which
preclude the submission or delay the approval of a competing ANDA
under certain conditions. One such provision allows a five year
market exclusivity period for NDAs involving new chemical
compounds and a three year market exclusivity period for NDAs
containing new clinical investigations essential to the approval
of such application. The market exclusivity provisions apply
equally to patented and non-patented drug products. Another
provision authorizes the extension of patent terms for up to five
years as compensation for reduction of the effective life of the
patent as a result of time spent in testing for, and FDA review
of, an application for a drug approval. Patent terms may also be
extended pursuant to the terms of the Uruguay Round Agreements
Act ("URAA")or by future legislation. In addition, the FDA
Modernization Act of 1997 allows brand name manufacturers to seek
six months of additional exclusivity when they have conducted
pediatric studies on the drug. Therefore, the Company cannot
predict the extent to which the Waxman-Hatch Act, the FDA
Modernization Act of 1997, the URAA or future legislation could
postpone launch of some of its new products.
In Europe, certain Directives confer a similar market
exclusivity in respect of proprietary medicines, irrespective of
any patent protection. Before a generic manufacturer can present
an abridged application for a marketing authorization, it must
generally wait until the original proprietary drug has been on
the market for a certain period (unless he has the consent of the
person who submitted the original test data for the first
marketing authorization, or can compile an adequate dossier of
his own). In the case of high-technology products, this period is
ten years and six years in respect of other medicinal products,
subject to the option for member states to elect for an
exclusivity period of ten years in respect of all products, or to
dispense with the six-year period where that would offer
protection beyond patent expiry.
In addition to the exclusivity period, it is also possible in
the EU to effectively extend the period of patent protection for
a product which has a marketing authorization by means of a
Supplementary Protection Certificate ("SPC"). An SPC comes into
force on the expiry of the relevant patent and lasts for a period
calculated with reference to the delay between the lodging of the
patent and the granting of the first marketing authorization for
the drug. This period of protection, subject to a maximum of five
years, further delays the marketing of generic medicinal
products.
The Generic Drug Enforcement Act. The Generic Drug Enforcement
Act of 1992, which amended the FDC Act, gives the FDA six ways to
penalize anyone that engages in wrongdoing in connection with the
development or submission of an ANDA. The FDA can: (i)
permanently or temporarily prohibit alleged wrongdoers from
submitting or assisting in the submission of an ANDA; (ii)
temporarily deny approval of, or suspend applications to market,
particular generic drugs; (iii) suspend the distribution of all
drugs approved or developed pursuant to an invalid ANDA; (iv)
withdraw approval of an ANDA; (v) seek civil penalties against
the alleged wrongdoer; and (vi) significantly delay the approval
of any pending ANDA from the same party. The Company has never
been the subject of an enforcement action under this or any
similar statute but there can be no assurance that restrictions
or fines will not be imposed upon the Company in the future.
Controlled Substances Act. The Company also manufacturers and
sells drug products which are "controlled substances" as defined
in the Controlled Substances Act, which establishes certain
security and record keeping requirements administered by the DEA,
a division of the Department of Justice. The Company is licensed
by the DEA to manufacture and distribute certain controlled
substances. The DEA has a dual mission-law enforcement and
regulation. The former deals with the illicit aspects of the
control of abusable substances and the equipment and raw
materials used in making them. The DEA shares enforcement
authority with the Federal Bureau of Investigation, another
division of the Department of Justice. The DEA's regulatory
responsibilities are concerned with the control of licensed
handlers of controlled substances, and with the substances
themselves, equipment and raw materials used in their manufacture
and packaging, in order to prevent such articles from being
diverted into illicit channels of commerce. The Company is not
under any restrictions for non-compliance with the foregoing
regulations, but there can be no assurance that restrictions or
fines will not be imposed upon the Company in the future.
Health Care Reimbursement. The methods and level of
reimbursement for pharmaceutical products under Medicare,
Medicaid, and other domestic reimbursement programs are the
subject of constant review by state and federal governments and
private third party payors like insurance companies. Management
believes that U.S. government agencies will continue to review
and assess alternative payment methodologies and reform measures
designed to reduce the cost of drugs to the public. Because the
outcome of these and other health care reform initiatives is
uncertain, the Company cannot predict what impact, if any, they
will have on the Company.
Medicaid legislation requires all pharmaceutical manufacturers
to rebate to individual states a percentage of the revenues that
the manufacturers derive from Medicaid reimbursed pharmaceutical
sales in those states. The required rebate for manufacturers of
generic products is currently 11%.
In many countries other than the U.S. in which the Company does
business, the initial prices of pharmaceutical preparations for
human use are dependent upon governmental approval or clearance
under governmental reimbursement schemes. These government
programs generally establish prices by reference to either
manufacturing costs or the prices of comparable products.
Subsequent price increases may also be regulated. In past years,
as part of overall programs to reduce health care costs, certain
European governments have prohibited price increases and have
introduced various systems designed to lower prices. As a
result, affected manufacturers, including the Company, have not
always been able to recover cost increases or compensate for
exchange rate fluctuations.
In order to control expenditures on pharmaceuticals, most
member states in the EU regulate the pricing of such products and
in some cases limit the range of different forms of a drug
available for prescription by national health services. These
controls can result in considerable price differences between
member states. There is also a Common External Tariff payable on
import of medicinal products into the EU, though exemptions are
available in respect of certain products which allows duty free
importation. Where there is no tariff suspension in operation in
respect of a medicinal product, an application can be made to
import the product duty free but this is subject to review at
European level to establish whether a member state would be able
to produce the product in question instead. In addition, some
products are subject to a governmental quota which restricts the
amount which can be imported duty free.
Financial Information About Foreign and Domestic Operations and
Export Sales
The Company derives a substantial portion of its revenues
and operating income from its foreign operations. Revenues from
foreign operations accounted for approximately 44% of the
Company's revenues in 1998. For certain financial information
concerning foreign and domestic operations see Note 20 of the
Notes to the Consolidated Financial Statements included in Item 8
of this Report. Export sales from domestic operations were not
significant.
Environmental Matters
The Company believes that it is substantially in compliance
with all presently applicable federal, state and local provisions
regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment.
The State of California has commenced an action against the
Company in the California Superior Court under the State's Safe
Drinking Water and Toxic Enforcement Act of 1986 (the "Drinking
Water Act") alleging that it failed to include a warning to
California users of two of its prescription drugs to the
effect that said drugs are known to the State of California to
cause cancer or reproductive toxicity. The State further alleges
that by violating the Drinking Water Act, the Company is also in
violation of the Unfair Competition Act (the "Competition Act").
The Company believes that prescription drugs fall under a
"safe-harbor" regulation and the required notice is deemed to be
given by giving the FDA mandated product warnings. On this basis,
the Company intends to defend this action vigorously. The Company
has reason to believe that many other drug manufacturers are
relying upon the same regulation and therefore have not given any
notice beyond that required by the FDA in connection with the
sale of prescription drugs. While the State's action does not
request a specific monetary fine, the Company understands that
the maximum fine for violation of each of the Drinking Water Act
and the Competition Act is $5,000 for each day of violation
subject to a four year statute of limitation. The Company
believes that this matter will not result in a material
liability.
The Company is presently engaged in administrative proceedings
with respect to the air emissions and noise levels at its Oslo
plant and soil and acquifier contamination of its Budapest plant.
The Company anticipates the need for improvements at both plants;
the cost of which has not yet been determined but is not believed
to be material to the Company. Certain costs incurred at the
Budapest facility are subject to reimbursement obligations of the
previous owner.
In addition, the Company is a Potentially Responsible Party
("PRP") at one site subject to U.S. Superfund legislation.
Superfund provides for joint and several liability for all PRP's.
Based upon the Company's minor involvement at this Superfund
site, and the identification of numerous PRP's who were larger
site users, the Company does not believe that its ultimate
liability for this site will be material to the Company.
Although many major capital projects typically include a
component for environmental control, including the Company's
current expansion projects, no material expenditures specifically
for environmental control are expected to be made in 1999.
Employees
As of December 31, 1998, the Company had approximately 3,000
employees, including 1,100 in the U.S. and 1,900 outside of the
U.S.
Item 1A. Executive Officers of the Registrant
The following is a list of the names and ages of all of the
Company's corporate officers and certain officers of each of the
Company's principal operating units, indicating all positions and
offices with the Registrant held by each such person and each
such person's principal occupations or employment during the past
five years.
Each of the Company's corporate officers has been elected to
the indicated office or offices of the Registrant, to serve as
such until the next annual election of officers of the Registrant
(expected to occur June 10, 1999) and until their successor is
elected, or until his or her earlier death, resignation or
removal.
Name and Position Principal Business Experience
with the Company Age During the Past Five Years
E.W. Sissener 70 Chief Executive Officer since
Chairman, Director and June 1994. Member of the
Chief Executive Officer Office of the Chief Executive
of the Company July 1991 to
May 1994. Chairman of the
Company since 1975.
President, Alpharma AS since
October 1994. President,
Apothekernes AS (now AL
Industrier AS) 1972 to 1994.
Chairman of A.L. Industrier AS
since November 1994.
Gert W. Munthe 42 President since May 1998 and
President, Director and Director of the Company since
Chief Operating Officer June 1994.President and Chief
Executive Officer of NetCom
GSM A.S., a Norwegian cellular
telecommunications company,
1993 to 1998. Executive Vice
President and division
President of Hafslund Nycomed
A.S., a Norwegian energy and
pharmaceutical corporation,
1988 to 1993. President of
Nycomed (Imaging) A.S., a
wholly owned subsidiary of
Hafslund Nycomed A.S., 1991 to
1993. Division President in
charge of the energy business
of Hafslund Nycomed A.S., 1988
to 1991. Mr. Munthe is Mr.
Sissener's son-in-law.
Jeffrey E. Smith 51 Chief Financial Officer and
Vice President, Finance Vice President since May 1994.
and Chief Financial Executive Vice President and
Officer Member of the Office of the
Chief Executive July 1991 to
May 1994. Vice President,
Finance of the Company from
November 1984 to July 1991.
Robert F. Wrobel 54 Vice President and Chief Legal
Vice President and Chief Officer since October of 1997.
Legal Officer Vice President and Associate
General Counsel of Duracell
Inc., 1994 to September 1997
and Senior Vice President,
General Counsel and Chief
Administrative Officer of The
Marley Company 1975 to 1993.
Diane M. Cady 44 Vice President, Investor
Vice President, Investor Relations since November 1996.
Relations Vice President, Investor
Relations for Ply Gem
Industries, Inc. 1987 to
October 1996.
Albert N. Marchio, II 46 Treasurer of the Company since
Vice President and May 1992. Treasurer of Laura
Treasurer Ashley, Inc. 1990 to 1992.
John S. Towler 50 Controller of the Company
Vice President and since March 1989.
Controller
Thomas L. Anderson 50 President of the Company's
Vice President and U.S. Pharmaceuticals Division
President, U.S. since January 1997; President
Pharmaceuticals Division and Chief Operating Officer of
FoxMeyer Health Corporation
May 1993 to February 1996;
Executive Vice President and
Chief Operating Officer of
FoxMeyer Health Corporation
July 1991 to April 1993.
Bruce Andrews, Vice 52 President of the Company's
President and President, Animal Health Division since
Animal Health Division May 1997. Consultant with
Brakke Consulting, Inc. from
1996 through May of 1997,
President of Lifelearn, Inc.
in 1995, and President of the
Cyanamid North American Animal
Health and Nutrition Division
from 1992 to 1994.
Thor Kristiansen 55 President of the Company's
Vice President and Fine Chemicals Division since
President, Fine Chemicals October 1994; President,
Division Biotechnical Division of
Apothekernes Laboratorium A.S
1986 to 1994.
Knut Moksnes 48 President of the Company's
Vice President and Aquatic Animal Health Division
President, Aquatic Animal since October 1994; Managing
Health Division Director, Fish Health Division
of Apothekernes Laboratorium
A.S 1991 to 1994.
Ingrid Wiik 54 President of the Company's
Vice President and International Pharmaceuticals
President, International Division since October 1994;
Pharmaceuticals Division President, Pharmaceutical
Division of Apothekernes
Laboratorium A.S 1986 to 1994.
Item 2. Properties
Manufacturing and Facilities
The Company's corporate offices and principal production and
technical development facilities are located in the U.S., the
United Kingdom, Denmark, Norway and Indonesia. The Company also
owns or leases offices and warehouses in the U.S., Sweden,
Holland, Finland and elsewhere.
Facility
Location Status Size Use
(sq.ft.)
Fort Lee, NJ Leased 37,000 Offices-Alpharma corporate
and AHD headquarters
Oslo, Norway Leased 204,400 Manufacturing of AHD and FCD
products, Alpharma corporate
offices and headquarters for
IPD,FCD and AAHD
Baltimore, MD Owned 268,000 Manufacturing and offices for
USPD
Baltimore, MD Leased 18,000 Research and development for
USPD
Bellevue, WA Leased 20,000 Warehousing, laboratory and
offices for AAHD
Chicago Owned 195,000 Manufacturing,warehousing,res
Heights, IL. earch and development and
offices for AHD
Columbia, MD Leased 165,000 Distribution center for USPD
Lincolnton, NC Owned 138,000 Manufacturing and offices for
USPD
Lowell, AR Leased 68,000 Manufacturing,warehousing and
offices for AHD
Niagara Falls, Owned 30,000 Warehousing and offices for
NY USPD
Barnstaple,Engl Owned 250,000 Manufacturing, warehousing
and and offices for IPD
Budapest,Hungar Owned 175,000 Manufacturing,warehousing and
y.. offices for FCD
Copenhagen,Denm Owned 345,000 Manufacturing,warehousing,
ark research and development and
offices for IPD and FCD
Jakarta,Indones Owned 80,000 Manufacturing, warehousing,
ia. research and development and
offices for IPD
Lier,Norway. . Owned 180,000 Manufacturing,warehousing and
. offices for IPD
Overhalla,Norwa Owned 39,500 Manufacturing,warehousing and
y.. offices for AAHD
Vennesla,Norway Owned 81,300 Manufacturing, warehousing
. . and offices for IPD
The Company believes that its principal facilities described
above are generally in good repair and condition and adequate and
suitable for the products they produce.
Item 3. Legal Proceedings
The Company is one of multiple defendants in 80 lawsuits filed
in various US Federal District Courts and several State Courts
alleging personal injuries and two class actions requesting
medical monitoring resulting from the use of phentermine
distributed by the Company and prescribed for use in combination
with fenfluramine or dexfenfluramine manufactured and sold by
other defendants ("Fen-Phen" lawsuits). None of the plaintiffs
has specified the amount of his or her monetary demand, but a
majority of the lawsuits allege serious injury. The Company has
demanded defense and indemnification from the manufacturers from
whom it has purchased phentermine and has filed claims against
said manufacturers' insurance carriers and the Company's
carriers. The Company has received a partial reimbursement of
litigation costs from one of the manufacturer's carriers. The
plaintiff in 34 of these lawsuits has agreed to dismiss the
Company without prejudice but such dismissals must be approved by
the Court. The Company does not expect that the Fen-Phen lawsuits
will be material to the Company. It is possible that the Company
could later be named as a defendant in some of the additional
lawsuits already on file with respect to these drugs or in
similar lawsuits which could be filed in the future.
The Company has received written notice of a claim alleging
that it is violating certain third party U.S. patents in the area
of electronic reading devices and offering to enter into
licensing discussions. While the Company has not completed its
analysis of either the validity or applicability of said patents,
several material Company manufacturing facilities do use devices
and machinery within the general technical area covered by these
third party patents. Based upon factors considered reasonable as
of this date, the Company has no reason to anticipate that this
matter will result in liability material to the Company.
From time to time the Company is involved in certain non-
material litigation which is ordinarily found in businesses of
this type, including contract, employment matters and product
liability actions. Product liability suits represent a continuing
risk to pharmaceutical companies. The Company attempts to
minimize such risks by strict controls over manufacturing and
quality procedures. Although the Company carries what it believes
to be adequate insurance, there is no assurance that such
insurance can fully protect it against all such risks due to the
inherent potential liability in the business of producing
pharmaceuticals for human and animal use.
The Company is also subject to an action commenced by the
State of California under the State's Safe Drinking Water and
Toxic Enforcement Act of 1986. (See "Environmental Matters").
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Market Information
The Company's Class A Common Stock is listed on the New York
Stock Exchange ("NYSE"). Information concerning the 1998 and 1997
sales prices of the Company's Class A Common Stock is set forth
in the table below.
Stock Trading Price
1998 1997
Quarter High Low High Low
First $24.31 $18.94 $15.13 $11.38
Second $23.00 $19.75 $18.13 $13.50
Third $26.31 $21.44 $23.50 $15.25
Fourth $36.94 $22.56 $23.88 $21.25
As of December 31, 1998 and March 10, 1999 the Company's
stock closing price was $35.31 and $41.38, respectively.
Holders
As of March 10, 1999, there were 1,609 holders of record of
the Company's Class A Common Stock and A.L. Industrier held all
of the Company's Class B Common Stock. Record holders of the
Class A Common Stock include Cede & Co., a clearing agency which
held approximately 97% of the outstanding Class A Common
Stock as a nominee.
Dividends
The Company has declared consecutive quarterly cash
dividends on its Class A and Class B Common Stock beginning in
the third quarter of 1984. Quarterly dividends per share in 1998
and 1997 were $.045 per quarter or $.18 per year.
Item 6. Selected Financial Data
The following is a summary of selected financial data for
the Company and its subsidiaries. The data for each of the three
years in the period ended December 31, 1998 have been derived
from, and all data should be read in conjunction with, the
audited consolidated financial statements of the Company,
included in Item 8 of this Report. All amounts are in thousands,
except per share data.
Income Statement Data
Years Ended December 31,
1998(4) 1997 1996(3) 1995 1994(2)
Total revenue $604,584 $500,288 $486,184 $520,882 $469,263
Cost of sales 351,324 289,235 297,128 302,127 275,543
Gross profit 253,260 211,053 189,056 218,755 193,720
Selling, general and
administrative expense 188,264 164,155 185,136 166,274 177,742
Operating income 64,996 46,898 3,920 52,481 15,978
Interest expense (25,613) (18,581) (19,976) (21,993) (15,355)
Other income
(expense), net (400) (567) (170) (260) 1,113
Income (loss) before
income taxes and
extraordinary item 38,983 27,750 (16,226) 30,228 1,736
Provision (benefit)
for income taxes 14,772 10,342 (4,765) 11,411 3,439
Income (loss) before
extraordinary item $24,211 $ 17,408 $(11,461) 18,817 $(1,703)
Net income (loss) (1) $24,211 $ 17,408 $(11,461) 18,817 $(2,386)
Average number of
shares outstanding:
Diluted 26,279 22,780 21,715 21,754 21,568
Earnings (loss) per
share: Diluted
Income (loss)
before
extraordinary $ .92 $ .76 $ (.53) $ .87 $ (.08)
item
Net income (loss) $ .92 $ .76 $ (.53) $ .87 $ (.11)
Dividend per common
share $ .18 $ .18 $ .18 $ .18 $ .18
(1) Net loss includes: 1994 - extraordinary item - loss on
extinguishment of debt ($683).
(2) 1994 includes transaction costs relating to the combination
with Alpharma Oslo and Management Actions which are included in
cost of goods sold ($450) and selling, general and administrative
($24,200). Amounts net after tax of approximately $17,400 ($0.81
per share).
(3) 1996 includes Management Actions relating to production
rationalizations and severance which are included in cost of
goods sold ($1,100) and selling, general and
administrative ($17,700). Amounts net after tax of
approximately $12,600 ($0.58 per share).
(4) 1998 includes results of operations from date of acquisition
of Cox Pharmaceuticals (May 1998) and non-recurring charges
related to the Cox acquisition which are included in cost of
sales ($1,300) and selling, general and administrative ($2,300).
Charges, net after tax, were approximately $3,130 ($0.12 per
share).
As of December 31,
Balance Sheet Data 1998(1) 1997 1996 1995
1994
Current assets $335,484 $273,677 $274,859 $282,886 $250,499
Non-current assets 573,452 358,189 338,548 351,967 341,819
Total assets $908,936 $631,866 $613,407 $634,853 $592,318
Current liabilities $170,437 $133,926 $155,651 $169,283 $154,650
Long-term debt, less
current maturities 429,034 223,975 233,781 219,451 220,036
Deferred taxes and
other non-current
liabilities 42,186 35,492 37,933 40,929 36,344
Stockholders' equity 267,279 238,473 186,042 205,190 181,288
Total liabilities
and equity $908,936 $631,866 $613,407 $634,853 $592,318
(1) Includes accounts from date of acquisition of Cox
Pharmaceuticals (May 1998).
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
1998 and 1997 were years in which operations improved
relative to the preceding year. Both years included a number of
significant transactions which the Company believes will enhance
future growth. Such transactions include:
1998
In March the Company issued $192.8 million of 5.75%
Convertible Subordinated Notes due in 2005.
In May the Company's International Pharmaceuticals
Division ("IPD") purchased the Cox Generic Pharmaceutical
business ("Cox") conducted primarily in the United
Kingdom for approximately $198.0 million.
In November the Company's IPD purchased a generic
pharmaceutical product line in Germany for $13.3 million.
In November the Company acquired pursuant to a tender
offer approximately 93% of the outstanding warrants which
were to have expired on January 3, 1999 with common stock
with a market value of approximately $37.0 million.
Subsequent to December 31, 1998 the majority of the
remaining warrants were exercised for $4.4 million in
cash.
In December the Company's Fine Chemicals Division
("FCD") purchased a fine chemical manufacturing plant in
Budapest, Hungary for $8.4 million.
During the year the Company commenced negotiations
(completed in January 1999) to replace its Revolving
Credit Facility and existing domestic short term credit
lines with a comprehensive syndicated facility which
provides for increased borrowing capacity of up to $300.0
million.
1997
The Company raised $56.4 million by issuing Class B stock
through a stock subscription ($20.4 million) and Class A stock
through a rights offering ($36.0 million).
The Animal Health Division ("AHD") acquired the worldwide
decoquinate ("Deccoxr") product and business from a major
pharmaceutical company. The product is an anticocidial feed
additive which provides AHD with its first major product in the
cattle industry.
The FCD purchased a worldwide polymyxin business which
complements its existing polymyxin business.
Both the U.S. Pharmaceuticals Division ("USPD") and the IPD
completed partnership alliances and marketing agreements to
broaden their product lines.
1996
Results in 1996 included charges for Management Actions. In
addition, operations were negatively affected by external market
conditions. The factors which combined to produce a loss in 1996
and the status of these factors in 1997/1998 are as follows:
1996 charges for Management Actions - approximately $12.6
million after tax.
Rationalization of the IPD's selling and marketing
organization in Scandinavia resulting in charges for
severance. Rationalization completed in 1997.
Commencement of an IPD plan to transfer all tablet,
ointment and liquid production from Copenhagen, Denmark to
Lier, Norway resulting in charges for severance, asset write-
offs and other exit costs. Transfer completed in late 1998.
Commencement of a USPD plan to accelerate the move of
production from locations in New Jersey and New York to an
existing plant in Lincolnton, North Carolina resulting in
charges for severance, asset write-offs and other exit
costs. Completed in 1997, benefits realized in 1997 and 1998
due to more efficient production in the USPD.
Rationalization of the AHD and USPD organizations to
address current competitive conditions in their respective
industries resulting in charges for severance and other
termination benefits. Rationalization completed in 1997.
1996 External Factors.
Fundamental shift in generic pharmaceutical industry
distribution, purchasing and stocking patterns resulting in
significantly lower sales and prices in the USPD. USPD sales
have increased in both 1997 and 1998 in a more orderly
market; however, there is continuing but significantly
lessened pressure on pricing relative to 1996.
Significant bad debt expense due to the bankruptcy of a
major wholesaler to the USPD and collection difficulties in
certain international markets. No major bankruptcies
occurred in 1997 and 1998, but collection of certain
accounts remains slow in certain international markets.
High feed grain prices in the animal health industry which
resulted in lower industry usage of feed additive products
supplied by AHD and increased competition among feed
additive suppliers. Grain prices were at more normal levels
in 1997 and 1998. Competitive conditions continue.
Results of Operations
Comparison of year ended December 31, 1998 to year ended
December 31, 1997.
For the year ended December 31, 1998 revenue was $604.6
million, an increase of $104.3 million (20.8%) compared to 1997.
Operating income was $65.0 million, an increase of $18.1 million,
compared to 1997. Net income was $24.2 million ($.92 per share)
compared to a net income of $17.4 million ($.76 per share) in
1997. Results for 1998 include non-recurring charges resulting
from the Cox acquisition which reduced net income by $3.1 million
($.12 per share).
Acquisition of Cox
All comparisons of 1998 results to 1997 are affected by Cox
which was acquired in May of 1998 for a total purchase price
including direct costs of acquisition of approximately $198
million. Cox is a generic pharmaceutical manufacturer and
marketer of tablets, capsules, suppositories, liquids, ointments
and creams. Cox's main operations (which primarily consist of a
manufacturing plant, warehousing facilities and a sales
organization) are located in the United Kingdom with distribution
and sales operations located in Scandinavia and the Netherlands.
Cox distributes its products to pharmacy retailers and
pharmaceutical wholesalers primarily in the United Kingdom.
Exports account for approximately 10% of its sales.
The Company financed the $198 million purchase price and
related debt repayments from borrowings under its then existing
long-term Revolving Credit Facility and short-term lines of
credit. The $180 million Revolving Credit Facility ("RCF") was
used to fund the principal portion of the purchase price. At the
end of March 1998, the Company repaid approximately $162 million
of borrowings under the RCF with the proceeds from the issuance
of $193 million of convertible subordinated notes. Such repayment
created the capacity under the RCF to incur the borrowings used
to finance the acquisition of Cox.
The acquisition was accounted for in accordance with the
purchase method. The fair value of the assets acquired and
liabilities assumed and the results of operations are included
from the date of acquisition.
The purchase of Cox had a significant effect on the results
of operations of the Company for the year ended December 31,
1998. Cox is included in IPD.
For the approximate eight month period included in 1998, Cox
contributed sales of $62.1 million and operating income,
exclusive of non-recurring acquisition related charges, of $5.2
million. Operating income is reduced by the amortization of
goodwill totaling approximately $3.0 million. Interest expense
increased by approximately $8.0 million reflecting the financing
of the acquisition primarily with long-term debt.
Acquisition charges required by generally accepted accounted
principles and recorded in the second quarter of 1998 included
the write-up of inventory to fair value and related write-off on
the sale of the inventory of $1.3 million, a write-off of in-
process research and development ("R&D") of $2.1 million and
severance of certain employees of the IPD of $0.2 million.
Because in-process R&D is not tax benefited the one-time charges
were $3.1 million after tax or $.12 per share.
Revenues
Revenues increased $104.3 million in 1998 despite currency
translation of international sales into U.S. dollars which
reduced reported sales by over $20.0 million. Increases in
revenues and major components of change for each division in 1998
compared to 1997 are as follows:
Revenues in IPD increased by $59.0 million due to the Cox
acquisition ($62.1 million), increased volume for existing and
other new and other acquired products ($14.0 million) offset by
translation of IPD sales in local currencies into the U.S. dollar
($17.1 million). Revenues in USPD increased $23.4 million due
primarily to volume increases in existing and new products and
revenue from licensing activities offset slightly by lower net
pricing. FCD revenues increased $14.4 million due mainly to
volume increases in vancomycin and polymyxin. AHD revenues
increased $7.9 million due primarily to sales of the Deccox
product line acquired in 1997. Aquatic Animal Health Division
("AAHD") sales increased $3.7 million due principally to
increased sales of AlphaMax, a treatment for salmon lice.
Gross Profit
On a consolidated basis gross profit increased $42.2 million
with margins at 41.9% in 1998 compared to 42.2% in 1997. Included
in 1998 results is the non-recurring charge of $1.3 million
related to the write-up and subsequent sale of acquired Cox
inventory. Without the charge overall gross profit percentages
would be essentially the same for both years. Gross profit
dollars were positively affected by volume increases for existing
and new products in all divisions and the acquisition of Cox
offset by increased costs incurred by IPD in the transfer of
production from Copenhagen to Lier and currency translation
effects primarily in IPD. On an overall basis pricing had a minor
positive effect.
Operating Expenses
Operating expenses increased by $24.1 million in 1998 on a
consolidated basis. Included in 1998 operating expenses is a
charge for in-process R&D of $2.1 million and IPD employee
severance of $.2 million resulting from the Cox acquisition.
Operating expenses in 1998 were 30.8% of revenues (31.1%
including the Cox acquisition charges) compared to 32.8% of
revenues in 1997. Operating expenses increased primarily due to
the acquisition of Cox including goodwill amortization, increased
selling and marketing expenses due to higher revenues, increased
general and administrative expenses due to targeted increases in
staffing and increased incentive programs offset slightly by
translation of costs incurred in foreign currencies.
Operating Income
Operating income as reported in 1998 increased by $18.1
million. The Company believes the change in operating income can
be approximated as follows:
($ in millions) IPD USPD FCD AHD AAHD Unalloc Total
.
1997 Operating
income $11.0 4.1 9.4 32.0 2.8 (12.4) $46.9
Acquisition
charges - Cox (3.6) - - - - - (3.6)
Cox operating 5.2 - - - - - 5.2
income
Net margin
improvement due
to volume, new
products and price 5.9 10.5 7.7 9.8 3.0 - 36.9
(Increase) in
production and
operating
expenses,
net (7.1) (3.5) (.1) (4.1) (1.9) (.6) (17.3)
Translation and
other (3.4) - .5 .1 (.3) - (3.1)
1998 Operating $8.0 11.1 17.5 37.8 3.6 (13.0) $65.0
income
Interest Expense/Other/Taxes
Interest expense increased in 1998 by $7.0 million due
primarily to the acquisition of Cox. Lower interest rates and
positive cash flow from operations which lowered debt levels
required for operations relative to 1997, offset a portion of the
increased interest from acquisitions.
The provision for income taxes was 37.9% in 1998 compared to
37.3% in 1997. The slight increase in 1998 results from a 1.7%
rate increase due to the write-off of in-process R&D which is not
tax benefited, a .7% rate increase due to non-deductible goodwill
resulting from the Cox acquisition offset partially by higher tax
credits and lower statutory tax rates on foreign earnings.
Results of Operations
Comparison of Year Ended December 31, 1997 to Year Ended
December 31, 1996.
For the year ended December 31, 1997 revenue was $500.3
million, an increase of $14.1 million (2.9%) compared to 1996.
Operating income was $46.9 million, an increase of $43.0 million,
compared to 1996. Net income was $17.4 million ($.76 per share)
compared to a net loss of $11.5 million ($.53 per share) in 1996.
Net income in 1996 was reduced by approximately $12.6
million ($.58 per share) for severance related to a
reorganization of the IPD sales and marketing function in the
Nordic countries, charges and expenses resulting from production
rationalization plans in the IPD and the USPD and additional
Management Actions in the AHD. (See section "Management
Actions.")
Revenues
On an overall basis revenues increased $14.1 million. 1997
revenues compared to 1996 were reduced by over $20.0 million due
to translation of sales in foreign currency into the U.S. dollar.
Revenue changes by division are as follows:
Revenues increased by $3.1 million in the USPD due primarily
to increased volume in a number of Rx and OTC products including
products introduced in the past three years. The increased volume
was partially offset by lower net selling prices resulting from
the continuation of programs initiated by major wholesalers in
the second half of 1996 which fundamentally shifted generic
pharmaceutical industry distribution purchasing and stocking
patterns. In IPD overall volume and pricing were up on a local
currency basis. However, IPD revenues were lower by $7.9 million
primarily as a result of the effect of translation of sales in
Scandinavian currencies into the U.S. dollar. A substantial
majority of the translation effect was recognized in the IPD. For
the year 1997 average exchange rates for Scandinavian currencies
where IPD conducts a substantial portion of its business had
declined by 10%-14% compared to 1996. Sales in the FCD increased
by $2.6 million principally due to higher volume.
AHD revenues increased $12.4 million primarily due to
increased volume of most major products, as well as the
acquisition of the Deccox business in September 1997. AAHD
revenues increased $3.0 million compared to 1996 due primarily to
increased sales in the Norwegian fish vaccine market resulting
from both new product volume and increased market share of
existing products.
Gross Profit
On a consolidated basis, gross profit increased $22.0
million and the gross margin percent increased to 42.2% in 1997
compared to 38.9% in 1996.
The increase in dollars and percent was the result of a
number of factors. USPD gross profits accounted for the majority
of the increase and improved as a result of lower manufacturing
costs in the aggregate (due to the transfer of production and
closing of two marginal facilities as part of Management Actions
in 1996) and increased production efficiencies in the two
remaining core facilities. Offsetting savings in production costs
were lower net selling prices in the UPSD. IPD had increased
gross profits in local currencies but decreased in the aggregate
when translated into U.S. dollars. FCD gross profits increased
marginally compared to 1996.
AHD gross profits increased due to increased volume (both
existing products and Deccox) offset partially by somewhat lower
pricing. AAHD gross profits increased due to higher margin
products introduced in 1997.
Operating Expenses
Operating expenses on a consolidated basis decreased $21.0
million or 11.3%. Included in operating expenses in 1996 were
charges incurred for Management Actions totaling $17.7 million.
(See section "Management Actions"). The following table compares
operating expenses for the year with and without Management
Actions:
($ in millions) 1997 1996
Operating expenses as reported $164.2 $185.1
Management actions - 1996 - (17.7)
$164.2 $167.4
As a % of revenues 32.8% 34.4%
The net reduction in operating expenses, after excluding
Management Actions reflects a continued emphasis on cost control,
the effect of currency translation on expenses incurred in
foreign currencies, and a reduction of expenses resulting from
prior year Management Actions which reduced payroll, offset by
planned increases in certain expenses and increases in
administrative expenses resulting from personnel changes,
employee incentive programs, and litigation expenses.
Operating Income
Operating income as reported in 1997 increased $43.0
million. The increase in gross profit due to increased sales and
lower production costs, lower operating expenses, and the absence
of charges for Management Actions all contributed to the
increase.
The Company believes the change in operating income from
1996 to 1997 can be approximated as follows:
($ in millions) IPD USPD FCD AHD AAHD Unalloc Total
.
1996 Operating
income(loss) $2.5 (19.2) 8.5 21.0 (.3) (8.6) $3.9
Add back 1996
management 8.1 5.7 - 4.5 - .5 18.8
actions
Sub-total 10.6 (13.5) 8.5 25.5 (.3) (8.1) 22.7
Net margin change
due to volume,
new products and
price 3.9 (3.3) 3.8 6.6 3.8 - 14.8
(Increase)decrease
in production and
operating expenses,
net (3.1) 20.8 (2.9) (.4) (.4) (4.0) 10.0
Translation and
other (.4) .1 - .3 (.3) (.3) (.6)
1997 Operating
income $11.0 4.1 9.4 32.0 2.8 (12.4) $46.9
Interest Expense/Other/Taxes
Interest expense decreased $1.4 million due to lower debt
levels (aided by the receipt, in 1997 of approximately $56.4
million of new equity) and generally lower interest rates in
1997.
Other, net in 1997 was a $0.6 million loss compared to a
$0.2 million loss in 1996. Foreign exchange transaction losses
included in Other, net in 1997 and 1996 were approximately $0.7
million and $0.2 million, respectively. The loss in 1997 was
primarily the result of the strengthening of the U.S. dollar
during 1997.
The provision for income taxes was 37.3% in 1997 compared to
a benefit for income taxes (due to a pre-tax loss) of 29.4% in
1996. The difference between the statutory rate and the effective
rate is the interaction of state income taxes and non-deductible
costs which increase the rate partially offset by lower taxes in
foreign jurisdictions.
Management Actions
In December 1994, after the acquisition of Alpharma Oslo
from A.L. Industrier, and continuing to some degree in 1995 the
Company announced a number of Management Actions which included
staff reductions and certain product line and facilities
rationalizations as a first step toward realizing combination
synergies and maximizing the overall position of the newly
combined Company.
In the first quarter of 1996, the Company announced the
reorganization of the IPD sales and marketing organization in
Scandinavia. The reorganization resulted in severing 30 personnel
at a cost of $1.9 million. IPD estimates the annual expense
reduction by 1997 from this action at over $1.0 million.
In the second quarter of 1996, the Board of Directors
approved an IPD production rationalization plan which included
the transfer of all tablet, ointment and liquid production from
Copenhagen, Denmark to Lier, Norway. The full transfer was
completed in late 1998 and resulted in a net reduction of
approximately 100 employees. The rationalization plan resulted in
a charge in the second quarter of 1996 for severance for
Copenhagen employees, an impairment write-off for certain
buildings and machinery and equipment and other exit costs.
In 1995, the Company announced a plan by USPD to move all
suppositories and cream and ointment production from two
locations to the Lincolnton, North Carolina location. In the
second quarter of 1996, USPD prepared a plan to accelerate the
previously approved plan for consolidation of the manufacturing
operations within USPD. The Board of Directors approved the
acceleration in May 1996.
The acceleration plan included the discontinuing of all
activities in two USPD manufacturing facilities in New York and
New Jersey and the transfer of all pharmaceutical production from
those sites to the facility in Lincolnton, North Carolina. The
plan provided for complete exit by early 1997 and resulted in a
net reduction of over 150 employees. The acceleration plan
resulted in a second quarter charge in 1996 for severance of
employees, a write-off for leasehold improvements and machinery
and equipment and significant exit costs including estimated
remaining lease costs and facility refurbishment costs. In the
third quarter of 1996, the Company sold its tablet business which
was located in New Jersey and sub-leased the New Jersey location.
The sale provided net proceeds of approximately $0.5 million and
resulted in the adjustment of certain accruals for exit costs
made in the second quarter which contemplated the shut down of
the facility.
In the second half of 1996, additional Management Actions
included a reorganization at USPD which resulted in severing 15
employees and a reorganization of the AHD business practices and
staffing levels which resulted in severing and/or early
retirement of 33 employees and other exit costs.
As a result of the 1996 reorganizations in USPD and AHD the
Company believes annual payroll and payroll related costs of $2.5
million were eliminated. The production rationalization plans
have benefited operations in 1997 and 1998 for USPD and are
expected to begin to benefit operations in IPD in 1999.
The Company believes the dynamic nature of its business may
present additional opportunities to rationalize personnel
functions and operations to increase efficiency and
profitability. Accordingly, similar management actions may be
considered in the future and could be material to the results of
operations in the quarter they are announced.
Inflation
The effect of inflation on the Company's operations during
1998, 1997 and 1996 was not significant.
Liquidity and Capital Resources
At December 31, 1998, stockholders' equity was $267.3
million compared to $238.5 million and $186.0 million at December
31, 1997, and 1996, respectively. The ratio of long-term debt to
equity was 1.61:1, 0.94:1 and 1.26:1 at December 31, 1998, 1997
and 1996, respectively. The increase in stockholders' equity in
1998 primarily reflects net income in 1998 less dividends and the
issuance of common stock in 1998 through the exercise of stock
options and purchases under the employee stock purchase plan. The
increase in long-term debt from 1997 to 1998 was due primarily to
the acquisition of Cox in May 1998.
Working capital at December 31, 1998 was $165.0 million
compared to $139.8 million and $119.2 million at December 31,
1997 and 1996, respectively. The current ratio was 1.97:1 at
December 31, 1998 compared to 2.04:1 and 1.77:1 at December 31,
1997 and 1996, respectively.
The Cox acquisition substantially increased the following
balance sheet captions: accounts receivable ($17.7 million),
inventory ($17.1 million), property, plant and equipment ($33.9
million), intangible assets ($160.0 million), and accounts
payable and accrued expenses ($17.7 million). Additionally at
year end accounts receivable increased by over $22.0 million due
to significantly higher fourth quarter 1998 sales relative to
1997.
The Company presently has various capital expenditure
programs under way and planned including the expansion of the
newly acquired FCD facility in Budapest, Hungary. In 1998, the
Company's capital expenditures were $31.4 million, and in 1999
the Company plans to spend a greater amount than in 1998.
In February 1999, the Company's USPD entered into an
agreement with Ascent Pediatrics, Inc. ("Ascent") under which
UPSD will provide up to $40 million in loans to Ascent to be
evidenced by 7 1/2% convertible subordinated notes due 2005. Up to
$12 million of the proceeds of the Loans can be used for general
corporate purposes, with $28 million of proceeds reserved for
projects and acquisitions intended to enhance growth of Ascent.
While exact timing cannot be predicted, it is expected the $40.0
million will be advanced in the next two years.
At December 31, 1998, the Company had $65.8 million
available under existing short-term unused lines of credit and
$14.4 million in cash. In January 1999, the Company replaced its
prior $180.0 million revolving credit facility and domestic short
term lines of credit with a $300.0 million credit facility ("1999
Credit Facility"). In addition, European short term credit lines
were set at $30.0 million. The 1999 Credit Facility provides for
a $100.0 million six year term loan and a $200.0 million
revolving credit facility with an initial five year term with two
possible one year extensions. The 1999 Credit Facility extends
the maturities under prior agreements and allows the Company
additional financing flexibility. Comparing year end debt amounts
for the prior Revolving Credit, domestic short term debt and the
A/S Eksportfinans loan (all of which were refinanced in the first
quarter 1999), to the 1999 Credit Facility the Company has
approximately $95.0 million available. Comparing the 1999
European line of credit to the year end short term debt balance,
the Company has over $10.0 million available. The Company
believes that the combination of cash from operations and funds
available under existing lines of credit will be sufficient to
cover its currently planned operating needs.
A substantial portion of the Company's short-term and long-
term debt is at variable interest rates. During 1999, the Company
will consider entering into interest rate agreements to fix
interest rates for all or a portion of its variable debt to
minimize the impact of future changes in interest rates. The
Company's policy is to selectively enter into "plain vanilla"
agreements to fix interest rates for existing debt if it is
deemed prudent.
In addition to investments for internal growth, the Company
has continued its pursuit of complementary acquisitions or
alliances, particularly in human pharmaceuticals, that can
provide new products and market opportunities as well as leverage
existing assets. In order to accomplish any significant
acquisition, it is likely that the Company will need to obtain
additional financing in the form of equity related securities
and/or borrowings. Any significant new borrowings require the
Company meet the debt covenants included in the 1999 Credit
Facility which provide for varying interest rates based on the
ratio of total debt to EBITDA.
Year 2000
General
The Year 2000 ("Y2K") issue is primarily the result of
certain computer programs and embedded computer chips being
unable to distinguish between the year 1900 and 2000. As a
result, the Company along with all other business and
governmental entities, is at risk for possible miscalculations of
a financial nature and systems failures which may cause
disruptions in its operations. The Company can be affected by
the Y2K readiness of its systems or the systems of the many other
entities with which it interfaces, directly or indirectly.
The Company began its program to address its potential Y2K
issues in late 1996 and has organized its activities to prepare
for Y2K at the division level. The divisions have focused their
efforts on three areas: (1) information systems software and
hardware; (2) manufacturing facilities and related equipment;
(i.e. embedded technology) and (3) third-party relationships
(i.e. customers, suppliers, and other). Information system and
hardware Y2K efforts are being coordinated by an IT steering
committee composed of divisional personnel.
The Company and the divisions have organized their
activities and are monitoring their progress in each area by the
following four phases:
Phase 1: Awareness/Assessment - identify, quantify and
prioritize business and financial risks by area.
Phase 2: Budget/Plan/Timetable - prepare a plan including
costs and target dates to address phase 1
exposures.
Phase 3: Implementation - execute the plan prepared in
phase 2.
Phase 4: Testing/Validation - test and validate the
implemented plans to insure the Y2K exposure has
been eliminated or mitigated.
State of Readiness
The Company summarizes its divisions' state of readiness at
December 31, 1998 as follows:
Information Systems and Hardware
Quarter forecasted
Approximate range for substantial
Phase of completion completion
1 100% Completed
2 95 - 100% 1st Quarter 1999
3 70 - 80% 2nd Quarter 1999
4 50 - 90% 3rd Quarter 1999
Embedded Factory Systems
Quarter forecasted
Approximate range for substantial
Phase of completion completion
1 90 - 100% 1st Quarter 1999
2 85 - 100% 1st Quarter 1999
3 35 - 85% 3rd Quarter 1999
4 35 - 85% 3rd Quarter 1999
Third Party Relationships
Quarter forecasted
Approximate range for substantial
Phase of completion completion
1 50 - 100% (a) 2nd Quarter 1999(a)
2 55 - 90% (a) 2nd Quarter 1999(a)
3 (a) (b) (a) (b)
4 (a) (b) (a) (b)
(a) Refers to significant identified risks - (e.g. customers,
suppliers of raw materials and providers of services) does not
include exposures that relate to interruption of utility or
government provided services.
(b) Awaiting completion of vendor response and follow-up due
diligence to Y2K readiness surveys.
Cost
The Company expects the costs directly associated with its
Y2K efforts to be between $3.0 and $4.0 million of which
approximately $1.3 has been spent to date. The cost estimates do
not include additional costs that may be incurred as a result of
the failure of third parties to become Y2K compliant or costs to
implement any contingency plans.
Risks
The Company has identified the following significant
reasonably possible Y2K problems and is considering related
contingency plans.
Possible problem: the inability of significant sole source
suppliers of raw materials or active ingredients to provide an
uninterrupted supply of material necessary for the manufacture of
Company products. Since various drug regulations will make the
establishment of alternative supply sources difficult, the
Company is considering building inventory levels of critical
materials prior to December 31, 1999.
Possible problem: the failure to properly interface caused
by noncompliance of significant customer operated electronic
ordering systems. The Company is considering plans to manually
process orders until these systems become compliant.
Possible problem: the shutdown or malfunctioning of Company
manufacturing equipment. The Company will advance internal clocks
to the year 2000 on certain key equipment during scheduled plant
shutdowns in 1999 to determine the effect on operations and
develop plans, as necessary, for manual operations or third party
contract manufacturing.
Based on the assessment efforts to date, the Company does
not believe that the Y2K issue will have a material adverse
effect on its financial condition or results of operation. The
Company believes that any effect of the Year 2000 issue will be
mitigated because of the Company's divisional operating structure
which is diverse both geographically and with respect to customer
and supplier relationships. Therefore, the adverse effect of
most individual failures should be isolated to an individual
product, customer or Company facility. However, there can be no
assurance that the systems of third-parties on which the Company
relies will be converted in a timely manner, or that a failure to
properly convert by another company would not have a material
adverse effect on the Company.
The Company's Y2K program is an ongoing process that may
uncover additional exposures and all estimates of costs and
completion are subject to change as the process continues.
Derivative Financial Instruments-Market Risk and Risk Management
Policies
The Company's earnings and cash flow are subject to
fluctuations due to changes in foreign currency exchange rates
and interest rates. The Company's risk management practice
includes the selective use, on a limited basis, of forward
foreign currency exchange contracts and interest rate agreements.
Such instruments are used for purposes other than trading.
Foreign currency exchange rate movements create fluctuations
in U.S. dollar reported amounts of foreign subsidiaries whose
local currencies are their respective functional currencies. The
Company has not used foreign currency derivative instruments to
manage translation fluctuations. The Company and its respective
subsidiaries primarily use forward foreign exchange contracts to
hedge certain cash flows denominated in currencies other than the
subsidiary's functional currency. Such cash flows are normally
represented by actual receivables and payables and anticipated
receivables and payables for which there is a firm commitment.
At December 31, 1998 the Company had forward foreign
exchange contracts with a notional amount of $17,300. The fair
market value of such contracts is essentially the same as the
notional amount. All contracts expire in the first quarter of
1999. The cash flows expected from the contracts will generally
offset the cash flows of related non-functional currency
transactions. The change in value of the foreign currency forward
contracts resulting from a 10% movement in foreign currency
exchange rates would be approximately $1.0 million and generally
would be offset by the change in value of the hedged receivable
or payable.
At December 31, 1998 the Company has no interest rate
agreements outstanding. The Company is considering entering into
interest rate agreements in 1999 to fix the interest rate on a
portion of its long term debt.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999
(January 1, 2000 for the Company). SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a
hedge transaction and, if it is, the type of hedge transaction.
SFAS 133 is not expected to have a material impact on the
Company's consolidated results of operations, financial position
or cash flows.
RISK FACTORS
This report includes certain forward looking statements.
Like any company subject to a competitive business environment,
the Company cannot guarantee the results predicted in any of the
Company's forward-looking statements. Important factors that
could cause actual results to differ materially from those in the
forward-looking statements include (but are not limited to) the
following:
Government Regulation
The research, development, manufacturing and marketing of
the Company's products are subject to extensive government
regulation. Government regulation includes inspection of and
controls over testing, manufacturing, safety, efficacy, labeling,
record keeping, sale and distribution of pharmaceutical products.
The U.S. and other governments regularly review manufacturing
operations. Noncompliance with applicable requirements can result
in fines, recall or seizure of products, suspension of production
and debarment of individuals or the Company from obtaining new
drug approvals. Such government regulation substantially
increases the cost of manufacturing and selling the Company's
products.
The Company has filed applications to market its products
with regulatory agencies both in the U.S. and internationally.
The timing of receipt of approvals of these applications can
significantly affect future revenues and income, particularly
with respect to human pharmaceuticals at the end of third parties
patent protection. There can be no assurance that new product
approvals will be obtained in a timely manner, if ever. Failure
to obtain approvals, or timing of approvals when expected, could
have a material adverse effect on the Company's business.
The use of bacitracin zinc, a feed antibiotic growth
promoter, is being banned for use in livestock feeds in the
European Union, effective 1st July, 1999. The Company is
attempting to reverse or limit this action, that affects its
Albac product, by political and legal means. Although no
assurance of success can be given, it is the Company's belief
that strong scientific evidence exists to refute the EU action.
In addition, certain other countries have enacted or are
considering a similar ban. If the loss of Albac sales is limited
to the European Union and those countries that have already taken
similar action, the Company does not anticipate a material
adverse effect. If either (a) other countries more important to
the Company's sales of bacitracin based products should ban the
product or (b) the European Union should act to prevent the
importation of meat products from countries that allow the use of
bacitracin based products, such actions could depending on their
scope, be materially adverse to the Company. The Company cannot
predict whether the present bacitracin zinc ban will be expanded.
Risks Associated with Leverage
As of December 31, 1998, the Company had total outstanding
long-term indebtedness of approximately $429.0 million, or
approximately 62% of the Company's total capitalization. After
refinancing of its long-term debt in January 1999 the Company may
incur approximately $105.0 million additional indebtedness
through borrowings under its credit agreements, subject to the
satisfaction of certain financial conditions. The Company's
leverage could have important consequences, including the
following: (i) the ability to obtain additional financing may be
limited; (ii) the operating flexibility is limited by covenants
contained in the credit agreements, and (iii) the degree of
leverage makes it more vulnerable to economic downturns, may
limit its ability to pursue other business opportunities and
reduces its flexibility. In addition, the Company believes that
it has greater leverage on its balance sheet than many of its
competitors.
Risks Associated with Acquisitions
The Company maintains its search for acquisitions which will
provide new product and market opportunities, leverage existing
assets and add critical mass. The Company is actively evaluating
various acquisition possibilities. Based on current acquisition
prices in the pharmaceutical industry, acquisitions could
initially be dilutive to the Company's earnings and add
significant intangible assets and related goodwill amortization
charges. The Company's acquisition strategy will require
additional debt or equity financing, resulting in additional
leverage and dilution of ownership, respectively. There can be no
assurance that the Company's acquisition strategy will be
successful.
Foreign Operations; Risk of Currency Fluctuation
The Company's foreign operations are subject to various
risks which are not present in domestic operations, including, in
certain countries, currency exchange fluctuations and
restrictions, political instability, and uncertainty as to the
enforceability of, and government control over, commercial
rights.
The Company's Far East operations, particularly Indonesia
where the Company has a manufacturing facility, are being
affected by the wide currency fluctuations and decreased economic
activity in the Far East and by the social and political unrest
in Indonesia. While the Company's present exposure to economic
factors in the Far East is not material, the region is an
important area for anticipated future growth.
Products in many countries recognized to be susceptible to
significant foreign currency risk are generally sold for U.S.
dollars which eliminates the direct currency risk but can create
a risk of collectibility if the local currency devalues
significantly.
Fluctuating Operating Results
The Company has experienced in the past, and will experience
in the future, variations in revenues and net income as a result
of many factors, including acquisitions, delays in the
introduction of new products, the level of expenses, management
actions and the general conditions of the pharmaceutical and
animal health industry.
Competition
All of the Company's businesses operate in highly
competitive markets and many of the Company's competitors are
substantially larger and have greater financial, technical and
marketing resources than the Company. As a result, the Company
may be at a disadvantage in its ability to develop and market new
products to meet competitive demands.
The U.S. generic pharmaceutical industry has historically
been characterized by intense competition. As patents and other
basis for market exclusivity expire, prices typically decline as
generic competitors enter the marketplace. Normally, there is a
further unit price decline as the number of generic competitors
increase. The timing of these price decreases is unpredictable
and can result in a significantly curtailed period of
profitability for a generic product. In addition brand-name
manufacturers frequently take actions to prevent or discourage
the use of generic equivalents through marketing and regulatory
activities and litigation.
Generic pharmaceutical market conditions in the U.S. were
further exacerbated in the second half of 1996 by a fundamental
shift in industry distribution, purchasing and stocking patterns
resulting from increased importance of sales to major wholesalers
and a concurrent reduction in sales to private label generic
distributors. The Company believes that this trend continues to
date. Wholesaler programs generally require lower prices on
products sold, lower inventory levels kept at the wholesaler and
fewer manufacturers selected to provide products to the
wholesaler's own marketing programs.
The factors which have adversely affected the U.S. generic
pharmaceutical industry may also affect some or all of the
markets in which the International Pharmaceutical Division
operates. In addition, in Europe the Company is encountering
price pressure from parallel imports (i.e., imports of identical
products from lower priced markets under EU laws of free movement
of goods) and general governmental initiatives to reduce drug
prices. Parallel imports could lead to lower volume growth. Both
parallel imports and governmental cost containment could create
downward pressure on prices in certain product and geographical
market areas including the Nordic countries where the Company has
significant sales.
The Company has been and will continue to be affected by the
competitive and changing nature of this industry. Accordingly,
because of competition, the significance of relatively few major
customers (e.g., large wholesalers and chain stores), a rapidly
changing market and uncertainty of timing of new product
approvals, the sales volume, prices and profits of the Company's
U.S. and International Pharmaceutical Divisions and its generic
competitors are subject to unforeseen fluctuation.
Dependence on Single Sources of Raw Material Supply and Contract
Manufacturers
Raw materials and certain products are currently sourced
from single domestic or foreign suppliers. Although the Company
has not experienced difficulty to date, there can be no assurance
that supply interruptions will not occur in the future or that
the Company will not have to obtain substitute materials or
products, which would require additional regulatory approvals.
Further, there can be no assurance that third parties that supply
the Company will continue to do so. Any interruption of supply
could have a material adverse effect on the Company.
Third Party Reimbursement Pricing Pressures
The Company's commercial success with respect to generic
products will depend, in part, on the availability of adequate
reimbursement from third-party health care payers, such as
government and private health insurers and managed care
organizations. Third-party payers are increasingly challenging
the pricing of medical products and services. There can be no
assurance that reimbursement will be available to enable the
Company to maintain its present product price levels. In
addition, the market for the Company's products may be limited by
actions of third-party payers. For example, many managed health
care organizations are now controlling the pharmaceutical
products which will be approved for reimbursement. The
competition to place products on these approved lists has
created a trend of downward pricing pressure in the industry.
There can be no assurance that the Company's products will be
included on the approved lists of managed care organizations or
that downward pricing pressures in the industry generally will
not negatively impact the Company's business.
Potential Liability for Current Products
Continuing studies of the proper utilization, safety, and
efficacy of pharmaceuticals and other health care products are
being conducted by the industry, government agencies and others.
Such studies, which increasingly employ sophisticated methods and
techniques, can call into question the utilization, safety and
efficacy of previously marketed products. In some cases these
studies have resulted in the removal of products from the market
and have given rise to claims for damages from previous users.
The Company's business could be materially adversely affected by
the assertion of such product liability claims.
Relationship of the Company and A.L. Industrier; Controlling
Stockholder; Conflicts of Interest
A.L. Industrier, ("Industrier") as the beneficial owner of
100% of the outstanding shares of the Class B Stock, is presently
entitled to elect two-thirds of the members of the Company's
Board of Directors and to cast more than 50% of the votes
generally entitled to be cast on matters presented to the
Company's stockholders. Secondly, Industrier controls the Company
and its policies. Mr. Sissener, Chairman and Chief Executive
Officer of the Company, controls a majority of Industrier's
outstanding shares and thus may be deemed the indirect
controlling stockholder of the Company. Industrier's ownership of
the Class B Stock has the effect of preventing hostile takeovers,
including transactions in which stockholders might otherwise
receive a premium for their shares over current market prices.
Industrier also beneficially owns a convertible note of the
Company in the principal amount of $67.9 million, which may
convert upon the occurrence of certain events after April 6, 2001
into 2,373,896 shares of Class B Stock. In addition, Mr. Sissener
and his family hold 346,668 shares of Class A Common Stock.
E.W. Sissener, Chairman and Chief Executive Officer of the
Company, is also Chairman of Industrier and controls Industrier.
Gert Munthe, President and Chief Operating Officer of the
Company, is a director of Industrier. The Company and Industrier
engage in various transactions from time to time, and conflicts
of interest are present with respect to the terms of such
transactions. The Company believes that contractual arrangements
with Industrier are no less favorable to the Company than other
third party contracts that are negotiated on an arm's length
basis. All contractual arrangements between the Company and
Industrier are subject to approval by, or ratification of, the
Audit Committee of the Board of Directors of the Company
consisting of directors who are unaffiliated with Industrier.
Year 2000
See previous section included in Item 7.
Item 8. Financial Statements and Supplementary Data
See page F-1 of this Report, which includes an index to the
consolidated financial statements and financial statement
schedule.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information as to the Directors of the Registrant set
forth under the sub-caption "Board of Directors" appearing under
the caption "Election of Directors" of the Proxy Statement
relating to the Annual Meeting of Shareholders to be held on
June 10, 1999, which Proxy Statement will be filed on or prior to
April 15, 1999, is incorporated by reference into this Report.
The information as to the Executive Officers of the Registrant is
included in Part I hereof under the caption Item 1A "Executive
Officers of the Registrant" in reliance upon General Instruction
G to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-
K.
Item 11. Executive Compensation
The information to be set forth under the subcaption
"Directors' Fees and Related Information" appearing under the
caption "Board of Directors" of the Proxy Statement relating to
the Annual Meeting of Shareholders to be held on June 10, 1999,
which Proxy Statement will be filed on or prior to April 15,
1999, and the information set forth under the caption "Executive
Compensation and Benefits" in such Proxy Statement is
incorporated into this Report by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information to be set forth under the caption "Security
Ownership of Certain Beneficial Owners" of the Proxy Statement
relating to the Annual Meeting of Stockholders expected to be
held on June 10, 1999, is incorporated into this Report by
reference. Such Proxy Statement will be filed on or prior to
April 15, 1999.
There are no arrangements known to the Registrant, the
operation of which may at a subsequent date result in a change in
control of the Registrant.
Item 13. Certain Relationships and Related Transactions
The information to be set forth under the caption "Certain
Related Transactions and Relationships" of the Proxy Statement
relating to the Annual Meeting of Stockholders expected to be
held on June 10, 1999, is incorporated into this Report by
reference. Such Proxy Statement will be filed on or prior to
April 15, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
List of Financial Statements
See page F-1 of this Report, which includes an index to
consolidated financial statements and financial statement
schedule.
List of Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
3.1A Amended and Restated Certificate of Incorporation of
the Company, dated September 30, 1994 and filed with the
Secretary of State of the State of Delaware on October 3, 1994,
was filed as Exhibit 3.1 to the Company's 1994 Annual Report on
Form 10-K and is incorporated by reference.
3.1B Certificate of Amendment of the Certificate of
Incorporation of the Company dated September 15, 1995 and filed
with the Secretary of State of Delaware on September 15, 1995 was
filed as Exhibit 3.1 to the Company's Amendment No. 1 to Form S-3
dated September 21, 1995 (Registration on No. 33-60029) and is
incorporated by reference.
3.2 Amended and Restated By-Laws of the Company,
effective as of October 3, 1994, were filed as Exhibit 3.2 to the
Company's 1994 Annual Report on Form 10-K and is incorporated by
reference.
4.1 Reference is made to Article Fourth of the Amended
and Restated Certificate of Incorporation of the Company which is
referenced as Exhibit 3.1 to this Report.
4.2 Warrant Agreement between the Company and The First
National Bank of Boston, as warrant agent, was filed as an
Exhibit 4.2 to the Company's 1994 Annual Report on Form 10-K and
is incorporated by reference.
10.1 $185,000,000 Credit Agreement among A.L.
Laboratories, Inc.,(now known as Alpharma U.S. Inc.) as Borrower,
Union Bank of Norway, as agent and arranger, and Den norske Bank
AS, as co-arranger, dated September 28, 1994, was filed as
Exhibit 10.1 to the Company's 1994 Annual Report on Form 10-K and
is incorporated by reference.
10.1A Amendment to the Credit Agreement dated February 26,
1997 between the Company and the Union Bank of Norway, as agent
was filed as Exhibit 10.1A to the Company's 1996 Annual Report on
Form 10K and is incorporated by reference.
10.1B Amendment to the Credit Agreement dated April 10,
1997 between the Company and Union Bank of Norway, as agent was
filed as Exhibit 10.a to the Company's March 31, 1997 quarterly
report on Form 10Q and is incorporated by reference.
10.2 $300,000,000 Credit Agreement among Alpharma U.S.
Inc. as Borrower, Union Bank of Norway, as agent and arranger,
and Den norske Bank AS, as co-arranger, dated January 20, 1999,
is filed as an Exhibit to this report.
10.3 Purchase Agreement, dated as of March 25, 1998, by
and among the Company, SBC Warburg Dillion Read Inc., CIBC
Oppenheimer Corp. and Cowen Company was filed as Exhibit 1.1 of
the Company's Form 8-K, dated as of March 30, 1998 and is
incorporated by reference.
10.4 Indenture, dated as of March 30, 1998, by amd among
the Company and First Union National Bank, as trustee, with
respect to the 5 _% Convertible Subordinated Notes due 2005 was
filed as Exhibit 4.1 of the Company's Form 8-K dated as of March
30, 1998 and is incorporated by reference.
10.5 Note Purchase Agreement dated March 5, 1998 and
Amendment No. 1 thereto dated March 25, 1998 by and between the
Company and A.L. Industrier A.S. was filed as Exhibit 1.2 of the
Company's Form 8-K dated as of March 30, 1998 and is incorporated
by reference.
Copies of debt instruments (other than those listed above)
for which the related debt does not exceed 10% of consolidated
total assets as of December 31, 1997 will be furnished to the
Commission upon request.
10.6 Parent Guaranty, made by the Company in favor of
Union Bank of Norway, as agent and arranger, and Den norske Bank
AS, as co-arranger, dated September 28, 1994 was filed as Exhibit
10.2 to the Company's 1994 Annual Report on Form 10-K and is
incorporated by reference.
10.7 Parent Guaranty, made by the Company in favor of
Union Bank of Norway, as agent and arranger, and Den norske Bank
AS, as co-arranger, dated January 20, 1999 is filed as an Exhibit
to this report.
10.8 Restructuring Agreement, dated as of May 16, 1994,
between the Company and Apothekernes Laboratorium A.S (now known
as A.L. Industrier AS) was filed as Exhibit A to the Definitive
Proxy Statement dated August 22, 1994 and is incorporated herein
by reference.
10.9 Employment Agreement dated January 1, 1987, as
amended December 12, 1989, between I. Roy Cohen and the Company
and A.L. Laboratories, Inc. was filed as Exhibit 10.3 to the
Company's 1989 Annual Report on Form 10-K and is incorporated
herein by reference.
10.10 Control Agreement dated February 7, 1986 between
Apothekernes Laboratorium A.S (now known as A.L. Industrier AS)
and the Company was filed as Exhibit 10.10 to the Company's 1985
Annual Report on Form 10-K and is incorporated herein by
reference.
10.11 Amendment to Control Agreement dated October 3, 1994
between A.L. Industrier AS (formerly known as Apothekernes
Laboratorium A.S) and the Company was filed as Exhibit 10.6 to
the Company's 1994 Annual Report on Form 10-K and is incorporated
by reference.
10.12 Amendment to Control Agreement dated December 19,
1996 between A.L. Industrier AS and the Company was filed as
Exhibit 10.6A to the Company's 1996 Annual Report on Form 10-K
and is incorporated by reference.
10.13 The Company's 1997 Incentive Stock Option and
Appreciation Right Plan, as amended was filed as an Exhibit to
the Company's 1996 Proxy Statement and is incorporated by
reference.
10.14 Employment agreement dated July 30, 1991 between the
Company and Jeffrey E. Smith was filed as Exhibit 10.8 to the
Company's 1991 Annual Report on Form 10-K and is incorporated by
reference.
10.15 Employment agreement between the Company and Thomas
Anderson dated January 13, 1997 was filed as Exhibit 10.9 to the
Company's 1996 Annual Report on Form 10-K and is incorporated by
reference.
10.16 Employment Agreement between the Company and Bruce I.
Andrews dated April 7, 1997 was filed as Exhibit 10.b to the
Company's March 31, 1997 quarterly report on Form 10-Q and is
incorporated by reference.
10.17 Lease Agreement between A.L. Industrier AS, as
landlord, and Alpharma AS, as tenant, dated October 3, 1994 was
filed as Exhibit 10.10 to the Company's 1994 Annual Report on
Form 10-K and is incorporated by reference.
10.18 Administrative Services Agreement between A.L.
Industrier AS and Alpharma AS dated October 3, 1994 was filed as
Exhibit 10.11 to the Company's 1994 Annual Report on Form 10-K
and is incorporated by reference.
10.19 Employment agreement dated March 14, 1996 between the
Company and Einar W. Sissener was filed as Exhibit 10.13 to the
Company's 1995 Annual Report on Form 10-K and is incorporated by
reference.
10.20 Employment contract dated October 5, 1989 between
Apothekernes Laboratorium A.S (transferred to Alpharma Oslo per
the combination transaction) and Ingrid Wiik was filed as Exhibit
10.13 to the Company's 1994 Annual Report on Form 10-K and is
incorporated by reference.
10.21 Employment contract dated October 5, 1989 between
Apothekernes Laboratorium A.S (transferred to Alpharma Oslo per
the combination transaction) and Thor Kristiansen was filed as
Exhibit 10.14 to the Company's 1994 Annual Report on Form 10-K
and is incorporated by reference.
10.22 Employment contract dated October 2, 1991 between
Apothekernes Laboratorium A.S (transferred to Alpharma Oslo per
the combination transaction) and Knut Moksnes was filed as
Exhibit 10.15 to the Company's 1994 Annual Report on Form 10-K
and is incorporated by reference.
10.23 Agreement dated April 28, 1997 between D.E.Cohen and
the Company was filed as Exhibit 10.17 to the Company's 1997
Annual Report on Form 10-K and is incorporated by reference.
10.24 Stock Subscription and Purchase Agreement dated
February 10, 1997 between the Company and A.L. Industrier was
filed as Exhibit 10 on Form 8-K filed on February 19, 1997 and is
incorporated herein by reference.
10.24a Amendment No. 1 to Stock Subscription and Purchase
Agreement dated June 26, 1997, between the Company and A.L.
Industrier AS was filed as an Exhibit to the Company's Form 8-K
dated June 27, 1997 and is incorporated herein by reference.
10.25 Employment Agreement dated March 13, 1998 between the
Company and Gert W. Munthe was filed as Exhibit 10a to the
Company's March 31, 1998 Quarterly Report on Form 10-Q and is
incorporated by reference.
10.26 Master Agreement dated as of February 16, 1999 by and
among Ascent, USPD and the Company and was filed as Exhibit 99.1
of the Company's Form 8-K dated February 23, 1999 and is
incorporated by reference.
10.26a Depositary Agreement dated as of February 16, 1999 by
and among Ascent, USPD the Company and State Street Bank and
Trust Company was filed as Exhibit 99.2 of the Company's Form 8-K
dated February 23, 1999 and is incorporated by reference.
10.26b Loan Agreement dated as of February 16, 1999 by and
among Ascent, USPD and the Company was filed as Exhibit 99.3 of
the Company's Form 8-K dated February 23, 1999 and is
incorporated by reference.
10.26c Guaranty Agreement dated as of February 16, 1999 by
and between Ascent and the Company was filed as Exhibit 99.4 of
the Company's Form 8-K dated February 23, 1999 and is
incorporated by reference.
10.26d Registration Rights Agreement dated as of February
16, 1999 by and between Ascent and USPD was filed as Exhibit 99.5
of the Company's Form 8-K dated February 23, 1999 and is
incorporated by reference.
10.26e Subordination Agreement dated as of February 16, 1999
by and among Ascent, USPD and the purchasers named therein was
filed as Exhibit 99.6 of the Company's Form 8-K dated February
23, 1999 and is incorporated by reference.
10.27 Agreement for the sale and purchase of the issued
share capital of Cox Investments Limited, dated April 30, 1998
between Hoechst AG, Alpharma (U.K.) Limited, and Alpharma Inc.
was filed as Exhibit 2.1 of the Company's Form 8-K, dated as of
May 7, 1998 and is incorporated by reference.
21 A list of the subsidiaries of the Registrant as of
March 1, 1999 is filed as an Exhibit to this Report.
23 Consent of PricewaterhouseCoopers L.L.P., Independent
Accountants, is filed as an Exhibit to this Report.
27 Financial Data Schedule
Report on Form 8-K
On February 23, 1999 the Company filed a report on Form 8-K
dated February 16, 1999 reporting Item 5, "Other Events". The
event reported was a loan agreement between the Company and
Ascent Pediatrics, Inc.
Undertakings
For purposes of complying with the amendments to the rules
governing Registration Statements under the Securities Act of
1933, the undersigned Registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into
Registrant's Registration Statements on Form S-8 (No. 33-60495,
effective July 13, 1990) and Form S-3 (File Nos. 333-57501 and
333-70229):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
March 25, 1999 ALPHARMA INC.
Registrant
By: /s/ Einar W. Sissener
Einar W. Sissener
Chairman, Director and
Chief Executive Officer
Pursuant to the requirements of the Securities and 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.
Date: March 25, 1999 /s/ Einar W. Sissener
Einar W. Sissener
Chairman, Director and
Chief Executive Officer
Date: March 25, 1999 /s/ Gert W. Munthe
Gert W. Munthe
Director, President and
Chief Operating Officer
Date: March 25, 1999 /s/ Jeffrey E. Smith
Jeffrey E. Smith
Vice President, Finance and
Chief Financial Officer
(Principal accounting officer)
Date: March 25, 1999 /s/ I. Roy Cohen
I. Roy Cohen
Director and Chairman of the
Executive Committee
Date: March 25, 1999 /s/ Thomas G. Gibian
Thomas G. Gibian
Director and Chairman of the
Audit Committee
Date: March 25, 1999 /s/ Glen E. Hess
Glen E. Hess
Director
Date: March 25, 1999 /s/ Peter G. Tombros
Peter G. Tombros
Director and Chairman
of the Compensation Committee
Date: March 25, 1999 /s/ Erik G. Tandberg
Erik G. Tandberg
Director
Date: March 25, 1999 /s/Oyvin Broymer
Oyvin Broymer
Director
Date: March 25, 1999 /s/ Erik Hornnaess
Erik Hornnaess
Director
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
______________
Page
Consolidated Financial Statements:
Report of Independent Accountants F-2
Consolidated Balance Sheet at
December 31, 1998 and 1997 F-3
Consolidated Statement of Operations for
the years ended December 31, 1998,
1997 and 1996 F-4
Consolidated Statement of Stockholders'
Equity for the years ended
December 31, 1998, 1997 and 1996 F-5 to F-6
Consolidated Statement of Cash Flows
for the years ended December 31, 1998,
1997 and 1996 F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-42
Financial statement schedules are omitted for the reason that
they are not applicable or the required information is included
in the consolidated financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
Alpharma Inc.:
In our opinion, the accompanying consolidated financial
statements listed in the index on page F-1 of this Form 10-K
present fairly, in all material respects, the consolidated
financial position of Alpharma Inc. and Subsidiaries (the
"Company") as of December 31, 1998 and 1997 and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
February 24, 1999
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
December 31,
1998 1997
ASSETS
Current assets:
Cash and cash equivalents $ 14,414 $ 10,997
Accounts receivable, net 169,744 127,637
Inventories 138,318 121,451
Prepaid expenses and other
current assets 13,008 13,592
Total current assets 335,484 273,677
Property, plant and equipment, net 244,132 199,560
Intangible assets, net 315,709 149,816
Other assets and deferred charges 13,611 8,813
Total assets $908,936 $631,866
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 12,053 $ 10,872
Short-term debt 41,921 39,066
Accounts payable 41,083 27,659
Accrued expenses 64,596 51,139
Accrued and deferred income taxes 10,784 5,190
Total current liabilities 170,437 133,926
Long-term debt:
Senior 236,184 223,975
Convertible subordinated notes,
including $67,850 to related party 192,850 -
Deferred income taxes 31,846 26,360
Other non-current liabilities 10,340 9,132
Stockholders' equity:
Preferred stock, $1 par value,
no shares issued - -
Class A Common Stock, $.20
par value, 17,755,249 and
16,118,606 shares issued 3,551 3,224
Class B Common Stock, $.20 par value,
9,500,000 shares issued 1,900 1,900
Additional paid-in capital 219,306 179,636
Accumulated other comprehensive loss (7,943) (8,375)
Retained earnings 56,649 68,206
Treasury stock, at cost (6,184) (6,118)
Total stockholders' equity 267,279 238,473
Total liabilities and
stockholders' equity $908,936 $631,866
See notes to consolidated financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Years Ended December 31,
1998 1997 1996
Total revenue $604,584 $500,288 $486,184
Cost of sales 351,324 289,235 297,128
Gross profit 253,260 211,053 189,056
Selling, general and
administrative expenses 188,264 164,155 185,136
Operating income 64,996 46,898 3,920
Interest expense (25,613) (18,581) (19,976)
Other income (expense), net (400) (567) (170)
Income (loss) before
income taxes 38,983 27,750 (16,226)
Provision (benefit) for
income taxes 14,772 10,342 (4,765)
Net income (loss) $24,211 $ 17,408 $(11,461)
Earnings (loss) per common share:
Basic $ .95 $ .77 $ (.53)
Diluted $ .92 $ .76 $ (.53)
See notes to consolidated financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Other Total
Additional Comprehen- Stock-
Common Paid-In sive Income Retained Treasury holders
Stock Capital (Loss) Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $4,386 $120,357 $15,884 $70,385 $(5,822) $205,190
Comprehensive
income(loss):
Net loss - 1996 (11,461) (11,461)
Currency translation
adjustment (5,393) (5,393)
Total comprehensive loss (16,854)
Dividends declared
($.18 per common share) (3,928) (3,928)
Tax benefit realized from
stock option plan 202 202
Purchase of treasury stock (283) (283)
Exercise of stock options
(Class A) and other 13 862 875
Employee stock purchase
plan 9 831 840
Balance, December 31, 1996 $4,408 $122,252 $10,491 $54,996 $(6,105) $186,042
Comprehensive
income(loss):
Net income - 1997 17,408 17,408
Currency translation
adjustment (18,866) (18,866)
Total comprehensive loss (1,458)
Dividends declared
($.18 per common share) (4,198) (4,198)
Tax benefit realized from
stock option plan 228 228
Purchase of treasury stock (13) (13)
Exercise of stock options
(Class A) and other 14 794 808
Exercise of stock rights
(Class A) 440 35,538 35,978
Stock subscription by
A.L. Industrier (Class B) 254 20,125 20,379
Employee stock purchase
plan 8 699 707
Balance, December 31, 1997 $5,124 $179,636 $(8,375) $68,206 $(6,118) $238,473
Comprehensive
income(loss):
Net income - 1998 24,211 24,211
Currency translation
adjustment 432 432
Total comprehensive
income 24,643
Dividends declared
($.18 per common share) (4,651) (4,651)
Tax benefit realized from
stock option plan 1,415 1,415
Purchase of treasury stock (66) (66)
Exercise of stock options
(Class A) and other 68 5,687 5,755
Exercise of warrants 48 4,910 4,958
Stock subscription
receivable for warrant
exercises (47) (4,869) (4,916)
Stock issued in tender
offer for warrants 246 30,871 (31,117)
Employee stock purchase
plan 12 1,656 1,668
Balance, December 31, 1998 $5,451 $219,306 $(7,943) $56,649 $(6,184) $267,279
See notes to consolidated financial statements.
</TABLE>
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
Years Ended
December 31,
1998 1997 1996
Operating activities:
Net income (loss) $24,211 $17,408 $(11,461)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 38,120 30,908 31,503
Deferred income taxes 493 (1,101) (3,104)
Noncurrent asset write-offs - - 5,753
Purchased in-process research and
development 2,081 - -
Change in assets and liabilities, net
of effects from business
acquisitions:
(Increase) decrease in accounts
receivable (22,487) (13,029) 9,204
Decrease (increase) in inventory 3,212 (2,121) (5,876)
(Increase) in prepaid expenses
and other current assets (686) (1,013) (595)
Increase(decrease) in accounts
payable and accrued expenses 8,189 (4,782) 3,346
Increase (decrease) in accrued
income taxes 3,641 4,077 (4,523)
Other, net (119) 616 574
Net cash provided by operating
activities 56,655 30,963 24,821
Investing activities:
Capital expenditures (31,378) (27,783) (30,874)
Purchase of Cox, net of cash acquired (197,354) - -
Purchase of other businesses
and intangibles, net of cash
acquired (23,315) (44,029) -
Other - - (348)
Net cash used in investing
activities (252,047) (71,812) (31,222)
Continued on next page.
See notes to consolidated financial statements.
ALPHARMA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(In thousands of dollars)
Years Ended
December 31,
1998 1997 1996
Financing activities:
Net advances (repayments)
under lines of credit $ 2,542 $(19,389) $ (630)
Proceeds of senior long-term debt 187,522 27,506 24,213
Reduction of senior long-term debt (183,751) (25,366) (17,137)
Dividends paid (4,651) (4,198) (3,928)
Proceeds from sale of convertible
subordinated notes 192,850 - -
Proceeds from exercise of stock
rights - 56,357 -
Payment for debt issuance costs (4,175) - -
Proceeds from employee stock option
and stock purchase plan 7,427 1,515 1,715
Other, net 1,387 214 (82)
Net cash provided by
financing activities 199,151 36,639 4,151
Exchange rate changes:
Effect of exchange rate changes
on cash 397 (1,606) (627)
Income tax effect of exchange rate
changes on intercompany advances (739) 869 470
Net cash flows from exchange
rate changes (342) (737) (157)
Increase (decrease) in cash and cash
equivalents 3,417 (4,947) (2,407)
Cash and cash equivalents at
beginning of year 10,997 15,944 18,351
Cash and cash equivalents at
end of year $14,414 $10,997 $15,944
See notes to consolidated financial statements.
ALPHARMA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
1. The Company:
Alpharma Inc. and Subsidiaries, (the "Company") is a
multinational pharmaceutical company which develops,
manufactures and markets specialty generic and proprietary human
pharmaceutical and animal health products.
In 1994 the Company acquired the pharmaceutical, animal
health, bulk antibiotic and aquatic animal health business
("Alpharma Oslo") of A.L. Industrier A.S ("A.L. Industrier"), the
beneficial owner of 100% of the outstanding shares of the
Company's Class B Stock. The Class B stock represents 35.2% of
the total outstanding common stock. A.L. Industrier, a Norwegian
company, is able to control the Company through its ability to
elect more than a majority of the Board of Directors and to cast
a majority of the votes in any vote of the Company's
stockholders. (See Note 16.)
Upon consummation of the acquisition of Alpharma Oslo, the
Company was reorganized on a global basis within its Human
Pharmaceutical and Animal Health businesses into five
decentralized divisions each of which has a president and
operates in a distinct business and/or geographic area.
Divisions in the Human Pharmaceutical business include: the
U.S. Pharmaceuticals Division ("USPD"), the International
Pharmaceuticals Division ("IPD") and the Fine Chemicals Division
("FCD"). The USPD's principal products are generic liquid and
topical pharmaceuticals sold primarily to wholesalers,
distributors and merchandising chains. The IPD's principal
products are dosage form pharmaceuticals sold primarily in
Scandinavia, the United Kingdom and western Europe as well as
Indonesia and certain middle eastern countries. The FCD's
principal products are bulk pharmaceutical antibiotics sold to
the pharmaceutical industry in the U.S. and worldwide for use as
active substances in a number of finished pharmaceuticals.
Divisions in the Animal Health business include: the Animal
Health Division ("AHD") and the Aquatic Animal Health Division
("AAHD"). The AHD's principal products are feed additive and
other animal health products for animals raised for commercial
food production (principally poultry, cattle and swine) in the
U.S. and worldwide. The AAHD manufactures and markets vaccines
primarily for use in immunizing farmed fish (principally salmon)
worldwide with a concentration in Norway. (See Note 20 for
segment and geographic information.)
2. Summary of Significant Accounting Policies:
Principles of consolidation:
The consolidated financial statements include the accounts
of the Company and its domestic and foreign subsidiaries. The
effects of all significant intercompany transactions have been
eliminated.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. The estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Cash equivalents:
Cash equivalents include all highly liquid investments that
have an original maturity of three months or less.
Inventories:
Inventories are valued at the lower of cost or market. The
last-in, first-out (LIFO) method is principally used to determine
the cost of the USPD manufacturing subsidiary inventories. The
first-in, first-out (FIFO) and average cost methods are used to
value remaining inventories.
Property, plant and equipment:
Property, plant and equipment are recorded at cost.
Expenditures for additions, major renewals and betterments are
capitalized and expenditures for maintenance and repairs are
charged to income as incurred. When assets are sold or retired,
their cost and related accumulated depreciation are removed from
the accounts, with any gain or loss included in net income.
Interest is capitalized as part of the acquisition cost of
major construction projects. In 1998, 1997 and 1996, $744, $407
and $572 of interest cost was capitalized, respectively.
Depreciation is computed by the straight-line method over
the estimated useful lives which are generally as follows:
Buildings 30-40 years
Building improvements 10-30 years
Machinery and equipment 2-20 years
Intangible assets:
Intangible assets represent the excess of cost of acquired
businesses over the underlying fair value of the tangible net
assets acquired and the cost of technology, trademarks, New
Animal Drug Applications ("NADAs"), and other non-tangible assets
acquired in product line acquisitions. Intangible assets are
amortized on a straight-line basis over their estimated period of
benefit. The following table is net of accumulated amortization
of $63,014 and $50,514 at December 31, 1998 and 1997,
respectively.
1998 1997 Life
Excess of cost of acquired
businesses over the fair value
of the net assets acquired $247,869 $92,228 20 - 40
Technology, trademarks, NADAs
and other 67,840 57,588 6 - 20
$315,709 $149,816
Foreign currency translation and transactions:
The assets and liabilities of the Company's foreign
subsidiaries are translated from their respective functional
currencies into U.S. Dollars at rates in effect at the balance
sheet date. Results of operations are translated using average
rates in effect during the year. Foreign currency transaction
gains and losses are included in income. Foreign currency
translation adjustments are included in accumulated other
comprehensive income (loss) as a separate component of
stockholders' equity. The foreign currency translation
adjustment for 1998, 1997 and 1996 is net of $(739), $869, and
$470, respectively, representing the foreign tax effects
associated with intercompany advances to foreign subsidiaries.
Foreign exchange contracts:
The Company selectively enters into foreign exchange
contracts to buy and sell certain cash flows in non-functional
currencies and to hedge certain firm commitments due in foreign
currencies. Foreign exchange contracts, other than hedges of firm
commitments, are accounted for as foreign currency transactions
and gains or losses are included in income. Gains and losses
related to hedges of firm commitments are deferred and included
in the basis of the transaction when it is completed.
Interest rate transactions:
The Company selectively enters into interest rate agreements
which fix the interest rate to be paid for specified periods on
variable rate long-term debt. The effect of these agreements is
recognized over the life of the agreements as an adjustment to
interest expense.
Income taxes:
The provision for income taxes includes federal, state and
foreign income taxes currently payable and those deferred because
of temporary differences in the basis of assets and liabilities
between amounts recorded for financial statement and tax
purposes. Deferred taxes are calculated using the liability
method.
At December 31, 1998, the Company's share of the
undistributed earnings of its foreign subsidiaries (excluding
cumulative foreign currency translation adjustments) was
approximately $51,000. No provisions are made for U.S. income
taxes that would be payable upon the distribution of earnings
which have been reinvested abroad or are expected to be returned
in tax-free distributions. It is the Company's policy to provide
for U.S. taxes payable with respect to earnings which the Company
plans to repatriate.
Accounting for stock based compensation:
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." The standard establishes a fair value
method of accounting for or, alternatively, disclosing the pro-
forma effect of the fair value method of accounting for stock-
based compensation plans. The Company has adopted the disclosure
alternative. As a result, the adoption of this standard had no
impact on the Company's consolidated results of operations,
financial position or cash flows.
Comprehensive income:
As of January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS 130 established new rules
which require the reporting of comprehensive income and its
components. The adoption of this statement had no impact on the
Company's consolidated results of operations, financial position
or cash flows.
SFAS 130 requires foreign currency translation adjustments
and certain other items, which prior to adoption were reported
separately in stockholders' equity, to be included in other
comprehensive income (loss). The only components of accumulated
other comprehensive loss for the Company are foreign currency
translation adjustments. Total comprehensive income (loss) for
the years ended 1998, 1997 and 1996 is included in the Statement
of Stockholders' Equity.
Segment information:
In 1998, the Company adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131
supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach is based
on the method that management organizes the segments within the
Company for making operating decisions and assessing performance.
SFAS 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131
did not affect results of operations or financial position but
did affect the disclosure of segment information.
Accounting for pensions and postretirement benefits:
In 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits".
SFAS 132 revises employers' disclosures about pension and other
postretirement benefit plans. Restatement of disclosures for
earlier periods provided for comparative purposes was required.
The adoption of SFAS 132 has no impact on the Company's
consolidated results of operations, financial position or cash
flows.
Recent accounting pronouncements:
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. SFAS 133 is not expected to
have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
3. Management Actions - 1996
In 1996, the IPD took actions designed to strengthen the
competitive nature of the division by lowering costs. In the
first quarter of 1996, IPD severed approximately 30 sales,
marketing and other personnel based primarily in the Nordic
countries and incurred termination related costs of approximately
$1,900. The termination costs are included in selling, general
and administrative expenses.
In May 1996, the Board of Directors approved a production
rationalization plan which included the transfer of all tablet,
ointment and liquid production from Copenhagen, Denmark to Lier,
Norway. The full transfer was completed in late 1998 and resulted
in the reduction of approximately 175 employees (primarily
involved in production). The rationalization plan resulted in a
charge in the second quarter of 1996 for severance for Copenhagen
employees, an impairment write off for certain buildings and
machinery and equipment and other exit costs.
In addition in May 1996, the Board of Directors approved the
USPD plan to accelerate a consolidation of manufacturing
operations within the USPD.
The plan included the discontinuing of all activities in two
USPD manufacturing facilities in New York and New Jersey and the
transfer of all pharmaceutical production from those sites to the
facility in Lincolnton, North Carolina. The plan provided for
complete exit by early 1997 and resulted in a reduction of
approximately 200 employees (i.e. all production, administration
and support personnel at the plants). The acceleration plan
resulted in a charge in the second quarter of 1996 for severance
of employees, a write-off of leasehold improvements and machinery
and equipment and significant exit costs including estimated
remaining lease costs and refurbishment costs for the facilities
being exited.
Due to the time necessary to achieve both transfers of
production the Company, as part of the severance arrangements,
instituted stay bonus plans. The overall cost of the stay bonus
plans was approximately $1,900, and was accrued over the periods
necessary to achieve shut down and transfer. The stay bonus plans
generally required the employee to remain until their position is
eliminated to earn the payment.
In the second half of 1996 the USPD's Management Actions
were adjusted for the sale of the Able tablet business. The sale
of the Able tablet business and sub-lease of the Able facility
(located in New Jersey) resulted in the Company reducing certain
accruals which would have been incurred in closing the facility.
The net reduction of the second quarter charge for the sale was
$1,400 and included the net proceeds received on the sale of
approximately $500. In addition in 1996 certain staff and
executives at USPD headquarters were terminated (15 employees)
resulting in severance of $782. In 1997 the USPD completed the
transfer of production, paid the stay bonus as accrued, and
severed all identified employees.
As a result of difficult market conditions experienced in
1996, the Company's AHD reviewed its business practices and
staffing levels. As a result 33 salaried employees were
terminated or elected an early retirement program. Concurrently
office space was vacated resulting in a charge for the write off
of leasehold improvements and lease payments required to
terminate the lease. In addition, the AHD distribution business
was reviewed and a number of minor products were discontinued.
A summary of 1996 charges and expenses resulting from the
Management Actions which are included in cost of goods sold
($1,100), and selling, general and administrative expenses
($17,700)follows:
Pre-Tax
Amount Description
$11,200 Severance and employee termination benefits for all
1996 employee related actions (approximately 450
employees were to be terminated; at December 31,
1998, 446 employees were terminated).
1,000 Stay bonus accrued, as earned as of December 31,
1996.
4,175 Write off of building, leasehold improvements and
machinery and equipment. (Net of sales proceeds of
approximately $500 in the third quarter of 1996.)
550 Accrual of the non cancelable term of the operating
leases and estimated refurbishment costs for exited
USPD facilities.
1,875 Exit costs for demolition of facilities, clean up
costs and other.
______
$18,800
The net after tax effect of the 1996 Management Actions was
a loss of approximately $12,600 or ($.58 per share).
A summary of the liabilities set up for severance and
included in accrued expenses is as follows (including stay
bonus):
1996
Accruals $11,338
Payments (2,122)
Translation and
adjustments (2)
Balance, December 31, 1996 $ 9,214
1997
Accruals - Stay bonus IPD 652
Payments (5,980)
Translation and adjustments (479)
Balance, December 31, 1997 $ 3,407
1998
Payments (3,007)
Translation and adjustments 78
Balance, December 31, 1998 $ 478
4. Business and Product Line Acquisitions:
The following acquisitions were accounted for under the
purchase method and the accompanying financial statements reflect
results of operations from their respective acquisition dates.
Cox:
On May 7, 1998, the Company acquired all of the capital
stock of Cox Investments Ltd. and its wholly owned subsidiary,
Arthur H. Cox and Co., Ltd. and all of the capital stock of
certain related marketing subsidiaries ("Cox") from Hoechst AG
for approximately $192,000 in cash, the assumption of bank debt
which was repaid subsequent to the closing, and a further
purchase price adjustment equal to an increase in net assets of
Cox from January 1, 1998 to the date of acquisition. The total
purchase price including the purchase price adjustment and direct
costs of the acquisition was approximately $198,000. Cox's
operations are included in IPD and are located primarily in the
United Kingdom with distribution operations located in
Scandinavia and the Netherlands. Cox is a generic pharmaceutical
manufacturer and marketer of tablets, capsules, suppositories,
liquids, ointments and creams. Cox distributes its products to
pharmacy retailers and pharmaceutical wholesalers primarily in
the United Kingdom.
The Company financed the $198,000 purchase price and related
debt repayments from borrowings under its existing long-term
Revolving Credit Facility and short-term lines of credit which
had been repaid in March 1998 with the proceeds of the
convertible subordinated notes offering. To accomplish the
acquisition the principal members of the bank syndicate, which
were parties to the Company's Revolving Credit Facility,
consented to a change until December 31, 1998 in the method of
calculating certain financial convenants. The Revolving Credit
Facility was replaced in January 1999 with a new credit facility
which contains updated financial covenants. (See Note 9.)
The acquisition was accounted for in accordance with the
purchase method. The fair value of the assets acquired and
liabilities assumed and the results of Cox's operations are
included in the Company's consolidated financial statements
beginning on the acquisition date, May 7, 1998. The Company is
amortizing the acquired goodwill (approximately $160,000) over 35
years using the straight line method.
The non-recurring charges related to the acquisition of Cox
included in the second quarter of 1998 are summarized below. The
charge for in-process research and development ("R&D") is not tax
benefited; therefore the computed tax benefit is below the
expected rate. The valuation of purchased in-process R&D was
based on the cost approach for 12 generic products at varying
stages of development at the acquisition date.
Inventory write-up $1,300 (Included in cost of sales)
In-process R&D 2,100 (Included in selling, general
Severance of existing and administrative expenses)
employees 200
3,600
Tax benefit (470)
$3,130 ($.12 per share)
The following pro forma information on results of operations
for the periods presented assumes the purchase of Cox as if the
companies had combined at the beginning of each of the respective
periods:
Pro Forma
Year Ended
December 31,
(Unaudited)
1998* 1997
Revenues $637,139 $590,450
Net income $26,868 $13,311
Basic EPS $1.05 $0.59
Diluted EPS $1.02 $0.58
* 1998 excludes actual non-recurring charges related to the
acquisition of $ 3,130 after tax or $ .12 per share.
Other Acquisitions:
In December 1998, the Company acquired SKW Biotech, a part
of SKW Trostberg AG, in Budapest, Hungary. The purchase included
an antibiotic fermentation and purification plant in Budapest on
a 300,000 square foot site. SKW Biotech is included in the FCD
and currently produces vancomycin. The cost of approximately
$8,400 was preliminarily allocated to goodwill and property,
plant and equipment. A final purchase allocation will be
completed in 1999.
In November 1998, the Company acquired the Siga product
line in Germany from Hexal AG. The branded product line, "Siga",
is included in the IPD and consists of over 20 products. The
acquisition consisted of product registrations and trademarks; no
personnel or plants were part of the transaction. The cost of
approximately $13,300 has been allocated to intangible assets and
will be amortized over 15 years.
In November 1997, the Company acquired the worldwide
polymyxin business from Cultor Food Science. Polymyxin is an
antibiotic mainly used in topical ointments and creams. The
transaction included product technology, registrations, customer
information and inventories. The Company's FCD manufactures
polymyxin in its Copenhagen facility and has manufactured its
additional polymyxin requirements at this facility. The cost was
approximately $16,500 which included approximately $500 of
inventory. The balance of the purchase price has been allocated
to intangible assets and will generally be amortized over 15
years. The purchase agreement also provides for a contingent
payment and future royalties in the event that certain sales
levels are achieved of a product presently being developed by an
independent pharmaceutical company utilizing polymyxin supplied
by the Company.
In September 1997, the Company acquired the worldwide
decoquinate business from Rhone-Poulenc Animal Nutrition of
France (RPAN). Decoquinate is an anticoccidial feed additive used
primarily in beef cattle and calves. The transaction included all
rights for decoquinate worldwide and the trademark Deccoxr that
is registered in over 50 countries. The agreement also provides
that RPAN will continue to manufacture decoquinate for the AHD
under a long term supply contract. The cost was approximately
$27,550, which included approximately $1,850 of inventory. The
balance of the purchase price has been allocated to intangible
assets and will generally be amortized over 15 years.
5. Earnings Per Share
Basic earnings per share is based upon the weighted average
number of common shares outstanding. Diluted earnings per share
reflect the dilutive effect of stock options, rights, warrants
and convertible debt when appropriate.
A reconciliation of weighted average shares outstanding for
basic to diluted weighted average shares outstanding used in the
calculation of EPS is as follows:
(Shares in thousands) For the years ended
December 31,
1998 1997 1996
Average shares
outstanding - basic 25,567 22,695 21,715
Stock options 222 85 -
Rights - - -
Warrants 490 - -
Convertible debt - - -
Average shares
outstanding - diluted 26,279 22,780 21,715
The amount of dilution attributable to the options, rights,
and warrants determined by the treasury stock method depends on
the average market price of the Company's common stock for each
period. Subordinated debt, convertible into 6,744,481 shares of
common stock at $28.59 per share, was outstanding at December 31,
1998 and was included in the computation of diluted EPS using the
if-converted method for the three month periods ended September
30, and December 31, 1998. The if-converted method was
antidilutive for the year ended December 31, 1998 and therefore
the shares attributable to the subordinated debt were not
included in the diluted EPS calculation.
The numerator for the calculation of basic and diluted EPS
is net income for all periods. The numerator for the three month
periods ended September 30, and December 31, 1998 includes an add
back for interest expense and debt cost amortization, net of
income tax effects, related to the convertible notes.
6. Accounts Receivable, Net:
Accounts receivable consist of the following:
December 31,
1998 1997
Accounts receivable, trade $171,073 $129,382
Other 4,941 3,460
176,014 132,842
Less allowances for doubtful
accounts 6,270 5,205
$169,744 $127,637
The allowance for doubtful accounts for the three years
ended December 31, consisted of the following:
1998 1997 1996
Balance at January 1, $5,205 $4,359 $5,751
Provision for doubtful
accounts 1,032 2,111 3,572
Reductions for accounts
written off (175) (789) (4,589)
Translation and other 208 (476) (375)
Balance at December 31, $6,270 $5,205 $4,359
7. Inventories:
Inventories consist of the following:
December 31,
1998 1997
Finished product $ 68,834 $ 68,525
Work-in-process 25,751 20,009
Raw materials 43,733 32,917
$138,318 $121,451
At December 31, 1998 and 1997, approximately $41,900 and
$48,700 of inventories, respectively, are valued on a LIFO basis.
LIFO inventory is approximately equal to FIFO in 1998 and 1997.
8. Property, Plant and Equipment, Net:
Property, plant and equipment, net, consist of the
following:
December 31,
1998 1997
Land $ 10,603 $ 8,954
Buildings and building
improvements 120,357 100,017
Machinery and equipment 259,988 219,566
Construction in progress 20,199 16,197
411,147 344,734
Less, accumulated depreciation 167,015 145,174
$244,132 $199,560
9. Long-Term Debt:
Long-term debt consists of the following:
December 31,
1998 1997
Senior debt:
U.S. Dollar Denominated:
Revolving Credit Facility 6.6% - 7.0% $180,000 $161,575
A/S Eksportfinans 7,200 9,000
Industrial Development Revenue Bonds:
Baltimore County, Maryland
(7.25%) 4,565 5,155
(6.875%) 1,200 1,200
Lincoln County, NC 4,500 5,000
Other, U.S. 504 758
Denominated in Other Currencies:
Mortgage notes payable (NOK) 42,224 38,099
Bank and agency development loans 7,991 13,803
(NOK)
Other, foreign 53 257
Total senior debt 248,237 234,847
Subordinated debt:
5.75% Convertible Subordinated Notes
due 2005 125,000 -
5.75% Convertible Subordinated
Note due 2005 - Industrier Note 67,850 -
Total subordinated debt 192,850 -
Total long-term debt 441,087 234,847
Less, current maturities 12,053 10,872
$429,034 $223,975
In January 1999, the Company signed a $300,000 credit
agreement ("1999 Credit Facility") with a consortium of banks
arranged by the Union Bank of Norway, Den norske Bank A.S., and
Summit Bank. The agreement replaced the prior revolving credit
facility and the current U.S. short-term facilities and increased
overall credit availability. The prior revolving credit was
repaid in February 1999 by drawing on the 1999 Credit Facility.
The 1999 Credit Facility provides for (i) a $100,000 six
year Term Loan; and (ii) a revolving credit agreement of $200,000
with an initial term of five years with two possible one year
extensions.
The 1999 Credit Facility has several financial covenants,
including an interest coverage ratio, total debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA"),
and equity to asset ratio.
Interest on the facility will be at the LIBOR rate with a
margin of between .875% and 1.6625% depending on the ratio of
total debt to EBITDA.
In December 1995, the Company's Danish subsidiary, A/S
Dumex, borrowed $9,000 from A/S Eksportfinans with credit support
provided by Union Bank of Norway and Bikuben Girobank A/S
("Bikuben") to finance an expansion of its Vancomycin
manufacturing facility in Copenhagen. The term of the loan was
seven years. Interest for the loan was fixed at 6.59%, including
the cost of the credit support provided via guarantee by Union
Bank of Norway and Bikuben. The loan was repaid in February 1999
from proceeds received under the 1999 Credit Facility.
The Baltimore County Industrial Development Revenue Bonds
are payable in varying amounts through 2009. Plant and equipment
with an approximate net book value of $13,605 collateralize this
obligation.
In August 1994, the Company issued Industrial Development
Revenue Bonds for $6,000 in connection with the expansion of the
Lincolnton, North Carolina plant. The bonds require monthly
interest payments at a floating rate (4.15% at December 31, 1998;
3.56% weighted average for 1998) approximating the current money
market rate on tax exempt bonds and the payment by the Company of
annual letter of credit, remarketing, trustee, and rating agency
fees of 1.125%. The bonds require a yearly sinking fund
redemption of $500 to August 2004 and $300 thereafter through
August 2009. Plant and equipment with an approximate net book
value of $5,166 serve as collateral for this loan.
The mortgage notes payable denominated in Norwegian Kroner
(NOK) include amounts originally issued in connection with the
construction of a pharmaceutical facility in Lier, Norway and
amounts issued in 1997 and 1998 in connection with the expansion
of the Lier facility ($14,700). The mortgage is collateralized by
this facility (net book value $44,985) and the Oslo, Norway
("Skoyen") facility. (See Note 13.) The debt was borrowed in a
number of tranches over the construction period and interest is
fixed for specified periods based on actual yields of
Norgeskreditt publicly traded bonds plus a lending margin of
0.70%. The weighted average interest rate at December 31, 1998
and 1997 was 6.8% and 5.6%, respectively. The tranches are
repayable in semiannual installments through 2021. Yearly
amounts payable vary between $1,237 and $2,009.
Mortgage notes payable also include amounts issued in 1997
($5,356) to finance a new production unit at an Aquatic Animal
Health facility in Overhalla, Norway. The mortgage has a 12 year
term and an interest rate of 4.9%, is repayable in 10 equal
installments in years 2001 - 2009, and is collateralized by the
net book value of the facility ($7,367).
Alpharma Oslo has various loans with government development
agencies and banks which have been used for acquisitions and
construction projects. Such loans are collateralized by the
Skoyen property and require payments in 1999 of $7,322 and final
payments of $669 in 2000. The weighted average interest rate of
the loans at December 31, 1998 and 1997 was 7.4% and 5.0%,
respectively. The banks and agencies have the option to extend
payment in 1999.
In March 1998, the Company issued $125,000 of 5.75%
Convertible Subordinated Notes (the "Notes") due 2005. The Notes
may be converted into common stock at $28.594 at any time prior
to maturity, subject to adjustment under certain conditions. The
Company may redeem the Notes, in whole or in part, on or after
April 6, 2001, at a premium plus accrued interest.
Concurrently, A.L. Industrier, the controlling stockholder
of the Company, purchased at par for cash $67,850 principal
amount of a Convertible Subordinated Note (the "Industrier
Note"). The Industrier Note has substantially identical
adjustment terms and interest rate as the Notes.
The Notes are convertible into Class A common stock. The
Industrier Note is automatically convertible into Class B common
stock if at least 75% of the Class A notes are converted into
common stock.
The net proceeds from the combined offering of $189,100 were
used initially to retire outstanding senior long-term debt. The
Revolving Credit Facility was used in the second quarter of 1998,
along with an amount of short term debt, to finance the
acquisition of Cox Pharmaceuticals. (See Note 4.)
Maturities of long-term debt during each of the next five
years and thereafter as of December 31, 1998 are as follows
(amounts are presented as reported and on a proforma basis
reflecting the 1999 Credit Facility):
Year ending December 31,
As Reported Proforma
1999 $ 12,053 $ 10,253
2000 185,089 8,289
2001 4,949 18,149
2002 4,947 18,147
2003 3,184 18,184
Thereafter 230,865 368,065
$441,087 $441,087
10. Short-Term Debt:
Short-term debt consists of the following:
December 31,
1998 1997
Domestic $17,275 $24,200
Foreign 24,646 14,866
$41,921 $39,066
At December 31, 1998, the Company and its domestic
subsidiaries have available bank lines of credit totaling
$65,500. Borrowings under the lines are made for periods
generally less than three months and bear interest from 6.60% to
6.75% at December 31, 1998. At December 31, 1998, the amount of
the unused lines totaled $48,225. In January 1999 the lines were
refinanced into the 1999 Credit Facility. (See Note 9.)
At December 31, 1998, the Company's foreign subsidiaries
have available lines of credit with various banks totaling
$42,222 ($40,722 in Europe and $1,500 in the Far East). Drawings
under these lines are made for periods generally less than three
months and bear interest at December 31, 1998 at rates ranging
from 4.00% to 9.50%. At December 31, 1998, the amount of the
unused lines totaled $17,576 ($16,076 in Europe and $1,500 in the
Far East).
The weighted average interest rate on short-term debt during
the years 1998, 1997 and 1996 was 6.4%, 5.9% and 6.2%,
respectively.
11. Income Taxes:
Domestic and foreign income (loss) before income taxes was
$28,296, and $10,687, respectively in 1998, $14,267 and $13,483,
respectively in 1997, and $(17,991) and $1,765, respectively in
1996. Taxes on income of foreign subsidiaries are provided at the
tax rates applicable to their respective foreign tax
jurisdictions. The provision for income taxes consists of the
following:
Years Ended December 31,
1998 1997 1996
Current:
Federal $8,373 $5,164 $(4,796)
Foreign 4,224 5,184 3,367
State 1,682 1,095 (232)
14,279 11,443 (1,661)
Deferred:
Federal (351) 439 (522)
Foreign 930 (1,295) (2,531)
State (86) (245) (51)
493 (1,101) (3,104)
Provision/(benefit)
for income taxes $14,772 $10,342 $(4,765)
A reconciliation of the statutory U.S. federal income tax
rate to the effective rate follows:
Years Ended December 31,
1998 1997 1996
Statutory U.S. federal rate 35.0% 35.0% (35.0%)
State income tax, net of federal
tax benefit 2.6% 2.0% (1.1%)
Lower taxes on foreign
earnings, net (5.2%) (4.4%) (2.7%)
Tax credits (1.2%) - (0.9%)
Non-deductible costs, principally
amortization of intangibles
related to acquired companies 5.6% 4.9% 8.5%
Non-deductible in-process R&D 1.7% - -
Other, net (0.6%) (0.2%) 1.8%
Effective rate 37.9% 37.3% (29.4%)
Deferred tax liabilities (assets) are comprised of the
following:
Year Ended
December 31,
1998 1997
Accelerated depreciation and amortization
for income tax purposes $23,956 $20,976
Excess of book basis of acquired assets
over tax bases 11,488 8,391
Differences between inventory valuation
methods used for book and tax purposes 2,219 3,306
Other 623 808
Gross deferred tax liabilities 38,286 33,481
Accrued liabilities and other reserves (4,418) (7,178)
Pension liabilities (1,496) (1,351)
Loss carryforwards (1,890) (1,945)
Deferred income (581) -
Other (1,792) (2,118)
Gross deferred tax assets (10,177) (12,592)
Deferred tax assets valuation allowance 1,890 1,945
Net deferred tax liabilities $29,999 $22,834
As of December 31, 1998, the Company has state loss
carryforwards in one state of approximately $16,100, which are
available to offset future taxable income. These carryforwards
will expire between the years 1999 and 2005. The Company also has
foreign loss carryforwards in five countries as of December 31,
1998, of approximately $2,000, which are available to offset
future taxable income, and have carryforward periods ranging from
five years to unlimited. The Company has recognized a deferred
tax asset relating to these carryforwards; however, based on
analysis of current information, which indicated that it is not
likely that such state and foreign losses will be realized, a
valuation allowance has been established for the entire amount of
these carryforwards.
12. Pension Plans and Postretirement Benefits:
Domestic:
The Company maintains a qualified noncontributory, defined
benefit pension plan covering the majority of its domestic
employees. The benefits are based on years of service and the
employee's highest consecutive five years compensation during the
last ten years of service. The Company's funding policy is to
contribute annually an amount that can be deducted for federal
income tax purposes. The plan assets are under a single custodian
and a single investment manager. Plan assets are invested in
equities, government securities and bonds. In addition, the
Company has unfunded supplemental executive pension plans
providing additional benefits to certain employees.
The Company also has an unfunded postretirement medical and
nominal life insurance plan ("postretirement benefits") covering
certain domestic employees who were eligible as of January 1,
1993. The plan will not be extended to any additional employees.
Retired employees are required to contribute for coverage as if
they were active employees.
The postretirement transition obligation as of January 1,
1993 of $1,079 is being amortized over twenty years. The discount
rate used in determining the 1998, 1997 and 1996 expense was
7.25%, 7.75%, and 7.25%, respectively. The health care cost trend
rate was 6.5% declining to 5.0% over a ten year period, remaining
level thereafter. Assumed health care cost trend rates do not
have a significant effect on the amounts reported for the health
care plans. A one-percentage-point change in assumed health care
cost trend rates would not have a material effect on the reported
amounts.
In 1996 the Company's AHD announced an early retirement plan
for employees meeting certain criteria. As part of the plan
employees electing early retirement would be eligible for post
retirement medical even if they had not met the required service
and age requirements. The charge for the special termination
benefits of $492 was required and is included in the accrued post
retirement benefit cost.
Postretirement
Pension Benefits Benefits
Change in benefit obligation 1998 1997 1998 1997
Benefit obligation at
beginning of year $13,973 $11,691 $3,011 $2,747
Service cost 1,235 1,192 85 92
Interest cost 1,035 1,035 167 204
Plan participants'
contributions - - 23 20
Amendments 32 272 (533) -
Actuarial (gain) loss 882 1,703 70 184
Benefits paid (530) (1,920) (190) (236)
Benefit obligation at end of
year 16,627 13,973 2,633 3,011
Change in plan assets
Fair value of plan assets at
beginning of year 12,897 11,276 - -
Actual return on plan assets 4,051 2,340 - -
Employer contribution 1,200 1,201 - -
Benefits paid (530) (1,920) - -
Fair value of plan assets at
end of year 17,618 12,897 - -
Funded status 991 (1,076) (2,633) (3,011)
Unrecognized net actuarial
(gain)loss (144) 1,750 744 695
Unrecognized net transition
obligation 155 184 258 809
Unrecognized prior service
cost (823) (936) - -
Prepaid (accrued) benefit $ 179 $ (78) $(1,631) $(1,507)
cost
Postretirement
Pension Benefits Benefits
1998 1997 1998 1997
Weighted-average assumptions
as of December 31
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan 9.25% 9.00% N/A N/A
assets
Rate of compensation increase 4.00% 4.00% N/A N/A
Postretirement
Pension Benefits Benefits
1998 1997 1996 1998 1997 1996
Components of net
periodic benefit
cost
Service cost $1,235 $1,192 $1,380 $85 $92 $120
Interest cost 1,035 1,035 991 167 204 146
Expected return on
plan assets (1,274) (1,056) (946) - - -
Net amortization of
transition 30 30 30 18 54 54
obligation
Amortization of
prior (81) (82) (99) - - -
service cost
Recognized net
actuarial (2) 28 129 21 15 17
(gain)loss
Special termination
benefits - - - - - 492
Net periodic benefit
cost $ 943 $1,147 $1,485 $291 $365 $829
The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for plans with
accumulated benefit obligations in excess of plan assets were
$288, $177 and $0 respectively as of December 31, 1998 and $187,
$104 and $0 as of December 31, 1997.
The Company and its domestic subsidiaries also have a number
of defined contribution plans, both qualified and non-qualified,
which allow eligible employees to withhold a fixed percentage of
their salary (maximum 15%) and provide for a Company match based
on service (maximum 6%). The Company's contributions to these
plans were approximately $1,200, $1,200 and $1,300 in 1998, 1997
and 1996, respectively.
Europe:
Certain of the Company's European subsidiaries have various
defined benefit plans, both contributory and noncontributory,
which are available to a majority of employees. Pension plan
contributions from the Company and the participants are paid to
independent trustees and invested in fixed income and equity
securities in accordance with local practices.
Certain subsidiaries also have direct pension arrangements
with a limited number of employees. These pension commitments are
paid out of general assets and the obligations are accrued but
not prefunded.
1998 1997
Change in benefit obligation:
Benefit obligation at
beginning of year $20,230 $18,232
Service cost 2,003 1,264
Interest cost 1,763 1,142
Plan participants' contribution 234 -
Actuarial (gain)/loss 3,859 2,503
Acquisition 16,787 -
Benefits paid (622) (594)
Translation adjustment (620) (2,317)
Benefit obligation at end
of year 43,634 20,230
Change in plan assets:
Fair value of plan assets at
beginning of year 11,832 11,738
Actual return on plan assets 1,818 951
Acquisition 14,700 -
Employer contribution 1,347 1,111
Plan participants' contributions 234 -
Benefits paid (548) (518)
Translation adjustment (321) (1,450)
Fair value of plan assets at
end of year 29,062 11,832
Funded status (14,572) (8,398)
Unrecognized net actuarial
loss 2,155 1,625
Unrecognized transitional
obligation 6,793 1,039
Unrecognized prior service
cost 777 911
Additional minimum liability (452) (582)
Prepaid (accrued) benefit cost $(5,299) $(5,405)
1998 1997
Weighted-average assumptions:
Discount rate 6.4% 6.0%
Expected return on plan assets 7.3% 7.0%
Rate of compensation increase 4.5% 3.5%
1998 1997 1996
Components of net periodic
benefit cost:
Service cost $2,003 $1,264 $1,302
Interest cost 1,763 1,142 1,122
Expected return on plan assets (1,478) (793) (774)
Amortization of transition
obligation 35 102 112
Amortization of prior service
cost 101 107 118
Recognized net actuarial
loss 40 - -
Net periodic benefit cost $2,464 $1,822 $1,880
The Company's Danish subsidiary, Dumex, has a defined
contribution pension plan for salaried employees. Under the plan,
the Company contributes a percentage of each salaried employee's
compensation to an account which is administered by an insurance
company. Pension expense under the plan was approximately $2,059,
$2,204 and $2,250 in 1998, 1997 and 1996, respectively.
13. Transactions with A. L. Industrier:
Years Ended December 31,
1998 1997 1996
Sales to and commissions received
from A.L. Industrier $2,722 $3,107 $3,075
Compensation received for
management services rendered to
A.L. Industrier $ 397 $ 424 $ 464
Inventory purchased from and
commissions paid to A.L.
Industrier $ 32 $ 34 $ 200
Interest incurred on
Industrier Note $2,937 $ - $ -
In March 1998, A.L. Industrier purchased a convertible
subordinated note issued by the Company in the amount of $67,850.
(See Note 9.) As of December 31, 1998 and 1997 there was a net
current receivable (payable) of $(98) and $742, respectively,
from A.L. Industrier.
In 1997 A.L. Industrier purchased Class B common stock from
the Company. (See Note 16.)
The Company and A.L. Industrier have an administrative
service agreement whereby the Company provides management
services to A.L. Industrier. The agreement provides for payment
equal to the direct and indirect cost of providing the services
subject to a minimum amount. The agreement is automatically
extended for one year each January 1, but may be terminated by
either party upon six months notice.
In connection with the agreement to purchase Alpharma Oslo,
A.L. Industrier retained the ownership of the Skoyen
manufacturing facility and administrative offices (not including
leasehold improvements and manufacturing equipment) and leases it
to the Company. The agreement also permits the Company to use the
Skoyen facility as collateral on existing debt until October
1999. The Company is required to pay all expenses related to the
operation and maintenance of the facility in addition to nominal
rent. The lease has an initial 20 year term and is renewable at
the then fair rental value at the option of the Company for four
consecutive five year terms.
14. Contingent Liabilities, Litigation and Commitments:
The Company is one of multiple defendants in 80 lawsuits
alleging personal injuries and two class actions for medical
monitoring resulting from the use of phentermine distributed by
the Company and subsequently prescribed for use in combination
with fenflurameine or dexfenfluramine manufactured and sold by
other defendants (Fen-Phen Lawsuits). None of the plaintiffs have
specified an amount of monetary damage. Because the Company has
not manufactured, but only distributed phentermine, it has
demanded defense and indemnification from the manufacturers and
the insurance carriers of manufacturers from whom it has
purchased the phentermine. The Company has received a partial
reimbursement of litigation costs from one of the manufacturer's
carriers. The plaintiff in 34 of these lawsuits has agreed to
dismiss the Company without prejudice but such dismissals must be
approved by the Court. Based on an evaluation of the
circumstances as now known, including but not solely limited to,
1) the fact that the Company did not manufacture phentermine, 2)
it had a diminimus share of the phentermine market and 3) the
presumption of some insurance coverage, the Company does not
expect that the ultimate resolution of the current Fen-Phen
lawsuits will have a material impact on the financial position or
results of operations of the Company.
Bacitracin zinc, one of the Company's feed additive products
has been banned from sale in the European Union (the "EU")
effective July 1, 1999. While no assurance of success can be
given, the Company is actively pursuing initiatives based on
scientific evidence available for the product, to limit the
effects of this ban. In addition, certain other countries, not
presently material to the Company's sales of bacitracin zinc have
either followed the EU's ban or are considering such action. The
existing governmental actions negatively impact the Company's
business but are not material to the Company's financial position
or results of operations. However, an expansion of the ban to
further countries where the Company has material sales of
bacitracin based products could be material to the financial
condition and results of operations of the Company.
The Company and its subsidiaries are, from time to time,
involved in other litigation arising out of the ordinary course
of business. It is the view of management, after consultation
with counsel, that the ultimate resolution of all other pending
suits should not have a material adverse effect on the
consolidated financial position or results of operations of the
Company.
In connection with a 1991 product line acquisition and the
Decoquinate business purchased in 1997, the Company entered into
manufacturing agreements which require the Company to purchase
yearly minimum quantities of product on a cost-plus basis. If the
minimum quantities are not purchased, the Company must reimburse
the supplier a percentage of the fixed costs related to the
unpurchased quantities. The Company has purchased required
minimums in 1998. In the case of the Decoquinate agreement there
are contingent payments which may be required of either party
upon early termination of the agreement depending on the
circumstances of the termination.
15. Leases:
Rental expense under operating leases for 1998, 1997 and
1996 was $6,665, $5,825 and $6,578, respectively. Future minimum
lease commitments under non-cancelable operating leases during
each of the next five years and thereafter are as follows:
Year Ending December 31,
1999 $ 5,280
2000 4,159
2001 3,868
2002 3,435
2003 2,907
Thereafter 3,865
$23,514
16. Stockholders' Equity:
The holders of the Company's Class B Common Stock, (totally
held by A. L. Industrier at December 31, 1998) are entitled to
elect 66 2/3% of the Board of Directors of the Company and may
convert each share of Class B Common Stock held into one fully
paid share of Class A Common Stock. Whenever the holders of the
Company's common stock are entitled to vote as a combined class,
each holder of Class A and Class B Common Stock is entitled to
one and four votes, respectively, for each share held.
The number of authorized shares of Preferred Stock is
500,000; the number of authorized shares of Class A Common Stock
is 40,000,000; and the number of authorized shares of Class B
Common Stock is 15,000,000.
On February 10, 1997, the Company entered into a Stock
Subscription and Purchase Agreement with A.L. Industrier. The
agreement provided for the sale of 1,273,438 newly issued shares
of Class B Common stock for $16.34 per share. The agreement also
provided for the issuance of rights to the Class A shareholders
to purchase one share of Class A Common stock for $16.34 per
share for every six shares of Class A Common held. The agreement
required that the Class B shares be purchased at the same time
that the rights for the Class A Common stock would expire and
total consideration for the Class B Common stock was agreed to be
$20,808.
On June 26, 1997, the Company and A.L. Industrier entered
into Amendment No. 1 to the Subscription and Purchase Agreement
whereby A.L. Industrier agreed to purchase the 1,273,438 Class B
shares on June 27, 1997. The amendment provided that the price
paid by A.L. Industrier would be adjusted to recognize the
benefit to the Company of the A.L. Industrier purchase of the
stock on June 27, 1997 instead of November 25, 1997 (the date the
Class A rights expired). The sale of stock was completed for cash
on June 27, 1997. Accordingly, stockholders' equity increased in
1997 by $20,379 to reflect the issuance of the Class B shares.
A.L. Industrier is the beneficial owner of 9,500,000 shares of
Class B Common stock.
On September 4, 1997, the Board of Directors distributed to
the holders of its Class A Common Stock certain subscription
rights. Each shareholder received one right for every six shares
of Class A Stock held on the record date. Each right, entitled
the holder to purchase one share of Class A Stock at a
subscription price of $16.34 per share. The rights were listed
and traded on the New York Stock Exchange. The rights were
exercisable at the holder's option ending on November 25, 1997.
As a result of the rights offering the Company issued 2,201,837
shares with net proceeds of $35,978. (Approximately 97% of the
rights were exercised.)
In October 1994, the Company issued approximately 3,600,000
warrants which were a portion of the consideration paid for
Alpharma Oslo. The Company was required to account for the
acquisition of Alpharma Oslo as a transfer and exchange between
companies under common control. Accordingly, the accounts of
Alpharma were combined with the Company at historical cost in a
manner similar to a pooling-of-interests and the Company's
financial statements were restated. At the acquisition date, the
consideration paid for Alpharma Oslo was reflected as a decrease
to stockholders' equity net of the estimated value ascribed to
the warrants. The estimated value of the warrants ($6,552 or
$1.82 per warrant) was added to additional paid in capital and
deducted from retained earnings.
On October 21, 1998 the Company announced that its Board of
Directors had approved an offer by the Company to its
warrantholders to exchange all of the Company's outstanding
warrants for shares of its Class A Common Stock. There were
3,596,254 outstanding warrants, each of which represented the
right to purchase 1.061 shares of Class A Common Stock at an
exercise price of $20.69 per share. The warrants expired
January 3, 1999.
Under the transaction, the Company offered to issue to each
warrantholder a number of Class A shares in exchange for each
warrant pursuant to an exchange formula based upon the market
prices of the shares during the offer. The number of shares
issued for each warrant tendered was .3678 and, in total,
1,230,448 shares were issued in exchange for 3,345,921 warrants
tendered (93% of the warrants outstanding). The excess of the
fair market value of the warrants tendered over the estimated
value in 1994 of $31,117 was added to additional paid-in-capital
and Class A Common stock and deducted from retained earnings to
reflect the fair value of the Class A stock issued.
At December 31, 1998 the holders of 223,211 untendered
warrants gave irrevocable notice of their intention to exercise
their warrants by paying $20.69 per share. The subscription
amount for the exercised but unpaid for warrants are shown in
stockholders equity at year end with the subscribed amount
($4,916) deducted. The subscription proceeds were received in
January 1999. Less than 1% of the original warrant issue was
untendered or unexercised.
A summary of activity in common and treasury stock follows:
Class A Common Stock Issued
1998 1997 1996
Balance, January 1 16,118,606 13,813,516 13,699,592
Exercise of stock options
and other 339,860 63,300 66,637
Exercise of stock rights - 2,201,837 -
Exercise of warrants, net 2,124 - -
Stock issued in tender
offer for warrants 1,230,448 - -
Employee stock purchase
plan 64,211 39,953 47,287
Balance, December 31 17,755,249 16,118,606 13,813,516
Class B Common Stock Issued
1998 1997 1996
Balance, January 1 9,500,000 8,226,562 8,226,562
Stock subscription by
A.L. Industrier - 1,273,438 -
Balance, December 31 9,500,000 9,500,000 8,226,562
Treasury Stock (Class A)
1998 1997 1996
Balance, January 1 275,382 274,786 263,017
Purchases 1,952 596 11,769
Balance, December 31 277,334 275,382 274,786
17. Derivatives and Fair Value of Financial Instruments:
The Company currently uses the following derivative
financial instruments for purposes other than trading.
Derivative Use Purpose
Forward foreign Occasional Entered into selectively
exchange contracts to sell or buy cash flows
in non-functional
currencies.
Interest rate Occasional Entered into selectively
agreements to fix interest rate for
specified periods on
variable rate long-term
debt.
At December 31, 1998 and 1997, the Company's had foreign
currency contracts outstanding with a notional amount of
approximately $17,300 and $4,700, respectively. These contracts
called for the exchange of Scandinavian and European currencies
and in some cases the U.S. Dollar to meet commitments in or sell
cash flows generated in non-functional currencies. All
outstanding contracts will expire in 1999 and the unrealized
gains and losses are not material.
In November 1995, the Company entered into two interest rate
swap agreements with two members of the consortium of banks which
were parties to the Revolving Credit Facility to reduce the
impact of changes in interest rates on a portion of its floating
rate long-term debt. The swap agreements fixed the interest rate
at 5.655% plus 1.25% for a portion of the revolving credit
facility ($54,600) through October 1998. (See Note 9.)
Counterparties to derivative agreements are major financial
institutions. Management believes the risk of incurring losses
related to credit risk is remote.
The carrying amount reported in the consolidated balance
sheets for cash and cash equivalents, accounts receivable,
accounts payable and short-term debt approximates fair value
because of the immediate or short-term maturity of these
financial instruments. The carrying amount reported for long-term
debt other than the Convertible Subordinated Notes issued in 1998
approximates fair value because a significant portion of the
underlying debt is at variable rates and reprices frequently. The
estimated fair value based on the bid price of the Convertible
Subordinated Notes at December 31, 1998 was $264,928 compared to
a carrying amount of $192,850.
18. Stock Options and Employee Stock Purchase Plan:
Under the Company's 1997 Incentive Stock Option and
Appreciation Right Plan (the "Plan"), the Company may grant
options to key employees to purchase shares of Class A Common
Stock. An increase from 3,500,000 to 4,500,000 in the maximum
number of Class A shares available for grant was approved by the
shareholders in May 1998. In addition, the Company has a Non-
Employee Director Option Plan (the "Director Plan") which
provides for the issue of up to 150,000 shares of Class A Common
stock. The exercise price of options granted under the Plan may
not be less than 100% of the fair market value of the Class A
Common Stock on the date of the grant. Options granted expire
from three to ten years after the grant date. Generally, options
are exercisable in installments of 25% beginning one year from
date of grant. The Plan permits a cash appreciation right to be
granted to certain employees. Included in options outstanding at
December 31, 1998 are options to purchase 12,250 shares with cash
appreciation rights, 4,338 of which are exercisable. If an option
holder ceases to be an employee of the Company or its
subsidiaries for any reason prior to vesting of any options, all
options which are not vested at the date of termination are
forfeited. As of December 31, 1998 and 1997, options for
1,663,799 and 1,572,327 shares, respectively, were available for
future grant.
The table below summarizes the activity of the Plan:
Weighted Weighted
Options Average Average
Out- Exercise Options Exercise
standing Price Exercisabl Price
e
Balance at
December 31, 1995 896,775 $16.85 383,278 $15.49
Granted in 1996 44,000 $22.18
Canceled in 1996 (36,000) $18.01
Exercised in 1996 (66,437) $14.21
Balance at
December 31, 1996 838,338 $17.30 444,982 $16.42
Granted in 1997(1) 643,075 $16.65
Canceled in 1997 (107,347) $17.76
Exercised in 1997 (63,100) $12.22
Balance at
December 31, 1997 1,310,966 $17.20 462,765 $17.29
Granted in 1998(2) 989,500 $25.14
Canceled in 1998 (80,972) $18.34
Exercised in 1998 (344,160) $17.01
Balance at
December 31, 1998 1,875,334 $21.38 854,514 $23.09
(1) Included in options outstanding at December 31, 1997 were
161,100 options granted in 1997 with exercise prices in excess of
the fair market value of Class A stock on the date of grant. The
weighted average exercise price of these options is $22.24. The
weighted average exercise price of the remaining 481,975 options
granted in 1997 is $14.76.
(2) Included in options outstanding at December 31, 1998 were
383,900 options granted in 1998 with exercise prices in excess of
the fair market value of Class A stock on the date of grant. The
weighted average exercise price of these options is $30.09. The
weighted average exercise price of the remaining 605,600 options
granted in 1998 is $22.01.
The Company has adopted the disclosure only provisions of
SFAS No. 123. If the Company had elected to recognize
compensation costs in accordance with SFAS No. 123 the reported
net income (loss) would have been reduced to the pro forma
amounts for the years ended December 31, 1998, 1997 and 1996 as
indicated below:
1998 1997 1996
Net income (loss):
As reported $24,211 $17,408 $(11,461)
Proforma $22,427 $16,328 $(12,028)
Basic earnings (loss) per share:
As reported $ .95 $ .77 $ (.53)
Proforma $ .88 $ .72 $ (.55)
Diluted earnings (loss) per
share:
As reported $ .92 $ .76 $ (.53)
Proforma $ .85 $ .72 $ (.55)
The Company estimated the fair value, as of the date of
grant, of options outstanding in the plan using the Black-Scholes
option pricing model with the following assumptions:
1998 1997 1996
Expected life (years) 1-5 4-5 4-5
Expected future dividend
yield (average) .81% 1.25% .85%
Expected volatility 0.35 0.40 0.40
The risk-free interest rates for 1998, 1997 and 1996 were
based upon U.S. Treasury instrument rates with maturity
approximating the expected term. The weighted average interest
rate in 1998, 1997 and 1996 amounted to 5.6%, 6.4% and 6.0%,
respectively. The weighted average fair value of options granted
during the years ended December 31, 1998, 1997, and 1996 with
exercise prices equal to fair market value on the date of grant
were $8.36, $5.53 and $7.90, respectively. The weighted average
fair value of options granted during the years ended December 31,
1998 and 1997 with exercise prices in excess of fair market value
at the date of grant were $1.26 and $3.27. No options with
exercise prices in excess of fair market value at the date of
grant were granted in 1996.
The following table summarizes information about stock
options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weight- Weight-
ed ed
Number Weighted Average Average
Outstand- Average Exer- Number Exer-
Range of ing at Remain- cise Exercisable cise
Exercise 12/31/98 ing Life Price at 12/31/98 Price
Prices
$8.75 - $18.75 641,484 4.0 $15.39 346,850 $15.89
$19.50 - $22.13 674,350 6.1 $21.89 72,250 $20.99
$22.20 - $30.09 559,500 2.6 $27.64 435,414 $29.17
$8.75 - $30.09 1,875,334 4.3 $21.38 854,514 $23.09
The Company has an Employee Stock Purchase Plan by which
eligible employees of the Company may authorize payroll
deductions up to 4% of their regular base salary to purchase
shares of Class A Common Stock at the fair market value. The
Company matches these contributions with an additional
contribution equal to 25% of the employee's contribution. As of
the second quarter of 1998 the Company increased the match to 50%
of the employee contributions. Shares are issued on the last day
of each calendar quarter. The Company's contributions to the plan
were approximately $513, $137 and $163 in 1998, 1997 and 1996,
respectively.
19. Supplemental Data:
Years Ended December 31,
1998 1997 1996
Research and development
expense $36,034* $32,068 $34,269
Depreciation expense $22,941 $21,591 $22,751
Amortization expense $15,179 $ 9,317 $ 8,752
Interest cost incurred $26,357 $18,988 $20,549
Other income (expense), net:
Interest income $ 757 $ 519 $529
Foreign exchange
losses, net (895) (726) (195)
Other, net (262) (360) (504)
$ (400) $ (567) $ (170)
* Includes write-off of purchased in-process R&D related to Cox
acquisition. (See Note 4.)
Supplemental cash flow information:
1998 1997 1996
Cash paid for interest
(net of amount capitalized) $25,078 $19,193 $20,250
Cash paid for income taxes (net
of refunds) $10,175 $ 221 $ 9,182
Supplemental schedule of
noncash investing and
financing activities:
Fair value of assets acquired $255,121 $44,029 -
Liabilities 33,950 - -
Cash paid 221,171 44,029 -
Less cash acquired 502 - -
Net cash paid $220,669 $44,029 $ -
20. Information Concerning Business Segments and Geographic
Operations:
In 1998 the Company adopted SFAS 131. The Company's
reportable segments are the five decentralized divisions
described in Note 1, (i.e. IPD, FCD, USPD, AHD, and AAHD). Each
division has a president and operates in distinct business and/or
geographic area. Prior years segment data has been restated to
present the required information.
The accounting policies of the segments are generally the
same as those described in the "Summary of Significant Accounting
Policies." Segment data includes immaterial intersegment
revenues. No customer accounts for more than 10% of consolidated
revenues.
The operations of each segment are evaluated based on
earnings before interest and taxes (operating income). Corporate
expenses and certain other expenses or income not directly
attributable to the segments are not allocated. Eliminations
include intersegment sales. Geographic revenues represent sales
to third parties by country in which the selling legal entity is
domiciled. Operating assets directly attributable to business
segments are included in identifiable assets (i.e. sum of
accounts receivable, inventories, net property, plant and
equipment and net intangible assets). Cash, prepaid expenses, and
other corporate and non allocated assets are included in
unallocated. For geographic reporting long lived assets include
net property, plant and equipment and net intangibles.
Depre-
ciation
Identi- and Captial
Total Operating fiable Amorti- Expendi-
Revenue Income(a) Assets zation tures
1998
Business segments:
IPD $193,106 $ 7,971(b) $379,217 $11,460 $14,913
USPD 178,785 11,061 209,243 8,063 6,807
FCD 53,048 17,526 85,409 5,301 3,643
AHD 166,343 37,800 151,000 8,578 2,864
AAHD 18,963 3,623 19,850 1,044 815
Unallocated - (12,695) 64,217 3,674 2,336
Eliminations (5,661) (290) - - -
$604,584 $64,996 $908,936 $38,120 $31,378
1997
Business segments:
IPD $134,075 $10,975 $134,679 $ 6,525 $16,430
USPD 155,381 4,057 211,096 8,355 4,703
FCD 38,664 9,442 74,672 4,634 1,621
AHD 158,428 32,023 139,367 7,279 3,028
AAHD 15,283 2,764 19,494 1,110 151
Unallocated - (12,225) 52,558 3,005 1,850
Eliminations (1,543) (138) - - -
$500,288 $46,898 $631,866 $30,908 $27,783
1996
Business segments:
IPD $141,976 $2,521 $137,051 $ 7,638 $ 5,985
USPD 152,317 (19,241) 206,310 9,493 3,727
FCD 36,032 8,538 68,361 4,691 4,931
AHD 146,005 20,993 119,001 6,631 6,778
AAHD 12,241 (302) 20,121 721 6,082
Unallocated - (8,268) 62,563 2,329 3,371
Eliminations (2,387) (321) - - -
$486,184 $3,920 $613,407 $31,503 $30,874
(a) 1998 operating income includes one-time charges related to
the acquisition of Cox Pharmaceuticals and 1996 operating income
includes charges for management actions. The segments are
impacted as follows:
1998 1996
IPD $3,600 $8,051
USPD - 5,738
AHD - 4,542
Unallocated - 469
$3,600 $18,800
(b) Goodwill amortization in IPD related to the Cox acquisition
in 1998 amounted to approximately $3,000.
Geographic
Long-lived
Revenues Identifiable Assets
1998 1997 1996 1998 1997 1996
United States $338,487 $294,772 $280,277 $196,745 $205,188 $190,111
Norway 86,019 91,760 89,329 85,719 86,384 87,400
Denmark 52,565 53,624 55,867 57,144 55,795 48,626
United Kingdom 73,258 8,961 6,680 196,669 - -
Other foreign
(primarily
Europe) 54,255 51,171 54,031 23,564 2,009 3,584
$604,584 $500,288 $486,184 $559,841 $349,376 $329,721
21. Selected Quarterly Financial Data (unaudited):
Quarter
Total
First Second Third Fourth Year
1998
Total revenue $126,562 $139,513 $164,337 $174,172 $604,584
Gross profit $53,417 $59,162 $66,695 $73,986 $253,260
Net income $5,402 $2,305(a) $7,551 $8,953 $24,211
Earnings per
common share(b)
Basic $.21 $.09 $.30 $.34 $.95
Diluted $.21 $.09 $.28 $.32 $.92
1997
Total revenue $121,424 $118,986 $125,240 $134,638 $500,288
Gross profit $48,122 $51,440 $51,559 $59,932 $211,053
Net income $2,260 $3,470 $5,257 $6,421 $17,408
Earnings per
common share(c)
Basic $.10 $.16 $.23 $.27 $.77
Diluted $.10 $.16 $.22 $.26 $.76
(a) The second quarter of 1998 results include non-recurring
charges of $3,600 pre-tax ($3,130 after tax) or $.12 per
share related to the acquisition of Cox Pharmaceuticals. (See
Note 4.)
(b) The sum of the earnings per share for the four quarters in
1998 does not equal the total for the year due to higher
dilution in the third and fourth quarter calculations from
the effect of the convertible debt using the if-converted
method. The convertible debt was anti-dilutive for the year
and therefore not included in the full year calculation.
(c) The sum of the earnings per share for the four quarters in
1997 does not equal the total for the year due to higher net
income recognized in the third and fourth quarters combined
with a higher number of shares outstanding during the second
half of the year which does not have the same proportional
effect on the total year calculation.
22. Subsequent Events
New bank credit facility:
In January 1999, the Company signed a $300,000 credit
agreement with a consortium of banks. (See Note 9.)
Merger of Wade Jones distribution business:
In January 1999, the AHD contributed the distribution business of its
Wade Jones Company ("WJ") into a partnership with G&M Animal
Health Distributors and T&H Distributors. The WJ distribution
business which was merged had annual sales of approximately
$30,000 and assets (primarily accounts receivable and inventory)
of less than $10,000. WJ will own 50% of the new entity, WYNCO
LLC ("WYNCO").
WYNCO is a regional distributor of animal health products and
services primarily to integrated poultry and swine producers and
independent dealers operating in the Central South West and
Eastern regions of the U.S. WYNCO will be the exclusive
distributor for the Company's animal health products.
Manufacturing and premixing operations at Wade Jones will remain
part of the Company.
Strategic alliance with Ascent Pediatrics:
On February 4, 1999, the Company entered into a loan
agreement with Ascent Pediatrics, Inc. ("Ascent") under which
the Company will provide up to $40,000 in loans to Ascent to be
evidenced by 7 1/2% convertible subordinated notes due 2005.
Pursuant to the loan agreement, up to $12,000 of the proceeds of
the loans can be used for general corporate purposes, with
$28,000 of proceeds reserved for projects and acquisitions
intended to enhance growth of Ascent.
In addition, Ascent and the Company have entered into an
agreement under which the Company will have the option during the
first half of 2002 to acquire all of the then outstanding shares
of Ascent for cash at a price to be determined by a formula based
on Ascent's operating income.
The transactions are subject to the approval of Ascent's
stockholders at a meeting expected to be held during the second
quarter of 1999.
EXECUTION COPY
$300,000,000
CREDIT AGREEMENT
dated as of
January 20, 1999,
among
ALPHARMA U.S. INC.
as Borrower,
THE BANKS NAMED HEREIN,
as Banks,
UNION BANK OF NORWAY
as Arranger,
DEN NORSKE BANK ASA,
as Co-Arranger
and
UNION BANK OF NORWAY,
as Agent
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS 1
1.1. Defined Terms 1
1.2. Computation of Time Periods 18
1.3. Accounting Terms 18
ARTICLE II - AMOUNT AND TERMS OF THE TERM LOANS 18
2.1. The Term Loans 18
2.2. Making the Term Loans 19
2.3. Termination/Reduction of the Term Loan Commitments 20
2.4. Consolidation and Repayment of Term Loans 21
ARTICLE III - AMOUNT AND TERMS OF THE REVOLVING LOANS 22
3.1. The Revolving Loans 22
3.2. Making the Revolving Loans 23
3.3. Termination/Reduction of the Revolving Credit
Commitments 24
3.4. Extension of Revolving Credit Commitment
Termination Date 25
ARTICLE IV - AMOUNT AND TERMS OF THE WORKING CAPITAL LOANS 26
4.1. The Working Capital Loans 26
4.2. Making the Working Capital Loans 27
4.3. Termination/Reduction of the Working Capital Loan
Commitments 29
4.4. Letters of Credit 29
4.5. Obligations Absolute 34
ARTICLE V - INTEREST, FEES, ETC. 34
5.1. Interest Period Election 34
5.2. Interest Rate 35
5.3. Interest Rate Determination and Protection 36
5.4. Prepayments 37
5.5. Fees 38
5.6. Increased Costs 39
5.7. Illegality 40
5.8. Capital Adequacy 40
5.9. Payments and Computations 41
5.10. Sharing of Payments, Etc. 45
ARTICLE VI - CONDITIONS OF LENDING 45
6.1. Conditions Precedent to the Making of the Initial
Loans and/or Initial Issuance of Letters of Credit 45
6.2. Conditions Precedent to the Making of Each Loan
and Issuance of Each Letter of Credit 47
ARTICLE VII - REPRESENTATIONS AND WARRANTIES 47
7.1. Corporate Existence 47
7.2. Corporate Power; Authorization; Enforceable
Obligations. 47
7.3. Taxes 48
7.4. Financial Information 49
7.5. Litigation 49
7.6. Margin Regulations 49
7.7. ERISA 50
7.8. No Defaults 50
7.9. Investment Company Act 50
7.10. Insurance 51
7.11. Environmental Protection 51
7.12. Regulatory Matters 51
7.13. Title and Liens 51
7.14. Compliance with Law 51
7.15. Trademarks, Copyrights, Etc. 52
7.16. Disclosure 52
7.18. Subsidiaries. 52
7.19. Principal Subsidiaries. 52
7.20. Year 2000 Issue 52
7.21. Pari Passu Obligations 53
7.22. Corporate Headquarters 53
ARTICLE VIII - AFFIRMATIVE COVENANTS 53
8.1. Compliance with Laws, Etc. 53
8.2. Payment of Taxes, Etc. 53
8.3. Maintenance of Insurance 53
8.4. Preservation of Corporate Existence, Etc. 53
8.5. Books and Access 54
8.6. Maintenance of Properties, Etc. 54
8.7. Application of Proceeds 54
8.8. Financial Statements 54
8.9. Reporting Requirements 55
8.10. Acquisition Related Loan 56
8.11. Additional Credit Support Documents 56
8.12. Delivery of Opinions 57
8.13. Year 2000 Compliance 57
8.14 Pari Passu Obligations 57
8.15 Corporate Headquarters. 57
8.16 Indebtedness Under Other Facilities 57
ARTICLE IX - NEGATIVE COVENANTS 58
9.1. Liens, Etc. 58
9.2. Mergers 58
9.3. Substantial Asset Sale 58
9.4. Transactions with Affiliates 59
9.5. Restrictions on Indebtedness 59
ARTICLE X - EVENTS OF DEFAULT 60
10.1. Events of Default 60
ARTICLE XI - THE AGENT AND WORKING CAPITAL AGENT 63
11.1. Authorization and Action 63
11.2. The Agent's Reliance, Etc. 63
11.3. Union Bank of Norway and Den norske Bank AS 64
11.4. Bank Credit Decision 64
11.5. Determinations Under Sections 6.1. and 6.2 65
11.6. Indemnification 65
11.7. Successor Agents/Working Capital Agents 66
11.8. Notices and Forwarding of Documents to Banks 66
ARTICLE XII - MISCELLANEOUS 66
12.1. Amendments, Etc. 66
12.2. Notices, Etc. 67
12.3. No Waiver; Remedies 68
12.4. Costs; Expenses; Indemnities 68
12.5. Right of Set-off 70
12.6. Binding Effect 70
12.7. Assignments and Participation; Additional Banks 70
12.8. GOVERNING LAW; SEVERABILITY. 73
12.10. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL 73
12.11. Confidentiality 73
12.12. Section Titles 74
12.13. Execution in Counterparts 74
SCHEDULES AND ANNEXES
Annex A -
Pricing Grid
Schedule I -
Lending Offices
Schedule II -
Commitments
Schedule III -
Restructuring Documents
Schedule 7.2(a)(iv) -
Required Consents and Approvals
EXHIBITS
Exhibit A-1 - Form of Term
Note
Exhibit A-2 - Form of
Revolving Credit Note
Exhibit A-3 - Form of Working
Capital Note
Exhibit B - Form of
Acquisition Related Guaranty
Exhibit C - Form of
Intercreditor Agreement
Exhibit D - Form of Notice
of Borrowing
Exhibit E - Form of Parent
Guaranty
Exhibit F - [Intentional
omitted]
Exhibit G - Form of
Subsidiary Guaranty
Exhibit H - Form of
Assignment of Intercompany Note
Exhibit I - Form of Notice
of Interest Period
Exhibit J-1 - Form of Opinion
of Kirkland & Ellis
Exhibit J-2 - Form of Opinion
of Robert Wrobel, Corporate Counsel
of the Borrower
Exhibit J-3 - Form of Opinion
of Watson, Farley & Williams
Exhibit J-4 - Form of Opinion
of Wikborg & Rein (Norwegian law)
Exhibit J-5 - Form of Opinion
of Gorrissen & Federspiel (Danish
law)
Exhibit J-6 - Form of Opinion
of McCarter & English (New Jersey
law)
Exhibit J-7 - Form of Opinion
of Bird & Bird (English law)
Exhibit K - Form of Notice
of Assignment and Acceptance
CREDIT AGREEMENT dated as of January 20, 1999 among ALPHARMA
U.S. INC., a Delaware corporation (together with its successors
and assigns, the "Borrower"), the Banks parties hereto from time
to time (the "Banks"), UNION BANK OF NORWAY, as Agent, UNION BANK
OF NORWAY, as Arranger, DEN NORSKE BANK ASA, as Co-Arranger and
Co-Syndication Agent and SUMMIT BANK, as Working Capital Agent,
Documentation Agent and Co-Syndication Agent.
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Banks provide
financing for, among other things, (a) the refinancing of certain
existing indebtedness of the Borrower and (b) for general
corporate purposes, and the Banks are willing to make funds
available for such purposes, but only upon the terms and subject
to the conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained herein the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. Defined Terms. As used in this Agreement, the
following terms have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the
terms defined):
"Acquisition Related Guarantor" means an Affiliate of the
Borrower to whom the proceeds of a Borrowing are, directly or
indirectly, made available for purposes of effecting an
acquisition of Equity or assets.
"Acquisition Related Guaranty" means a guaranty of the
obligations of the Borrower pursuant to the Loan Documents made
by an Acquisition Related Guarantor in connection with a
Borrowing made in respect of an acquisition of Equity or assets
substantially in the form of Exhibit B hereto.
"Affiliate" means, as to any Person, any Subsidiary of such
Person and any other Person which, directly or indirectly,
controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "control" means the
possession of the power to direct or cause the direction of
management and policies of any Person, whether through the
ownership of voting securities, by contract or otherwise and as
to the Parent Guarantor and any of its Subsidiaries shall be
deemed to include (without limitation) A.L. Industrier AS.
"Agency Fee" has the meaning specified in Section 5.5(c).
"Agent" means Union Bank of Norway, in its capacity as the
Agent, or any successor in such capacity.
"Agreement" means this Credit Agreement, as further
modified, amended or supplemented from time to time.
"Agreement Date" means the date set forth as such on the
last signature page hereof.
"Agreement Termination Date" means the first day on which
all the Commitments have been reduced to zero, this Agreement is
terminated and no Loan Party has any obligations outstanding
under this Agreement or any other Loan Document.
"A.L. Pharma A/S" means A.L. Pharma A/S, a Danish
corporation.
"Alpharma AS" means Alpharma AS, a Norwegian corporation.
"Alternate Base Rate" means a fluctuating rate per annum
equal at all times to the higher of (i) the Base Rate and (ii)
the Federal Funds Rate, in each case plus the Applicable Margin.
"Alternate Base Rate Working Capital Loan" means a Working
Capital Loan bearing interest at the Alternate Base Rate.
"Applicable Law" means (a) all applicable common law and
principles of equity and (b) all applicable provisions of all (i)
constitutions, statutes, rules, regulations and orders of
governmental bodies, (ii) governmental approvals and (iii)
orders, decisions, judgments and decrees of all courts (whether
at law, in equity or admiralty) and arbitrators.
"Applicable Margin" shall mean a percentage per annum
determined in accordance with the Pricing Grid.
"Arrangement Fee" has the meaning specified in Section
5.5(b).
"Arranger" means Union Bank of Norway.
"Assignment of Intercompany Note" means the Assignment made
by the Parent Guarantor in favor of the Agent, substantially in
the form of Exhibit H hereto.
"Available Revolving Credit Commitment" means, as to any
Bank, at any time of determination, an amount equal to (x) such
Bank's Revolving Credit Commitment at such time minus (y) such
Bank's aggregate Outstanding Revolving Extensions of Credit at
such time.
"Base Rate" means the rate of interest announced from time
to time by the Working Capital Agent as its "base rate" or "base
lending rate". This rate of interest is determined from time to
time by the Working Capital Agent as a means of pricing some
loans to its customers and is neither tied to any external rate
of interest or index nor does it necessarily reflect the lowest
rate of interest actually charged by the Working Capital Agent to
any particular class or category of customers of the Working
Capital Agent.
"Banks" means the lenders listed on the signature pages
hereof, and such other lenders as may become parties hereto from
time to time pursuant to Section 12.7.
"Borrower" has the meaning specified in the recitals hereof.
"Borrowing" means a Term Loan Borrowing, a Revolving Loan
Borrowing or a Working Capital Loan Borrowing (as the case may
be).
"Business Day" means a day of the year on which banks are
not required or authorized to close in New York City and Oslo,
Norway and on which dealings are also carried on in Dollars in
the London interbank market.
"Capital Market Transaction" means the issuance of any
Equity (including convertible debt securities but excluding any
other debt securities), in each case whether by means of a public
offering, private placement, or other capital market method.
"Capitalized Lease" means, as applied to any Person, any
lease of property by such Person as lessee which is or should be
capitalized on a balance sheet of such Person prepared in
accordance with GAAP.
"Cash Equivalents" means any one or more of the following
instruments:
(a) open-market commercial paper issued by
corporations organized in the United States of America,
maturing not later than 270 days after the date of issuance
thereof and having at the time of acquisition a rating of at
least A-1 from Standard & Poor's Rating Group or P-1 from
Moody's Investors Services, Inc.
(b) readily marketable direct obligations issued
by the United States of America, or by any agency thereof
that are unconditionally guaranteed or backed by the full
faith and credit of the United States of America, in each
case maturing within one year from the date of acquisition
thereof; and
(c) certificates of deposit or bankers'
acceptances maturing within one year from the date of
creation thereof issued by any Bank or by a commercial bank
or trust company organized under the laws of the United
States of America, or of any state thereof, having combined
capital, surplus and undivided profits of not less than
$1,000,000,000 (or its equivalent in any other currency) and
having, in respect of its long-term senior debt securities,
a rating of at least A- from Standard & Poor's Rating Group
or A3 from Moody's Investors Services, Inc.,
in each case so long as the same (x) provide for the payment of
principal and interest (and not principal alone or interest
alone) and (y) are not subject to any contingency regarding the
payment of principal or interest.
"Change in Tax Law" means the enactment, promulgation,
execution or ratification of, any tax treaty, law (including,
without limitation, the Code), rule or regulation (or any change
in the application or judicial, administrative or other official
interpretation of any treaty, law, rule or regulation).
"Co-Arranger" means Den norske Bank ASA.
"Code" means the Internal Revenue Code of 1986 (or any
successor legislation thereto), as amended from time to time.
"Commitment" means, as to any Bank, the aggregate of such
Bank's Term Loan Commitment and Revolving Credit Commitment and
"Commitments" means, as to all of the Banks, the aggregate of the
Term Loan Commitments and Revolving Credit Commitments of all the
Banks.
"Commitment Fee" means any of the fees paid by the Borrower
pursuant to Section 5.5(a).
"Consolidation" means any adjustment of Interest Periods in
respect of Term Loans in accordance with Section 2.4(a) of this
Agreement.
"Consolidation Date" means the day that is six (6) months
after the Initial Funding Date with respect to Term Loans or such
earlier date on which the Consolidation of Term Loans occurs as
the Agent may designate by notice to the Banks.
"Contaminant" means any waste, pollutant, hazardous
substance, toxic substance, hazardous waste, special waste,
petroleum or petroleum derived substance or waste, or any
constituent of such substance or waste, including any substance
regulated under any Environmental Law.
"Credit Support Document" means the Parent Guaranty, the
Subsidiary Guaranties, the Pledge Agreements, the Assignment of
Intercompany Note and the Acquisition Related Guaranties.
"Default" means any event which with the passing of time or
the giving of notice or both would become an Event of Default.
"Documentation Agent" means Summit Bank, in its capacity as
Documentation Agent, or any successor in such capacity.
"Dollars" and the sign "$" each mean the lawful money of the
United States of America.
"Dumex" means Dumex - Alpharma A/S, a Danish corporation.
"Earnings from Operations" has the meaning specified in the
Parent Guaranty.
"EBITDA" has the meaning ascribed thereto in the Parent
Guaranty.
"Effective Date" means the first day on which the conditions
set forth in Section 6.1 are satisfied or waived.
"Environmental Law" means the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. 9601 et
seq.), the Hazardous Material Transportation Act (49 U.S.C.
1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. 6901 et seq.), the Federal Water Pollution Control Act
(33 U.S.C. 12Sl et seq.), the Clean Air Act (42 U.S.C. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. 2601 et
seq.), and the Occupational Safety and Health Act (29 U.S.C. 651
et seq.), in each case as amended or supplemented from time to
time, and any analogous future federal or present or future state
or local statutes, including, without limitation, transfer of
ownership notification statutes such as the New Jersey
Environmental Cleanup Responsibility Act (N.J. Stat. Ann.
13:lK-6 et seg.) and the Connecticut Industrial Transfer Law of
1985 (Conn. Gen. Stat. 22a-134 et seq.) and the regulations
promulgated pursuant thereto.
"Environmental Liabilities and Costs" means, as to any
Person, all liabilities, obligations, responsibilities, Remedial
Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including, without
limitation, all reasonable fees, disbursements and expenses of
counsel, expert and consulting fees, and costs of investigation
and feasibility studies), fines, penalties, sanctions and
interest incurred as a result of any claim or demand, by any
Person, whether based in contract, tort, implied or express
warranty, strict liability, any criminal or civil statute,
including any Environmental Law, Permit, order or agreement with
any Government Authority or other Person, arising from
environmental, health or safety conditions, or the Release or
threatened Release of a Contaminant into the environment,
resulting from the past, present or future operations of such
Person or its Subsidiaries.
"Environmental Lien" means any Lien in favor of any
Governmental Authority for Environmental Liabilities and Costs.
"Equity" means all shares, options, equity interests,
general or limited partnership interests, joint venture interests
or participation or other equivalents (regardless of how
designated) of or in a corporation, limited liability company,
partnership or other entity, whether voting or non-voting, and
including, without limitation, common stock, preferred stock,
purchase rights, warrants or options for any of the foregoing.
"Equity Ratio" has the meaning specified in the Parent
Guaranty.
"ERISA" means the Employee Retirement Income Security Act of
1974 (or any successor legislation thereto) and the rules and
regulations promulgated thereunder, as amended from time to time.
"ERISA Affiliate" shall mean a corporation, partnership or
other entity which is considered one employer with the Borrower
under Section 4001 of ERISA or Section 414 of the Code.
"ERISA Event" means (i) a Reportable Event with respect to a
Title IV Plan; (ii) the withdrawal of the Borrower, any of its
Subsidiaries or any ERISA Affiliate from a Title IV Plan subject
to Section 4063 of ERISA during a plan year in which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA;
(iii) the filing of a notice of intent to terminate a Title IV
Plan or the treatment of a plan amendment as a termination under
Section 4041 of ERISA; or (iv) the institution of proceedings to
terminate a Title IV Plan or Multiemployer Plan by the PBGC.
"Eurocurrency Liabilities" has the meaning specified in
Regulation D.
"Eurodollar Loans" means Loans bearing interest at the
Eurodollar Rate plus the Applicable Margin.
"Eurodollar Rate" means, for any Interest Period, the rate
per annum equal to (a) the rate quoted by the Agent as appearing
on the Telerate Page 3750 or on any other relevant Telerate page
as of 11:00 A.M. (London time) on the second Business Day before
the first day of such Interest Period for a period equal to such
Interest Period or (b) if such rate does not appear on the
Telerate Page 3750 or on any other relevant Telerate page, such
other widely published rate at which deposits in Dollars are
offered in the London interbank market at 11:00 A.M. (London
time) as the Agent may select on the second Business Day before
the first day of such Interest Period for a period equal to such
Interest Period.
"Eurodollar Reserve Requirement" means, at any time, the
then current maximum rate for which reserves (including any
marginal, supplemental or emergency reserve) are required to be
maintained under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding five
billion Dollars against Eurocurrency Liabilities.
"Eurodollar Working Capital Loans" means a Working Capital
Loan bearing interest at the Eurodollar Rate plus the Applicable
Margin.
"Event of Default" has the meaning specified in Section
10.1.
"Federal Funds Rate" means, for any day, a fluctuating
interest rate per annum equal for such day to the weighted
average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds
brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published
for any day that is a Business Day, the average of the quotations
for such day on such transactions received by the Agent from
three federal funds brokers of recognized standing selected by
it.
"Final Judgment" has the meaning specified in Section
10.1(f).
"Fiscal Quarter" means any three month period ending March
31, June 30, September 30 or December 31 of any Fiscal Year.
"Fiscal Year" means each twelve-month period ending December
31, or such other fiscal year end date as may be determined by
the Borrower following the Agreement Date.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time and set
forth in the rules, regulations, opinions and pronouncements of
the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board, or in
such other statements by such other entity as may be in general
use by significant segments of the accounting profession and
which are applicable to the circumstances as of the date of
determination.
"GAAS" means generally accepted auditing standards in the
United States of America as in effect from time to time and set
forth in the rules, regulations, opinions and pronouncements of
the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board, or in
such other statements by such other entity as may be in general
use by significant segments of the accounting profession and
which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Indebtedness" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, including obligations evidenced by bonds, debentures,
notes or other similar instruments, (ii) all obligations of such
Person to pay the deferred purchase price of Property or
services, except as provided below, (iii) all obligations of such
Person as lessee under Capitalized Leases, (iv) all Indebtedness
of others secured by a Lien on any Property of such Person,
whether or not such Indebtedness is assumed by such Person, (v)
all Indebtedness of others directly or indirectly guaranteed or
otherwise assumed by such Person, including any obligations of
others endorsed (otherwise than for collection or deposit in the
ordinary course of business) or discounted or sold with recourse
by such Person, or in respect of which such Person is otherwise
directly or indirectly liable, including, without limitation any
Indebtedness in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation, or
to maintain the solvency or any balance sheet or other financial
condition of the obligor of such obligation (but not including
any obligation under a performance bond), (vi) all obligations of
such Person as issuer, customer or account party under letters of
credit or bankers' acceptances that are either drawn or that back
financial obligations that would otherwise be Indebtedness, and
(vii) for purposes of Section 10.1(e) only, all obligations of
such Person in respect of Swap Agreements.
"Indebtedness for Borrowed Money" of any Person means at any
date, without duplication, Indebtedness described in clauses (i),
(iii), (v) and (vii) of the definition of Indebtedness.
"Indemnified Liability" has the meaning specified in Section
12.4(b).
"Indemnified Person" has the meaning specified in Section
12.4(b).
"Initial Funding Date" means, with respect to each of the
Term Loans, Revolving Loans and Working Capital Loans, the date
on which (i) the conditions set forth in Sections 6.1 and 6.2 are
satisfied or waived and (ii) the initial Term Loans, Revolving
Loans or Working Capital Loans, respectively, are made hereunder.
"Intercreditor Agreement" means the Intercreditor Agreement
among the Agent, the Banks and the Other Lenders, substantially
in the form of Exhibit C hereto.
"Interest Period" means, with respect to any Eurodollar
Loans, (a) in the case of the first such Interest Period, the
period commencing on the date such Loans are made and ending (i)
six months thereafter, in the case of Term Loans, and (ii) one,
three or six months (or 12 months, in accordance with Section
5.1(b)) thereafter, in the case of Revolving Loans and Eurodollar
Working Capital Loans, as selected by the Borrower in its Notice
of Borrowing or Notice of Interest Period given to the Agent
pursuant to Section 2.2, 3.2, 4.2 or 5.1, as the case may be, and
(b) thereafter, the period commencing on the last day of the
immediately preceding Interest Period and ending (i) six months
thereafter, in the case of Term Loans, and (ii) one, three, six
or twelve months thereafter, in the case of Revolving Loans and
Eurodollar Working Capital Loans, as selected by the Borrower in
its Notice of Interest Period given to the Agent or the Working
Capital Agent, as the case may be, pursuant to Section 5.1,
subject, however, to the following:
(A) if any Interest Period would otherwise end on a day
that is not a Business Day, such Interest Period shall be
extended to the next succeeding Business Day, unless the
result of such extension for any Loan would be to extend
such Interest Period into another calendar month, in which
event such Interest Period shall end on the immediately
preceding Business Day;
(B) any Interest Period in respect of Loans that begins
on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end
on the last Business Day of a calendar month;
(C) no Interest Period may extend beyond (I) the Term
Loan Maturity Date, in the case of the Term Loans or (II)
the Revolving Credit Commitment Termination Date, in the
case of Revolving Loans and Eurodollar Working Capital
Loans; and
(D) there shall be outstanding at any one time in the
aggregate no more than (I) four (4) Interest Periods prior
to the Consolidation Date and one (1) Interest Period
thereafter, with respect to Term Loans, (II) six (6)
Interest Periods (no more than four of which may have a
duration of one month) with respect to Revolving Loans and
(III) ten (10) Interest Periods with respect to Eurodollar
Working Capital Loans.
"IRS" means the Internal Revenue Service, or any successor
thereto.
"Issuing Bank" means Summit Bank or First Union National
Bank, N.A., as the case may be, as the issuer of Letters of
Credit hereunder, together with its successors and assigns in
such capacity.
"Lending Office" means, with respect to any Bank, the office
of such Bank specified as its "Lending Office" opposite its name
on Schedule I or such other office of such Bank as such Bank may
from time to time specify to the Borrower and the Agent.
"Letter of Credit" has the meaning specified in Section 4.4.
"Letter of Credit Documents" means, with respect to any
Letter of Credit, collectively, any application therefor and any
other agreements, instruments, guarantees or other documents
(whether general in application or applicable only to such Letter
of Credit) governing or providing for (a) the rights and
obligations of the parties concerned or at risk with respect to
such Letter of Credit or (b) any collateral security for any of
such obligations, each as the same may be modified and
supplemented and in effect from time to time.
"Letter of Credit Liability" means, without duplication, at
any time and in respect of any Letter of Credit, the sum of (a)
the undrawn face amount of such Letter of Credit plus (b) the
aggregate unpaid principal amount of all Reimbursement
Obligations of the Borrower at such time due and payable in
respect of all drawings made under such Letter of Credit. For
purposes of this Agreement, a Working Capital Bank (other than
the Issuing Bank) shall be deemed to a hold a Letter of Credit
Liability in an amount equal to its Ratable Portion of the Letter
of Credit under Section 4.4 hereof, and the Issuing Bank shall be
deemed to hold a Letter of Credit Liability in an amount equal to
its retained interest in the related Letter of Credit after
giving effect to the acquisition by the Banks other than the
Issuing Bank of their participation interests under said Section
4.4.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), security interest or preference, priority
or other security agreement or preferential arrangement of any
kind or nature whatsoever, including, without limitation, any
conditional sale or other title retention agreement.
"Loan Documents" means (i) this Agreement, the Notes, the
Credit Support Documents and the Intercreditor Agreement and (ii)
all other agreements, documents and instruments that may
hereafter be entered into relating to or arising out of any
agreement, document or instrument referred to in clause (i).
"Loan Party" means any Person (other than the Agent, the
Banks, the Arranger, the Co-Arranger, the Working Capital Agent,
the Documentation Agent and the Other Lenders) that is a party
to a Loan Document.
"Loans" means, collectively, the Term Loans, the Revolving
Loans and the Working Capital Loans.
"Majority Banks" means, at any time, Banks holding 66 2/3%
or more of (a) until the Initial Funding Date, the Commitments
and (b) thereafter, the sum of (i) the then aggregate unpaid
principal amount of Term Loans held by the Banks and (ii) the
Revolving Credit Commitments or, if the Revolving Credit
Commitments have been terminated, the then aggregate unpaid
principal amount of Revolving Loans, Working Capital Loans and
Letter of Credit Liabilities; provided, that for purposes of the
last paragraph of Section 10.1(A) hereof, the relevant percentage
for determining Majority Banks shall be 51%.
"Majority Working Capital Banks" means, at any time, Working
Capital Banks holding 66 2/3% or more of the aggregate amount of
the Working Capital Loan Commitments.
"Margin Ratio" means, as at the last day of any period, the
ratio of (a) Total Indebtedness on such day to (b) EBITDA for
such period, as calculated in accordance with Annex A hereto.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Change" means a change that has resulted,
or would result, in a Material Adverse Effect.
"Material Adverse Effect" means, in the judgment of the
Majority Banks (or, for purposes of any notice of a Material
Adverse Effect to be given by a Loan Party, in the judgment of
such Loan Party), a material adverse effect on the business,
financial condition, operations or Properties of the Borrower and
its Subsidiaries or of the Parent Guarantor and its Subsidiaries
(as the case may be), in each case taken as a whole.
"Material Credit Agreement Change" means, in the judgment of
the Majority Banks (or, for purposes of any notice of a Material
Credit Agreement Change to be given by a Loan Party, in the
judgment of such Loan Party), a change that has materially
adversely affected or would materially adversely affect the
legality, validity or enforceability of any payment obligation of
the Borrower, the Parent Guarantor, any of the Subsidiary
Guarantors or the Acquisition Related Guarantors under this
Agreement or any other Loan Document.
"Multiemployer Plan" means a multiemployer plan, as defined
in Section 4001(a)(3) of ERISA, to which the Borrower, any of its
Subsidiaries or any ERISA Affiliate is making, is obligated to
make, has made or been obligated to make, contributions on behalf
of participants who are or were employed by any of them.
"Net Cash Proceeds" means:
(a) in reference to asset sales, proceeds in cash as and
when received by the Borrower or any of its Subsidiaries, or
the Parent Guarantor or any of its Subsidiaries, from, or in
connection with, the sale by the Borrower or any of its
Subsidiaries, or the Parent Guarantor or any of its
Subsidiaries, to any Person (other than the Borrower or any
of its Subsidiaries, or the Parent Guarantor or any of its
Subsidiaries) of any asset outside of the ordinary course of
business (including, without limitation, the sale of any
facility, division, plant or other real property or interest
in real property outside the ordinary course of business),
net of the direct costs relating to such sale, including,
without limitation, (i) legal, accounting and investment
banking fees and sale commissions, (ii) taxes paid or
payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing
arrangements in each case arising directly from such sale),
(iii) amounts required to be applied to the repayment of
Indebtedness relating to the asset that is the subject of
such sale and not otherwise provided for by the terms of
such sale, and (iv) reasonable reserves for purchase price
adjustments; and
(b) in reference to Capital Market Transactions by any
Person, the proceeds in cash received from such Capital
Market Transactions, net of all issuance fees, discounts,
and other costs.
For purposes of this definition, proceeds received by any
Subsidiary of the Borrower or of the Parent Guarantor other than
a wholly owned Subsidiary shall be deemed to be Net Cash Proceeds
received by the Borrower or the Parent Guarantor only in an
amount proportionate to the equity ownership interest of the
Borrower or the Parent Guarantor in the Subsidiary receiving such
proceeds.
"New Permitted Indebtedness" has the meaning specified in
the Parent Guaranty.
"Non-U.S. Subsidiary" means, as to any Person, each
Subsidiary of such Person that is incorporated or organized under
the laws of a jurisdiction outside of the United States of
America.
"Notes" means the Term Notes, the Revolving Credit Notes and
the Working Capital Notes.
"Notice of Assignment and Acceptance" has the meaning
specified in Section 12.7(a).
"Notice of Borrowing" means a notice of the Borrower
substantially in the form of Exhibit D hereto specifying therein
(i) the date of the proposed Borrowing, (ii) the aggregate amount
of such proposed Borrowing, (iii) the initial Interest Period or
Interest Periods for such Loans and (iv) whether such Borrowing
is to be a Term Loan Borrowing, a Revolving Loan Borrowing or a
Working Capital Loan Borrowing.
"Notice of Interest Period" has the meaning specified in
Section 5.1.
"Original Banks" means each financial institution that is a
"Bank" as of the Agreement Date.
"Other Lenders" shall mean (i) as of the Agreement Date,
First Union National Bank, and (ii) at any time thereafter, the
banks and financial institutions party to the Intercreditor
Agreement at such time (other than the Banks and the Agent).
"Outstanding Revolving Extensions of Credit" means, as to
any Bank at any time, the aggregate principal amount of all
Revolving Loans, Working Capital Loans and Letter of Credit
Liabilities made by such Bank then outstanding.
"Parent Guarantor" means Alpharma, Inc., a Delaware
corporation.
"Parent Guaranty" means the Guaranty dated as of January 20,
1999 made by the Parent Guarantor in respect of the obligations
of the Borrower pursuant to the Loan Documents, as the same may
be further amended or modified from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation, or
any successor thereto.
"Pension Plan" means an employee pension benefit plan, as
defined in Section 3(2) of ERISA (other than a Multiemployer
Plan), which is not an individual account plan, as defined in
Section 3(34) of ERISA, and which the Borrower, any of its
Subsidiaries or any ERISA Affiliate now or in the future
maintains, contributes to or has an obligation to contribute to
on behalf of participants who are or were employed by any of
them.
"Permit" means any permit, approval, authorization, license,
variance or permission required from a Governmental Authority
under an applicable requirement of law.
"Permitted Indebtedness" has the meaning specified in the
Parent Guaranty.
"Permitted Liens" has the meaning specified in the Parent
Guaranty.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or
Governmental Authority.
"Plan" shall mean an employee benefit plan as defined in
Section 3(3) of ERISA which is maintained or contributed to by
the Borrower or an ERISA Affiliate.
"Pledge Agreement" means each pledge made by the
Shareholders of a Pledge Subsidiary in favor of the Agent on
behalf of the Banks in respect of 65% of the total combined
voting power of all classes of stock entitled to vote (within the
meaning of Section 956 of the Code and the regulations
thereunder) of such Pledge Subsidiary, in form and substance
satisfactory to the Agent.
"Pledge Subsidiary" means A.L.-Pharma A/S, Alpharma AS and
each Principal Subsidiary that is a Non-U.S. Subsidiary.
"Pricing Grid" shall mean the pricing grid attached hereto
as Annex A.
"Principal Subsidiary" means (a) at all times, the
Scandinavian Principal Companies, and (b) at any time (except as
otherwise provided for in this Agreement or any other Loan
Document), any Subsidiary of the Parent Guarantor that (i) owns
more than 5% of the total assets of the Parent Guarantor and its
Subsidiaries on a consolidated basis, or (ii) is responsible for
more than 5% of the total revenues of the Parent Guarantor and
its Subsidiaries, on a consolidated basis; provided, however,
that on and as of the Agreement Date, Principal Subsidiary shall
mean each of the entities listed on Schedule 5(n) to the Parent
Guaranty and at any time thereafter, shall mean (except as
otherwise provided for in this Agreement or any other Loan
Document) the entities listed as "Principal Subsidiaries" (as
determined in accordance with this definition) on the certificate
of the Responsible Financial Officer of the Parent Guarantor most
recently delivered pursuant to Section 6(g)(v) of the Parent
Guaranty.
"Prior UBN Facility" means the Credit Agreement dated as of
September 28, 1994 as amended by (i) a Consent and Agreement
dated as of December 19, 1994, (ii) an Amendment No. 2 to Credit
Agreement dated as of December 1, 1995, (iii) an Amendment No. 3
dated as of February 26, 1997 and (iv) an Amendment No. 4 dated
as of April 10, 1997 among the Borrower, the banks and financial
institutions set forth therein, Union Bank of Norway, as agent
and arranger, and Den norske Bank ASA, as Co-Arranger.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, and whether tangible or
intangible.
"Qualified Plan" means an employee pension benefit plan, as
defined in Section 3(2) of ERISA, which is intended to be
tax-qualified under Section 401(a) of the Code, and which the
Borrower, any of its Subsidiaries or any ERISA Affiliate now or
in the future maintains, contributes to or has an obligation to
contribute to on behalf of participants who are or were employed
by any of them.
"Ratable Portion" means, as to any Bank at any time of
determination, (i) with respect to Term Loans and Working Capital
Loans, respectively, the percentage obtained by dividing the
amount of such Bank's Term Loan Commitment or Working Capital
Loan Commitment, as the case may be, at such time by the
aggregate amount of all of the Banks' Term Loan Commitments or
Working Capital Loan Commitments, as the case may be at such
time, (ii) with respect to a Revolving Loan Borrowing, the
percentage obtained by dividing the amount of such Bank's
Available Revolving Credit Commitment at such time by the
aggregate amount of all of the Banks' Available Revolving Credit
Commitments at such time, (iii) with respect to a Bank's
outstanding Revolving Loans, the percentage obtained by dividing
the aggregate principal amount of all Revolving Loans made by
such Bank then outstanding by the aggregate principal amount of
all Revolving Loans made by all the Banks then outstanding, (iv)
with respect to Letters of Credit and any Working Capital Bank's
liability thereunder, the percentage obtained by dividing the
amount of such Working Capital Bank's Working Capital Loan
Commitment by the aggregate amount of all of the Working Capital
Banks' Working Capital Loan Commitments and (v) with respect to
the aggregate amount of all Commitments, the percentage obtained
by dividing the aggregate Commitment of such Bank by the
aggregate amount of all Commitments of all the Banks.
"Register" has the meaning specified in Section 12.7(g)
hereof.
"Regulation D", "Regulation T", "Regulation U" and
"Regulation X" means Regulation D, T, U, and X, respectively, of
the Board of Governors of the Federal Reserve System (or any
successor thereto), as in effect from time to time, or any
successor thereto.
"Reimbursement Obligations" means, at any time, the
obligations of the Borrower then outstanding, or that may
thereafter arise, in respect of all Letters of Credit then
outstanding, to reimburse amounts paid by the Issuing Bank in
respect of any drawings under a Letter of Credit.
"Release" means, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal,
discharge, disbursal, leaching or migration into the indoor or
outdoor environment or into or out of any property owned by such
Person, including the movement of Contaminants through or in the
air, soil, surface water, ground water or property.
"Remedial Action" means all actions required to (i) clean
up, remove, treat or in any other way address Contaminants in the
indoor or outdoor environment, (ii) prevent the Release or threat
of Release or minimize the further Release of Contaminants so
they do not migrate or endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment, or (iii)
perform preremedial studies and investigations and post-remedial
monitoring and care.
"Reportable Event" means any of the events described in
Section 4043(b)(1), (2), (3), (5), (6), (8) or (9) of ERISA.
"Responsible Financial Officer" of any Person means the
chief financial officer, treasurer, assistant treasurer,
controller, secretary, assistant secretary or other officer of
such Person listed in the certificate delivered to the Agent
pursuant to Section 6.1(a)(iii) or otherwise notified to the
Agent as being authorized to execute documents and certificates
and otherwise act on behalf of such Person in connection with
financial matters arising under this Agreement or any other Loan
Document.
"Responsible Officer" of any Person means any of the
officers of such Person listed in the certificate delivered to
the Agent pursuant to Section 6.1(a)(iii) or otherwise notified
to the Agent as being authorized to execute and deliver documents
and certificates and otherwise act on behalf of such Person in
all matters (other than financial matters) arising under this
Agreement or any other Loan Document.
"Revolving Credit Availability Period" means the period
beginning (x) on the Agreement Date, for purposes of Section
4.1(a) hereof, and (y) February 5, 1999, for purposes of Section
3.1(a) hereof, and in each case ending on the Revolving Credit
Commitment Termination Date.
"Revolving Credit Commitment" means, as to any Bank, the
obligation of such Bank, if any, to make Revolving Loans, Working
Capital Loans and to automatically acquire a participation in the
Issuing Bank's liability under any Letters of Credit in an
aggregate principal and/or face amount not to exceed the amount
set forth under the heading "Revolving Credit Commitment"
opposite such Lender's name on Schedule II, as the same may be
changed from time to time pursuant to the terms hereof.
"Revolving Credit Commitment Termination Date" means the
earlier of (i) the day that is five (5) years after the Agreement
Date or such other day to which the Revolving Credit Commitment
Termination Date shall have been extended in accordance with
Section 3.4 hereof and (ii) the date of the earlier termination
or cancellation in full of the Revolving Credit Commitment
pursuant to the terms hereof, including pursuant to Section 10.1.
"Revolving Note" means any promissory note in the form of
Exhibit A-2.
"Revolving Loan" means a Loan made to the Borrower pursuant
to Section 3.1.
"Revolving Loan Borrowing" means a borrowing by the Borrower
consisting of Revolving Loans made on the same day by the Banks
ratably according to their respective Revolving Credit
Commitments.
"Scandinavian Principal Companies" means Alpharma AS and
Dumex-Alpharma A/S.
"Shareholder" means, with respect to any corporation, the
holder of any of the Equity of such Person.
"Single-Employer Plan" shall mean a single employer plan as
defined in section 4001(a)(15) of ERISA which is subject to the
provisions of Title IV of ERISA.
"Subordinated Indebtedness" has the meaning specified in the
Parent Guaranty.
"Subsidiary" means, with respect to any Person, any
corporation, partnership or other business entity of which more
than 50% of the outstanding Equity having ordinary voting power
to elect a majority of the board of directors of such entity
(irrespective of whether, at the time, Equity of any other class
or classes of such entity shall have or might have voting power
by reason of the happening of any contingency) is, or of which
more than 50% of the interests in which are, at the time,
directly or indirectly, owned by such Person and/or one or more
Subsidiaries of such Person.
"Subsidiary Guarantor" means each Principal Subsidiary that
is incorporated or organized under the laws of a jurisdiction
located in the United States of America.
"Subsidiary Guaranty" means any of the guaranties of the
obligations of the Borrower delivered by each of the Subsidiary
Guarantors, pursuant to this Agreement, substantially in the form
of Exhibit G hereto.
"Summit Bank Facility" means the $65,000,000 loan facility
made available to the Borrower pursuant to a Credit Agreement
dated as of September 11, 1997 among the Borrower, the banks
named therein, Summit Bank, as agent, and Summit Bank, as
arranger (as amended from time to time).
"Swap Agreement" means, with respect to any Person, any
obligation with respect to an interest rate or currency swap or
similar obligation obligating such Person to make payments,
whether periodically or upon the happening of a contingency,
except that if any agreement relating to such obligation provides
for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case,
the amount of such obligation shall be the net amount thereof.
"Tax" means any federal, state, local or foreign tax,
assessment or other governmental charge or levy (including any
withholding tax) upon a Person or upon its assets, revenues,
income or profits.
"Tax Affiliate" means, as to any Person, (i) any Subsidiary
of such Person, or (ii) any Affiliate of such Person with which
such Person files or is required to file consolidated, combined
or unitary tax returns.
"Term Loan Availability Period" means the period beginning
on February 5, 1999 and ending on the Term Loan Commitment
Termination Date.
"Term Loan Borrowing" means a borrowing by the Borrower
consisting of Term Loans made on the same day by the Banks
ratably according to their respective Term Loan Commitments.
" Term Loan Commitment" has the meaning specified in Section
2.1(a).
"Term Loan Commitment Termination Date" means the earlier of
(i) the date that is sixty (60) days after the Agreement Date,
(ii) the date on which a fourth Term Loan Borrowing is made
pursuant to the terms of this Agreement, and (iii) the date of
the earlier termination or cancellation in full of the Term Loan
Commitment pursuant to the terms hereof, including pursuant to
Section 10.1.
"Term Loan" means a Loan made to the Borrower pursuant to
Section 2.1.
"Term Loan Maturity Date" means the sixth anniversary of the
Initial Funding Date with respect to Term Loans.
"Term Note" means any promissory note in the form of Exhibit
A-1.
"Title IV Plan" means a Pension Plan, other than a
Multiemployer Plan, which is covered by Title IV of ERISA.
"Total Indebtedness" means, for any period, all Indebtedness
of the Parent Guarantor and its Subsidiaries (on a consolidated
basis) (including Indebtedness under the Loan Documents) for such
period.
"U.S." means the United States of America.
"Vancomycin Facility" means the $9,000,000 loan facility
made available to Dumex-Alpharma A/S pursuant to a Guarantee
Facility Agreement dated December 20, 1995 among Dumex-Alpharma
A/S, Sparekassen Bikuben A/S and Union Bank of Norway, as
guarantors, the lenders named therein, Union Bank of Norway, as
arranger, and Sparekassen Bikuben A/S, as agent (as amended from
time to time).
"Withdrawal Liability" means, as to any Person, at any time,
the aggregate amount of the liabilities, if any, of such Person
pursuant to Section 4201 of ERISA.
"Working Capital Agent" means Summit Bank, in its capacity
as the Working Capital Agent, or any successor in such capacity.
"Working Capital Banks" means Summit Bank and First Union
National Bank, N.A.
"Working Capital Extensions of Credit" means as to any
Working Capital Bank at any time, an amount equal to the sum of
(a) the aggregate principal amount of all Working Capital Loans
made by such Working Capital Bank then outstanding and (b) the
aggregate principal amount of such Working Capital Bank's Ratable
Portion of the Letter of Credit Liability at such time.
"Working Capital Loan Borrowing" means a borrowing by the
Borrower consisting of Working Capital Loans made on the same day
by the Working Capital Banks ratably according to the respective
Working Capital Loan Commitments.
"Working Capital Loan" means a Loan made to the Borrower
pursuant to Section 4.1.
"Working Capital Loan Commitment" means, as to any Working
Capital Bank, the obligation of such Working Capital Bank, if
any, to make Working Capital Loans and to automatically acquire a
participation in the Issuing Bank's liability under any Letters
of Credit in an aggregate principal amount not to exceed the
amount set forth under the heading "Working Capital Loan
Commitment" opposite such Working Capital Banks' name on Schedule
II, as the same may be changed from time to time pursuant to the
terms hereof.
"Working Capital Note" means any promissory note in the form
of Exhibit A-3.
"Year 2000 Issue" means the failure of computer software,
hardware and firmware systems and equipment containing embedded
computer chips to properly receive, transmit, process,
manipulate, store, retrieve, re-transmit or in any other way
utilize data and information due to the occurrence of the year
2000 or the inclusion of dates on or after January 1, 2000.
1.2. Computation of Time Periods. In this Agreement,
in the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"
and the words "to" and "until" each mean "to but excluding" and
the word "through" means "to and including".
1.3. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with
GAAP.
ARTICLE II
AMOUNT AND TERMS OF THE TERM LOANS
2.1. The Term Loans.
(a) Commitment to Lend. On the terms and subject to the
conditions contained in this Agreement, each Bank severally
agrees to make up to four (4) Term Loans to the Borrower from
time to time on any Business Day during the Term Loan
Availability Period, each such Loan being part of a Term Loan
Borrowing, in an aggregate amount not to exceed at any time
outstanding the amount set forth opposite such Bank's name on
Schedule II as its "Term Loan Commitment" (as adjusted from time
to time by reason of assignments in accordance with the
provisions of Section 12.7 and as such amount may be reduced
pursuant to Section 2.3, such Bank's "Term Loan Commitment");
provided, however, that following the making of each such
proposed Term Loan, (i) the aggregate principal amount of all
Term Loans outstanding shall not exceed the aggregate amount of
the Term Commitments and (ii) the aggregate principal amount of
all Loans outstanding shall not exceed the aggregate amount of
the Commitments, in each case at such time.
(b) Evidence of Debt. (i) Each Bank shall maintain in
accordance with its usual practice an account or accounts and
shall receive from the Borrower (through the Agent) a single Term
Note payable to the order of such Bank, both evidencing the
Indebtedness to such Bank resulting from each Term Loan made by
such Bank to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such Bank
from time to time hereunder.
(ii) The Register maintained by the Agent pursuant
to Section 12.7(g) shall include a "Term Loan control
account" for each Bank, in which account shall be recorded
(A) the date and amount of each Term Loan Borrowing
hereunder, (B) the amount of each Bank's Term Loan
comprising such Borrowing and the Interest Period applicable
thereto, (C) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to
each Bank with respect to each such Term Loan hereunder and
(D) the amount of any sum received by the Agent from the
Borrower with respect to such Term Loans hereunder and each
Bank's Ratable Portion thereof.
(iii) The entries made in the Register in respect
of Term Loans shall be conclusive and binding for all
purposes, absent manifest error.
2.2. Making the Term Loans. (a) Each Term Loan
Borrowing shall be made upon receipt of a Notice of Borrowing
given by the Borrower to the Agent not later than 11:00 A.M. (New
York City time) on the fifth Business Day prior to the date of
the proposed Term Loan Borrowing.
(b) The Agent shall give to each Bank prompt notice of
its receipt of a Notice of Borrowing in respect of Term Loans
and, upon its determination thereof, notice of the applicable
interest rate under Section 5.3(b). Each Bank shall, before 11:00
A.M. (New York City time) on the date of the proposed Term Loan
Borrowing, make available for the account of its Lending Office
to the Agent at its address referred to in Section 12.2, in
immediately available funds, such Bank's Ratable Portion of such
proposed Term Loan Borrowing. After the Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth
in Article VI, the Agent will make such funds available to the
Borrower at the Agent's above-referenced address.
(c) Each Term Loan Borrowing pursuant to this Section
2.2 shall be in an aggregate amount of not less than $10,000,000
or an integral multiple of $5,000,000 in excess thereof. The
maximum number of Term Loan Borrowings permitted under this
Agreement shall be four (4).
(d) Each Notice of Borrowing pursuant to this Section
2.2 shall be irrevocable and binding on the Borrower. The
Borrower shall indemnify each Bank against any loss, cost or
expense incurred by such Bank as a result of any failure to
fulfill on or before the date specified in such Notice of
Borrowing for such proposed Borrowing the applicable conditions
set forth in Article VI, including, without limitation, any loss,
cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to
fund any Term Loan Borrowing when such Term Loan, as a result of
such failure, is not made on such date. A certificate as to such
amounts submitted to the Borrower and the Agent by such Bank
shall be conclusive and binding absent manifest error.
(e) Unless the Agent shall have received notice from a
Bank prior to the date of any proposed Term Loan Borrowing
pursuant to this Section 2.2 that such Bank will not make
available to the Agent such Bank's Ratable Portion of such Term
Loan Borrowing, the Agent may assume that such Bank has made such
Ratable Portion available to the Agent on the date of such Term
Loan Borrowing in accordance with this Section 2.2 and the Agent
may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such Ratable Portion
available to the Agent and the Agent has so made available such
amount, such Bank and the Borrower severally agree to repay to
the Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is
made available to the Borrower until the date such amount is
repaid to the Agent, at (i) in the case of the Borrower, the
interest rate applicable at the time to the Term Loans comprising
the Term Loan Borrowing and (ii) in the case of such Bank, the
Federal Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such
Bank's Term Loan as part of such Borrowing for purposes of this
Agreement. If the Borrower shall repay to the Agent such
corresponding amount, such payment shall not relieve such Bank of
any obligation it may have to the Borrower hereunder.
(f) The failure of any Bank to make the Term Loan to
be made by it as part of any Term Loan Borrowing pursuant to this
Section 2.2 shall not relieve any other Bank of its obligation,
if any, hereunder to make its Term Loan on the date of such
Borrowing, but no Bank shall be responsible for the failure of
any other Bank to make the Term Loan to be made by such other
Bank on the date of any such Term Loan Borrowing.
2.3. Termination/Reduction of the Term Loan
Commitments.
(a) Optional Reductions. The Borrower shall have the
right, upon at least five Business Day's prior notice (which
shall be irrevocable) to the Agent, to terminate in whole or
permanently reduce ratably in part the unused portions of the
respective Term Loan Commitments of the Banks; provided, however,
that each partial reduction shall be in the aggregate amount of
not less than $10,000,000 or an integral multiple of $5,000,000
(or such lesser amount as may be necessary to reduce to zero the
amount of the Term Loan Commitments) in excess thereof; provided,
further, that no such termination or reduction of the Term Loan
Commitments shall be permitted if, after giving effect thereto
and to any prepayments of the Term Loans made on the effective
date thereof, the aggregate outstanding principal amount of Term
Loans of all Banks would exceed the aggregate amount of the Term
Loan Commitments. Once canceled pursuant hereto, no such
canceled portion of the Term Loan Commitments may be reinstated.
(b) Cancellation of Unused Portion. On the Term Loan
Commitment Termination Date, the unused portion of each Bank's
Term Loan Commitment shall be canceled and will no longer be
available for any Term Loan Borrowings thereafter.
(c) Payment of Cancellation and Commitment Fees.
Simultaneously with any termination, reduction or cancellation of
the Term Loan Commitments pursuant to this Section 2.3, the
Borrower shall pay to the Agent for the account of each relevant
Bank the applicable Commitment Fee, if any, on the amount of the
Term Loan Commitments so terminated, reduced or canceled and owed
to such Bank through the date of such termination or reduction.
If any such termination, reduction or cancellation of the Term
Loan Commitments occurs during the period from the Agreement Date
through the second anniversary thereof, then the Borrower shall
also pay to the Agent for the account of each Bank a cancellation
fee equal to .25% of the amount of the Term Loan Commitments so
terminated or reduced.
2.4. Consolidation and Repayment of Term Loans.
(a) Consolidation. If more than one Term Loan
Borrowing is made, then on the Consolidation Date, the Interest
Periods for the Term Loans shall be adjusted by the Agent so that
on and after the Consolidation Date, there will be no more than
one (1) Interest Period outstanding with respect to the Term
Loans. The Agent shall give the Banks 30 days' prior notice of
the proposed Consolidation Date (which shall be no later than six
months after the Initial Funding Date with respect to Term
Loans). The Borrower shall indemnify the Banks in accordance
with Section 12.4(c) for any costs resulting from such
Consolidation.
(b) Repayment. The Borrower shall repay the
outstanding principal amount of the Term Loans in eleven (11)
consecutive semi-annual installments in the amounts set forth in
the table below (subject to (x) proportional adjustment in the
event that less than the full amount of the Term Loan Commitment
is advanced and (y) adjustment to reflect any prepayments
pursuant to Section 5.4); provided that, in any event, on the
Term Loan Maturity Date, the Borrower shall pay the full
principal amount of all Term Loans then outstanding (together
with all accrued and unpaid interest thereon):
The day that is the following
number of months
after the Initial Funding Date
with respect to Term Loans Installment Amount
12 months $2,500,000
18 months $2,500,000
24 months $7,500,000
30 months $7,500,000
36 months $7,500,000
42 months $7,500,000
48 months $7,500,000
54 months $7,500,000
60 months $7,500,000
66 months $7,500,000
72 months $35,000,000
ARTICLE III
AMOUNT AND TERMS OF THE REVOLVING LOANS
3.1. The Revolving Loans.
(a) Commitment to Lend. On the terms and subject to the
conditions contained in this Agreement, each Bank severally
agrees to make Revolving Loans to the Borrower from time to time
on any Business Day during the Revolving Credit Availability
Period, each such Loan being part of a Revolving Loan Borrowing,
in an aggregate amount not to exceed at any time outstanding such
Bank's Available Revolving Credit Commitment (as adjusted from
time to time by reason of assignments in accordance with the
provisions of Section 12.7 and as such amount may be reduced
pursuant to Section 3.3); provided, however, that, following the
making of each such proposed Revolving Loan, (i) the Outstanding
Revolving Extensions of Credit of all the Banks shall not exceed
the aggregate amount of the Revolving Credit Commitments of the
Banks and (ii) the Outstanding Revolving Extensions of Credit
made by any Bank shall not exceed such Bank's Revolving Credit
Commitment, in each case at such time.
(b) Evidence of Debt. (i) Each Bank shall maintain in
accordance with its usual practice an account or accounts and
shall receive from the Borrower a single Revolving Credit Note
payable to the order of such Bank, and both shall evidence the
Indebtedness to such Bank resulting from each Revolving Loan made
by such Bank to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such Bank
from time to time hereunder.
(ii) The Register maintained by the Agent pursuant to
Section 12.7(g)(i) shall include a "Revolving Loan control
account" for each Bank, in which account shall be recorded (A)
the date and amount of each Revolving Loan Borrowing hereunder,
(B) the amount of each Bank's Revolving Loan comprising such
Borrowing and the Interest Period applicable thereto, (C) the
amount of any principal or interest due and payable or to become
due and payable from the Borrower to each Bank with respect to
each such Revolving Loan hereunder and (D) the amount of any sum
received by the Agent from the Borrower with respect to such
Revolving Loans hereunder and each Bank's Ratable Portion
thereof.
(iii) The entries made in the Register in respect of the
Revolving Loans shall be conclusive and binding for all purposes,
absent manifest error.
(c) Repayment of Revolving Loans. (i) The Borrower shall
repay the outstanding principal amount of the Revolving Loans
(together with all accrued but unpaid interest thereon) in full
on the Revolving Credit Commitment Termination Date. Within the
limits of each Bank's Available Revolving Credit Commitment,
prior to the Revolving Credit Commitment Termination Date,
amounts borrowed under Section 3.1(a) and repaid may be
reborrowed under Section 3.1(a), subject to Section 3.2(c) below.
(ii) The Borrower shall indemnify the Banks pursuant to
Section 12.4(c) in the event that any repayment shall be made on
a day other than the last day of an Interest Period for the Loan
or Loans being prepaid.
3.2. Making the Revolving Loans. (a) Each Revolving Loan
Borrowing shall be made upon receipt of a Notice of Borrowing,
given by the Borrower to the Agent not later than 11:00 A.M. (New
York City time) on the fifth Business Day prior to the date of
the proposed Revolving Loan Borrowing.
(b) The Agent shall give to each Bank prompt notice of
its receipt of a Notice of Borrowing in respect of Revolving
Loans and, upon its determination thereof, notice of the
applicable interest rate under Section 5.3(b). Each Bank shall,
before 11:00 A.M. (New York City time) on the date of the
proposed Revolving Loan Borrowing, make available for the account
of its Lending Office to the Agent at its address referred to in
Section 12.2, in immediately available funds, such Bank's Ratable
Portion of such proposed Revolving Loan Borrowing. After the
Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article VI, the Agent will
make such funds available to the Borrower at the Agent's
aforesaid address.
(c) Each Revolving Loan Borrowing pursuant to this
Section 3.2 shall be in an aggregate amount of not less than
$10,000,000 or an integral multiple of $5,000,000 in excess
thereof (or such lesser amount as may be necessary to draw down
the full amount of the Available Revolving Credit Commitments).
The maximum aggregate number of Interest Periods that may be
outstanding in respect of Revolving Loans at any one time is six
(6). The maximum aggregate number of Revolving Loan Borrowings
comprised of Loans having an Interest Period of one (1) month
duration that may be made during any 12 month period (commencing
with the Agreement Date) is four (4).
(d) Each Notice of Borrowing pursuant to this Section 3.2
shall be irrevocable and binding on the Borrower. The Borrower
shall indemnify each Bank against any loss, cost or expense
incurred by such Bank as a result of any failure to fulfill on or
before the date specified in such Notice of Borrowing for such
proposed Borrowing the applicable conditions set forth in Article
VI, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits
or other funds acquired by such Bank to fund any Revolving Loan
to be made by such Bank as part of such proposed Revolving Loan
Borrowing when such Revolving Loan, as a result of such failure,
is not made on such date. A certificate as to such amounts
submitted to the Borrower and the Agent by such Bank shall be
conclusive and binding, absent manifest error.
(e) Unless the Agent shall have received notice from a
Bank prior to the date of any proposed Revolving Loan Borrowing
pursuant to this Section 3.2 that such Bank will not make
available to the Agent such Bank's Ratable Portion of such
Revolving Loan Borrowing, the Agent may assume that such Bank has
made such Ratable Portion available to the Agent on the date of
such Revolving Loan Borrowing in accordance with this Section 3.2
and the Agent may, in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If
and to the extent that such Bank shall not have so made such
Ratable Portion available to the Agent and the Agent has so made
available such amount, such Bank and the Borrower severally agree
to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the
Borrower, the interest rate applicable at the time to the
Revolving Loan comprising such Revolving Loan Borrowing and (ii)
in the case of such Bank, the Federal Funds Rate. If such Bank
shall repay to the Agent such corresponding amount, such amount
so repaid shall constitute such Bank's Revolving Loan as part of
such Borrowing for purposes of this Agreement. If the Borrower
shall repay to the Agent such corresponding amount, such payment
shall not relieve such Bank of any obligation it may have to the
Borrower hereunder.
(f) The failure of any Bank to make the Revolving Loan to
be made by it as part of any Revolving Loan Borrowing pursuant to
this Section 3.2 shall not relieve any other Bank of its
obligation, if any, hereunder to make its Revolving Loan on the
date of such Borrowing, but no Bank shall be responsible for the
failure of any other Bank to make the Revolving Loan to be made
by such other Bank on the date of any such Revolving Loan
Borrowing.
3.3. Termination/Reduction of the Revolving Credit
Commitments.
(a) Optional Reductions. The Borrower shall have the
right, upon at least fifteen Business Days' prior notice to the
Agent, to terminate in whole or permanently reduce ratably in
part the unused portions of the respective Revolving Credit
Commitments of the Banks; provided, however, that each partial
reduction shall be in the aggregate amount of not less than
$10,000,000 or an integral multiple of $2,000,000 (or such other
lesser amount as may be necessary to reduce to zero the amount of
the Revolving Credit Commitments) in excess thereof; provided,
further, that no such termination or reduction of the Revolving
Credit Commitments shall be permitted if, after giving effect
thereto and to any prepayments of the Loans made on the effective
date thereof, the Outstanding Revolving Extensions of Credit of
all the Bank's would exceed the aggregate amount of the Revolving
Credit Commitments or the Outstanding Revolving Extensions of
Credit of any Bank would exceed such Bank's Revolving Credit
Commitment. Once canceled pursuant hereto, no such canceled
portion of the Revolving Credit Commitments may be reinstated.
(b) Payment of Cancellation and Commitment Fees. (i)
Simultaneously with any termination, reduction or cancellation of
the Revolving Credit Commitment pursuant to this Section 3.3, the
Borrower shall pay to the Agent for the account of each Bank the
applicable Commitment Fee, if any, on the amount of the Revolving
Credit Commitments so terminated, reduced or cancelled and owed
to such Bank through the date of such termination or reduction.
(ii) If any such termination or reduction of the
Revolving Credit Commitments occurs during the period from
the Agreement Date through the second anniversary thereof,
then the Borrower shall also pay to the Agent for the
account of each Bank a cancellation fee equal to 1/4 of 1% on
the amount of the Revolving Credit Commitments so terminated
or reduced.
3.4. Extension of Revolving Credit Commitment Termination
Date. (a) On or before the third anniversary of the Agreement
Date, the Borrower may request that the Revolving Credit
Commitment Termination Date be extended for an additional one
year period by submitting a request in writing to the Agent;
provided, however, that the Borrower may not submit in total more
than two (2) such requests for an extension of the Revolving
Credit Commitment Termination Date. The Agent shall promptly
inform the Banks of such request. Each Bank shall then
determine, in its sole discretion, whether the Revolving Credit
Commitment Termination Date will be extended as to its Revolving
Loans and/or Working Capital Loans, as the case may be, and such
Bank shall inform the Agent of its decision within 20 days of
being informed of the Borrower's request. Failure by any Bank to
so inform the Agent shall be deemed to constitute non-approval by
such Bank of the request for extension. The Agent shall inform
the Borrower within three months of the time when the Borrower's
request was received whether its request for an extension of the
Revolving Credit Commitment Termination Date has been approved
and by which Banks. If all the Banks consent in writing, the
then applicable Revolving Loan Commitment Termination Date shall
be extended for one year effective as of the first day that all
of the Banks have so consented in writing.
(b) Extension Fee. Upon approval of each extension of
the Revolving Credit Commitment Termination Date in accordance
with the terms hereof, the Borrower shall pay to the Agent for
the account of each Bank that has approved the extension of the
Revolving Credit Commitment Termination Date a fee equal to 1/8%
of each such Bank's Outstanding Revolving Extensions of Credit.
(c) Non-Extending Banks. If not all the Banks consent
to such an extension pursuant to this Section 3.4 (the Banks so
consenting in writing being the "Consenting Banks" and any Bank
not so consenting being a "Non-Consenting Bank"), the Borrower
may require such Non-Consenting Bank to assign, to one or more
Consenting Banks or to any other assignee which meets the
requirements of clauses (A) or (B) of Section 12.7(a), all of
such Non-Consenting Bank's Revolving Credit Commitment and, if
applicable, Working Capital Loan Commitment and obligations in
respect thereof under this Agreement by delivering to the Agent a
Notice of Assignment and Acceptance, which shall have effect as
provided in Section 12.7(c), and the Revolving Credit Notes
and/or Working Capital Notes held by such Non-Consenting Bank;
provided, however, that (A) any assignee of the Commitments and
obligations of such Non-Consenting Bank shall have consented and
shall have paid to such Non-Consenting Bank the aggregate
principal amount of, and any interest accrued and unpaid to the
date of the assignment on, the Note or Notes of such Non-
Consenting Bank being assigned , (B) the Borrower shall have paid
all accrued and unpaid fees owing to such Non-Consenting Bank in
respect of Revolving Loans, Working Capital Loans and/or Letter
of Credit Liabilities, as the case may be, under this Agreement
and the recording fee due pursuant to Section 12.7(a) and (C) the
Borrower shall have, at its own expense, executed and delivered
to the Agent new Revolving Credit Notes and/or Working Capital
Notes payable to the order of each assignee of such Non-
Consenting Bank, in the amount of each such assignee's Revolving
Credit Commitment and/or Working Capital Commitment, and dated
the date the assignment is effective.
ARTICLE IV
AMOUNT AND TERMS OF THE WORKING CAPITAL LOANS
4.1. The Working Capital Loans
(a) Commitment to Lend. On the terms and subject to
the conditions contained in this Agreement, each Working Capital
Bank severally agrees to make a portion of the credit otherwise
available to the Borrower under the Revolving Credit Commitments
(and in addition to the issuance of Letters of Credit provided by
Section 4.4) to make Working Capital Loans to the Borrower from
time to time on any Business Day during the Revolving Credit
Availability Period, each such Loan being part of a Working
Capital Loan Borrowing; provided, however, that in no event may
Working Capital Loans be borrowed hereunder if, after giving
effect thereto (x) the aggregate Outstanding Revolving Extensions
of Credit of any Bank at such time would exceed such Bank's
Revolving Credit Commitment or (y) the aggregate principal amount
of Working Capital Extensions of Credit made by any Working
Capital Bank then outstanding would exceed the Working Capital
Loan Commitment of such Working Capital Bank.
(b) Evidence of Debt. (i) Each Working Capital Bank
shall maintain in accordance with its usual practice an account
or accounts and shall receive from the Borrower a single Working
Capital Note payable to the order of such Working Capital Bank,
evidencing the Indebtedness to such Working Capital Bank
resulting from each Working Capital Loan made by such Working
Capital Bank to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such
Working Capital Bank from time to time hereunder.
(ii) The Register maintained by the Working Capital Agent
pursuant to Section 12.7(g)(ii) shall include a "Working Capital
Loan control account" for each Working Capital Bank, in which
account shall be recorded (A) the date and amount of each Working
Capital Loan Borrowing hereunder, (B) the amount of each Working
Capital Bank's Working Capital Loan comprising such Borrowing and
the Interest Period applicable thereto, (C) the amount of any
principal or interest due and payable or to become due and
payable from the Borrower to each Working Capital Bank with
respect to each such Working Capital Loan hereunder and (D) the
amount of any sum received by the Working Capital Agent from the
Borrower with respect to such Working Capital Loans hereunder and
each Working Capital Bank's Ratable Portion thereof.
(iii) The entries made in the Register in respect of the
Working Capital Loans shall be conclusive and binding for all
purposes, absent manifest error.
(c) Repayment of Working Capital Loans. (i) The Borrower
shall repay the outstanding principal amount of the Working
Capital Loans (together with all accrued but unpaid interest
thereon) in full on the Revolving Credit Commitment Termination
Date. Within the limits of each Working Capital Bank's Working
Capital Loan Commitment and Available Revolving Extensions of
Credit, prior to the Revolving Credit Commitment Termination
Date, amounts borrowed under Section 4.1(a) and repaid may be
reborrowed under Section 4.1(a), subject to Section 4.2(c) below.
(ii) The Borrower shall indemnify the Working Capital
Banks pursuant to Section 12.4(c) in the event that any repayment
shall be made on a day other than the last day of an Interest
Period for the Loan or Loans being prepaid.
4.2. Making the Working Capital Loans. (a) Each Working
Capital Loan Borrowing shall be made upon receipt of a Notice of
Borrowing, given by the Borrower to the Working Capital Agent not
later than 11:00 A.M. (New York City time) on the (i) third
Business Day prior to the date of the proposed Working Capital
Loan Borrowing in the case of Eurodollar Working Capital Loans or
(ii) the same Business Day of the proposed Working Capital Loan
Borrowing in the case of Alternate Base Rate Working Capital
Loans.
(b) The Working Capital Agent shall give to each Working
Capital Bank prompt notice of its receipt of a Notice of
Borrowing in respect of Working Capital Loans, the amount thereof
requested as Eurodollar Working Capital Loans and as Alternate
Base Rate Working Capital Loans, and, in the case of a requested
Eurodollar Working Capital Loan and upon the Working Capital
Agent's determination thereof, notice of the applicable interest
rate under Section 5.3(b). Each Working Capital Bank shall,
before 11:00 A.M. (New York City time) on the date of the
proposed Working Capital Loan Borrowing, make available for the
account of its Lending Office to the Working Capital Agent at its
address referred to in Section 12.2, in immediately available
funds, such Working Capital Bank's Ratable Portion of such
proposed Working Capital Loan Borrowing. After the Working
Capital Agent's receipt of such funds and upon fulfillment of the
applicable conditions set-forth in Article VI, the Agent will
make such funds available to the Borrower at the Working Capital
Agent's aforesaid address.
(c) Each Working Capital Loan Borrowing pursuant to this
Section 4.2 shall be in an aggregate amount of not less than (i)
$1,000,000 or an integral multiple of $1,000,000 in excess
thereof, in the case of Eurodollar Working Capital Loans, and
(ii) $100,000 or an integral multiple of $100,000 in excess
thereof, in the case of Alternate Base Rate Working Capital Loans
(or, in either case, such lesser amount as may be necessary to
draw down the full amount of the Working Capital Loan
Commitment). The maximum number of Interest Periods that may be
outstanding in respect of Eurodollar Working Capital Loans at any
one time is ten (10).
(d) Each Notice of Borrowing pursuant to this Section 4.2
shall be irrevocable and binding on the Borrower. The Borrower
shall indemnify each Working Capital Bank against any loss, cost
or expense incurred by such Working Capital Bank as a result of
any failure to fulfill on or before the date specified in such
Notice of Borrowing for such proposed Borrowing the applicable
conditions set forth in Article VI, including, without
limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired
by such Working Capital Bank to fund any Working Capital Loan to
be made by such Working Capital Bank as part of such proposed
Working Capital Loan Borrowing when such Working Capital Loan, as
a result of such failure, is not made on such date. A
certificate as to such amounts submitted to the Borrower and the
Working Capital Agent by such Working Capital Bank shall be
conclusive and binding, absent manifest error.
(e) Unless the Working Capital Agent shall have received
notice from a Working Capital Bank prior to the date of any
proposed Working Capital Loan Borrowing pursuant to this Section
4.2 that such Working Capital Bank will not make available to the
Working Capital Agent such Working Capital Bank's Ratable Portion
of such Working Capital Loan Borrowing, the Working Capital Agent
may assume that such Working Capital Bank has made such Ratable
Portion available to the Working Capital Agent on the date of
such Working Capital Loan Borrowing in accordance with this
Section 4.2 and the Working Capital Agent may, in reliance upon
such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Working
Capital Bank shall not have so made such Ratable Portion
available to the Working Capital Agent and the Working Capital
Agent has so made available such amount, such Working Capital
Bank and the Borrower severally agree to repay to the Working
Capital Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such
amount is made available to the Borrower until the date such
amount is repaid to the Working Capital Agent, at (i) in the case
of the Borrower, the interest rate applicable at the time to the
Working Capital Loan comprising such Working Capital Loan
Borrowing and (ii) in the case of such Working Capital Bank, the
Federal Funds Rate. If such Working Capital Bank shall repay to
the Working Capital Agent such corresponding amount, such amount
so repaid shall constitute such Working Capital Bank's Working
Capital Loan as part of such Borrowing for purposes of this
Agreement. If the Borrower shall repay to the Working Capital
Agent such corresponding amount, such payment shall not relieve
such Working Capital Bank of any obligation it may have to the
Borrower hereunder.
(f) The failure of any Working Capital Bank to make the
Working Capital Loan to be made by it as part of any Working
Capital Loan Borrowing pursuant to this Section 4.2 shall not
relieve any other Working Capital Bank of its obligation, if any,
hereunder to make its Working Capital Loan on the date of such
Borrowing, but no Working Capital Bank shall be responsible for
the failure of any other Working Capital Bank to make the Working
Capital Loan to be made by such other Working Capital Bank on the
date of any such Working Capital Loan Borrowing.
4.3. Termination/Reduction of the Working Capital Loan
Commitments. The Borrower shall have the right, upon at least
thirty days' prior notice to the Working Capital Agent, to
terminate in whole or permanently reduce ratably in part the
unused portions of the respective Working Capital Loan
Commitments of the Working Capital Banks; provided, however, that
(i) each partial reduction shall be in the aggregate amount of
not less than $5,000,000 or an integral multiple of $1,000,000
(or such other lesser amount as may be necessary to reduce to
zero the amount of the Working Capital Loan Commitments) in
excess thereof; (ii) the reduction or termination of the Working
Capital Loan Commitment pursuant hereto shall have no effect on
the Revolving Credit Commitments of the Working Capital Banks or
on the obligation of the Working Capital Banks to make Revolving
Loans; and (iii) no such termination or reduction of the Working
Capital Loan Commitments shall be permitted if, after giving
effect thereto and to any prepayments of the Loans made on the
effective date thereof, (x) the aggregate Outstanding Revolving
Extensions of Credit of any Bank would exceed such Bank's
Revolving Credit Commitment or (y) the Working Capital Extensions
of Credit of any Working Capital Bank then outstanding would
exceed such Working Capital Bank's Working Capital Loan
Commitment.
4.4. Letters of Credit. Subject to the terms and
conditions of this Agreement, the Revolving Credit Commitments of
the Working Capital Banks may be utilized, upon the request of
the Borrower, in addition to the Revolving Loans provided for by
Section 3.1 and the Working Capital Loans provided for by Section
4.1 hereof, by the issuance by an Issuing Bank of Letters of
Credit (collectively, the "Letters of Credit") for the account of
the Borrower or any of the Principal Subsidiaries (as specified
by the Borrower), provided that in no event shall (i) the
aggregate amount of the Working Capital Extensions of Credit
exceed the aggregate amount of the Working Capital Loan
Commitments as in effect from time to time, (ii) the principal
amount of any Letter of Credit to be issued exceed the aggregate
amount of the Available Revolving Credit Commitment of all
Working Capital Banks immediately prior to the issuance of such
Letter of Credit, (iii) any Letter of Credit be issued if, after
giving effect thereto, the aggregate Outstanding Revolving
Extensions of Credit of any Working Capital Bank at such time
would exceed such Working Capital Bank's Revolving Credit
Commitment, (iv) the outstanding aggregate amount of all Letter
of Credit Liabilities exceed $15,000,000 or (v) the expiration
date of any Letter of Credit extend beyond the earlier of six
months after the Revolving Credit Commitment Termination Date and
the date 12 months following the issuance of such Letter of
Credit (provided that if the expiration date of any Letter of
Credit extends beyond the Revolving Credit Commitment Termination
Date, the Borrower shall provide to the Working Capital Agent
cash collateral as security for the Letter of Credit Liabilities
in an amount of at least equal to the Letter of Credit
Liabilities under such Letter of Credit). The following
additional provisions shall apply to Letters of Credit:
(a) The Borrower shall give the Working Capital Agent
at least three Business Days' irrevocable prior notice (effective
upon receipt) specifying the Business Day (which shall be no
later than 30 days preceding the Revolving Credit Commitment
Termination Date) each Letter of Credit is to be issued, the
Issuing Bank in respect thereof and the account party or parties
therefor describing in reasonable detail the proposed terms of
such Letter of Credit (including the beneficiary thereof) and the
nature of the transactions or obligations proposed to be
supported thereby (including whether such Letter of Credit is to
be a commercial Letter of Credit or a standby Letter of Credit).
Upon receipt of any such notice, the Working Capital Agent shall
advise the Issuing Bank of the contents thereof.
(b) On each day during the period commencing with the
issuance by the Issuing Bank of any Letter of Credit and until
such Letter of Credit shall have expired or been terminated, the
Working Capital Loan Commitment of each Working Capital Bank
shall be deemed to be utilized for all purposes of this Agreement
in an amount equal to such Working Capital Bank's Ratable Portion
of the then undrawn face amount of such Letter of Credit. Each
Working Capital Bank (other than the Issuing Bank) agrees that,
upon the issuance of any Letter of Credit hereunder, it shall
automatically acquire a participation in the Issuing Bank's
liability under such Letter of Credit in an amount equal to such
Working Capital Bank's Ratable Portion of such liability, and
each Working Capital Bank (other than the Issuing Bank) thereby
shall absolutely, unconditionally and irrevocably assume, as
primary obligor and not as surety and shall be unconditionally
obligated to the Issuing Bank to pay and discharge when due, its
Ratable Portion of the Issuing Bank's liability under such Letter
of Credit.
(c) Upon receipt from the beneficiary of any Letter of
Credit of any demand for payment under such Letter of Credit, the
Issuing Bank shall promptly notify the Borrower (through the
Working Capital Agent) of the amount to be paid by the Issuing
Bank as a result of such demand and the date on which payment is
to be made by the Issuing Bank to such beneficiary in respect of
such demand. Notwithstanding the identity of the account party
of any Letter of Credit, the Borrower hereby unconditionally
agrees, as primary obligor and not merely as surety, to pay and
reimburse the Working Capital Agent for the account of the
Issuing Bank for the amount of each demand for payment under such
Letter of Credit that is in substantial compliance with the
provisions of such Letter of Credit at or prior to the date on
which payment is to be made by the Issuing Bank to the
beneficiary thereunder, without presentment, demand, protest or
other formalities of any kind.
(d) Forthwith upon its receipt of a notice referred to
in paragraph (c) of this Section, the Borrower shall advise the
Working Capital Agent whether or not the Borrower intends to
borrow hereunder to finance its obligation to reimburse the
Issuing Bank for the amount of the related demand for payment
and, if it does, submit a Notice of Borrowing as provided herein.
(e) Each Working Capital Bank (other than the Issuing
Bank) shall pay to the Working Capital Agent of the account for
the Issuing Bank in Dollars and in immediately available funds,
the amount of such Working Capital Bank's Ratable Portion of any
payment under a Letter of Credit upon notice by the Issuing Bank
(through the Working Capital Agent) to such Working Capital Bank
requesting such payment and specifying such amount. Each such
Working Capital Bank's obligation to make such payment to the
Working Capital Agent for account of the Issuing Bank under this
paragraph (e), and the Issuing Bank's right to receive the same,
shall be absolute and unconditional and shall not be affected by
any circumstance whatsoever, including, without limitation, the
failure of any other Working Capital Bank to make its payment
under this paragraph (e), the financial condition of the Borrower
(or any other account party), the existence of any Default or the
termination of the Working Capital Loan Commitments. Each such
payment to the Issuing Bank shall be made without any offset,
abatement, withholding or reduction whatsoever. If any Working
Capital Bank shall default in its obligation to make any such
payment to the Working Capital Agent or the Issuing Bank, for so
long as such default shall continue the Working Capital Agent may
at the request of the Issuing Bank withhold from any payments
received by the Working Capital Agent under this Agreement or any
Note for the account of such Working Capital Bank the amount so
in default and, to the extent so withheld, pay the same to the
Issuing Bank in satisfaction of such defaulted obligation.
(f) Upon the making of each payment by a Working
Capital Bank to the Issuing Bank pursuant to paragraph (e) above
in respect of any Letter of Credit, such Working Capital Bank
shall, automatically and without any further action on the part
of the Working Capital Agent, the Issuing Bank or such Working
Capital Bank, acquire (i) a participation in an amount equal to
such payment in the Reimbursement Obligation owing to the Issuing
Bank by the Borrower hereunder and under the Letter of Credit
Documents relating to such Letter of Credit and (ii) a
participation equal to such Bank's Ratable Portion in any
interest or other amounts payable by the Borrower hereunder and
under such Letter of Credit Documents in respect of such
Reimbursement Obligation (other than the commissions, charges,
costs and expenses payable to the Issuing Bank pursuant to
paragraph (g) of this Section). Upon receipt by the Issuing Bank
from or for the account of the Borrower of any payment in respect
of any Reimbursement Obligation or any such interest or other
amount (including by way of setoff or application of proceeds of
any collateral security), the Issuing Bank shall promptly pay to
the Working Capital Agent for the account of each Working Capital
Bank entitled thereto such Working Capital Bank's Ratable Portion
of such payment, each such payment by the Issuing Bank to be made
in the same money and funds in which received by the Issuing
Bank. In the event any payment received by the Issuing Bank and
so paid to the Working Capital Banks hereunder is rescinded or
must otherwise be returned by the Issuing Bank, each Working
Capital Bank shall, upon the request of the Issuing Bank (through
the Working Capital Agent), repay to the Issuing Bank (through
the Working Capital Agent) the amount of such payment paid to
such Working Capital Bank, with interest at the rate specified in
paragraph (j) of this Section.
(g) The Borrower shall pay to the Working Capital
Agent for account of each Working Capital Bank (ratably in
accordance with their respective Ratable Portions of the Working
Capital Loan Commitments) a Letter of Credit fee in respect of
each Letter of Credit in an amount equal to a percentage (which
shall be equal to the Applicable Margin in effect at that time)
of the daily average undrawn face amount of such Letter of Credit
for the period from and including the date of issuance of such
Letter of Credit (x) in the case of the Letter of Credit that
expires in accordance with its terms, to and including such
expiration date and (y) in the case of a Letter of Credit that is
drawn in full or is otherwise terminated other than on the stated
expiration date of such Letter of Credit, to but excluding the
date such Letter of Credit is drawn in full or is terminated
(such fee to be non-refundable, to be paid in arrears on the
first Business Day of each calendar quarter and on the Revolving
Credit Commitment Termination Date and to be calculated for any
day after giving effect to any payments made under such Letter of
Credit on such day). In addition, the Borrower shall pay to the
Working Capital Agent for account of the Issuing Bank a fronting
fee in respect of each Letter of Credit in an amount equal to 1/4
of 1% per annum of the daily average undrawn face amount of such
Letter of Credit for the period from and including the date of
issuance of such Letter of Credit (i) in the case of a Letter of
Credit that expires in accordance with its terms, to and
including such expiration date and (ii) in the case of a Letter
of Credit that is drawn in full or is otherwise terminated other
than on the stated expiration date of such Letter of Credit, to
but excluding the date such Letter of Credit is drawn in full or
is terminated (such fee to be non-refundable, to be paid in
arrears on the first Business Day of each calendar quarter and on
the Revolving Credit Commitment Termination Date and to be
calculated for any day after giving effect to any payments made
under such Letter of Credit on such day) plus all commissions,
charges, costs and expenses in the amounts customarily charged by
the Issuing Bank from time to time in like circumstances with
respect to the issuance of each Letter of Credit and drawings and
other transactions.
(h) Promptly following the end of each calendar
quarter, the Issuing Bank shall deliver (through the Working
Capital Agent) to each Working Capital Bank and the Borrower a
notice describing the aggregate amount of all Letters of Credit
outstanding at the end of such quarter. Upon the request of any
Working Capital Bank from time to time, the Issuing Bank shall
deliver any other information reasonably requested by such
Working Capital Bank with respect to each Letter of Credit then
outstanding.
(i) The issuance by the Issuing Bank of each Letter of
Credit shall, in addition to the conditions precedent set forth
herein, be subject to the conditions precedent that (i) such
Letter of Credit shall be in such form, contain such terms and
support such transactions as shall be satisfactory to the Issuing
Bank consistent with its then current practices and procedures
with respect to the Letters of Credit of the same type and (ii)
the Borrower shall have executed and delivered such applications,
agreements and other instruments relating to such Letter of
Credit as the Issuing Bank shall have reasonably requested
consistent with its then current practices and procedures with
respect to Letters of Credit of the same type, provided that in
the event of any conflict between any such application agreement
or other instrument and the provisions of this Agreement, the
provisions of this Agreement shall control.
(j) To the extent that any Working Capital Bank shall
fail to pay any amount required to be paid pursuant to paragraph
(e) or (f) of this Section on the due date therefor, such Working
Capital Bank shall pay interest to the Issuing Bank (through the
Working Capital Agent) on such amount from and including such due
date to but excluding the date such payment is made at a rate per
annum equal to the Federal Funds Rate.
(k) The issuance by the Issuing Bank of any
modification or supplement to any Letter of Credit hereunder
shall be subject to the same conditions applicable under this
Section to the issuance of new Letters of Credit, and no such
modification or supplement shall be issued hereunder unless
either (i) the respective Letter of Credit affected thereby would
have complied with such conditions had it originally been issued
hereunder in such modified or supplemented form or (ii) each
Working Capital Bank shall have consented thereto.
The Borrower hereby indemnifies and holds harmless the Issuing
Bank, each Working Capital Bank and the Working Capital Agent
from and against any and all claims and damages, losses,
liabilities, costs or expenses that such Working Capital Bank or
the Working Capital Agent may incur (or that may be claimed
against such Working Capital Bank or the Working Capital Agent by
any Person whatsoever) by reason of or in connection with the
execution and deliver or transfer of or payment or refusal to pay
by the Issuing Bank under any Letter of Credit.
4.5. Obligations Absolute. The Borrower's obligations
under Section 4.4 shall be absolute and unconditional under any
and all circumstances and irrespective of any set-off,
counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Lender or any beneficiary of a
Letter of Credit. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and
the Borrower's Reimbursement Obligations under Section 4.4 shall
not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even
though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the
Borrower and any beneficiary of any Letter Credit or any other
party to which such Letter of Credit may be transferred or any
claims whatsoever of the Borrower against any beneficiary of such
Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or
delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of
Credit issued by it, except for errors or omissions caused by the
Issuing Lender's gross negligence or willful misconduct. The
Borrower agrees that any action taken or omitted by the Issuing
Lender under or in connection with any Letter of Credit issued by
the Issuing Lender or the relate drafts or documents, if done in
the absence of gross negligence or willful misconduct and in
accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of the Issuing
Lender to the Borrower.
ARTICLE V
INTEREST, FEES, ETC.
5.1. Interest Period Election. (a) Subject to the
adjustment of any Interest Periods in connection with a
Consolidation, the applicable Interest Period for all Term Loans
shall at all times be six months. With respect to any other
Eurodollar Loans, after the election of an initial Interest
Period pursuant to a Notice of Borrowing, the Borrower shall
elect the Interest Period that shall apply to each such
Eurodollar Loan after the end of the then current Interest Period
with respect to such Loan; provided that all Loans related to the
same Borrowing shall have the same Interest Period. Each such
election shall be in substantially the form of Exhibit I hereto
(a "Notice of Interest Period") and shall be made by giving (x)
in the case of Revolving Loans, the Agent and (y) in the case of
Eurodollar Working Capital Loans, the Working Capital Agent, at
least five (5) Business Days' prior written notice thereof
specifying the Interest Period being elected. The Agent or the
Working Capital Agent, as the case may be, shall promptly notify
each Bank or Working Capital Bank, as the case may be, of its
receipt of a Notice of Interest Period and of the contents
thereof. If, within the time period required under the terms of
this Section 5.1, the Agent or the Working Capital Agent, as the
case may be, does not receive a Notice of Interest Period from
the Borrower, or a Default shall then exist and be continuing,
then the Agent or the Working Capital Agent, as the case may be,
shall inform the Banks or the Working Capital Banks, as the case
may be, of the same and, upon the expiration of the Interest
Period therefor, the Interest Period applicable to such Loans
thereafter shall be (x) one month, in the case of the Borrower's
failure to deliver a Notice of Interest Period, and (y), of such
duration as the Agent or the Working Capital Agent, as the case
may be, may determine, in the event a Default shall then exist
and be continuing, until such time as (i) in the case of the
foregoing clause (x), the Borrower delivers a Notice of Interest
Period in accordance with the terms of this Agreement electing a
different Interest Period or (ii) such Loans become due and
payable (as the case may be). Each Notice of Interest Period
shall be irrevocable.
(b) Notwithstanding anything else herein contained, if
requested by the Borrower in its Notice of Borrowing or in its
Notice of Interest Period, the Banks or the Working Capital
Banks, as the case may be, may, in their sole discretion, make
Revolving Loans or Eurodollar Working Capital Loans with an
applicable Interest Period of 12 months; provided that no such
request shall be granted unless all of the Banks or the Working
Capital Banks, as the case may be, so agree.
5.2. Interest Rate. (a) The Borrower shall pay interest
on the unpaid principal amount of each Loan from the date of the
making thereof until the principal amount thereof shall be paid
in full at a rate per annum equal at all times to (i) in respect
of Eurodollar Loans, and during the applicable Interest Period
for each such Loan, the sum of the Eurodollar Rate for such
Interest Period plus the Applicable Margin (subject to clause (b)
below), payable in arrears (A) on the last day of such Interest
Period or (B) in the case of an Interest Period having a duration
of 12 months, (x) on the day that is 6 months after the day such
Borrowing is made and (y) on the last day of such Interest Period
and (ii) in respect of Alternate Base Rate Working Capital Loans,
the Alternate Base Rate as in effect from time to time plus the
Applicable Margin (subject to clause (b) below) payable quarterly
in arrears on the first Business Day of each October, January,
April and July.
(b) Default Rate of Interest. If any amount of principal
of any Loan is not paid when due, whether at stated maturity, by
acceleration or otherwise, the interest rate applicable to any
such amount shall be (i) the Eurodollar Rate or Alternate Base
Rate, as the case may be, applicable to such Loan (as determined
in accordance with this Agreement) plus (ii) the Applicable
Margin plus (iii) 1% per annum, payable on demand, and if any
interest, fee or other amount payable hereunder is not paid when
due, such amount shall bear interest at a rate per annum equal at
all times in the case of any interest, fee or other amount
payable in respect of (A) Eurodollar Loans, to the Eurodollar
Rate in effect at such time, for a period and for a Dollar amount
determined by the Agent or the Working Capital Agent, as the case
may be, plus 2% per annum, payable on demand, and (B) Alternate
Base Rate Working Capital Loans, the Alternate Base Rate in
effect at such time plus 2% per annum, payable on demand.
5.3. Interest Rate Determination and Protection. (a) If
the Agent shall on behalf of the Banks determine in good faith
(which determination shall be conclusive and binding on the
Borrower and the Banks) that, by reason of circumstances
affecting the international interbank Eurocurrency market
generally, adequate and reasonable means do not or will not exist
for ascertaining the Eurodollar Rate applicable to any Interest
Period, the Agent shall give notice of such determination
(hereinafter called a "Determination Notice") to the Borrower and
each of the Banks. The Borrower, the Banks and the Agent shall
then negotiate in good faith in order to agree upon a mutually
satisfactory interest rate (or separate rates in respect of the
Loans of the several Banks) and Interest Period (or Periods) to
be substituted for those which would otherwise have applied under
this Agreement. If the Borrower, the Banks and the Agent are
unable to agree upon an interest rate (or rates) and Interest
Period (or Periods) within a period not exceeding thirty days of
the giving of such Determination Notice, then the Borrower shall
have the right to prepay any such Loans (without premium or
penalty) and with respect to any such Loans that are not so
prepaid, the Agent shall (after consultation with the Banks) set
an interest rate (or separate rates in respect of the Loans of
the several Banks) and an Interest Period (or Periods) all to
take effect from the expiration of the Interest Period current at
the date of the Determination Notice, which rate (or rates) shall
be the aggregate of the Applicable Margin and the cost to each of
the Banks of funding their Ratable Portion of the Loans. In the
event that the condition referred to in this Section 5.3(a) shall
extend beyond the end of an Interest Period so agreed or set, the
foregoing procedure shall be repeated as often as may be
necessary.
(b) The Agent shall give prompt notice to the Borrower
and the Banks of the applicable interest rate determined by the
Agent for purposes of Section 5.2(a) or (b).
(c) If the Majority Banks notify the Agent that the
Eurodollar Rate for any Interest Period will not adequately
reflect the cost to such Banks of making or maintaining their
respective Loans for such Interest Period, the Agent shall
forthwith give notice thereof to the Borrower and the Banks
stating the circumstances which have caused such notice to be
given, and if such notice shall be given prior to the Loan or
Loans being advanced by the Banks, the Borrower's right to borrow
the Loans hereunder from the Banks shall be suspended during the
continuation of such circumstances. In any event, during the
thirty (30) days following the giving of such notice, the
Borrower, the Agent and the Banks shall negotiate in good faith
in order to arrive at an alternative interest rate or (as the
case may be) an alternative basis for the Banks to fund or
continue to fund their Ratable Portion of such Loans during such
Interest Period. If within such thirty (30) day period an
alternative interest rate or (as the case may be) an alternative
basis is agreed upon, then such alternative interest rate or (as
the case may be) alternative basis shall take effect in
accordance with the terms of such agreement. If the Borrower,
the Agent and the Banks fail to agree on such an alternative
interest rate or (as the case may be) alternative basis within
such thirty (30) day period and such circumstances are continuing
at the end of such thirty (30) day period, then the Agent, with
the agreement of each Bank shall set an interest period and
interest rate representing the cost of funding of the Banks in
Dollars of their Ratable Portion of such Loans plus the
Applicable Margin. If the circumstance shall continue at the end
of such interest period, the procedure in this Section 5.3(c)
shall be repeated. If the Borrower shall not agree with such
rate then the Borrower may give not less than fifteen (15)
Business Days' irrevocable notice of prepayment to the Agent, in
which case the aggregate Commitments of the Banks shall thereupon
be canceled and, if the Loans are outstanding, the Borrower shall
prepay (without premium or penalty) Loans on the first Business
Day after such period together with accrued interest thereon at
the applicable rate plus the Applicable Margin.
5.4. Prepayments. (a) Optional Prepayments.
(i) Eurodollar Loans. Subject to the provisions of this
Section 5.4, the Borrower may prepay Eurodollar Loans on the last
day of any Interest Period with respect to such Loans (or, with
respect to a Loan as to which the applicable Interest Period is
12 months, on any day on which an interest payment is due
pursuant to Section 5.2(a); provided that if such day is not the
last day of the Interest Period in respect of such Loan, the
Borrower shall continue to be liable for any costs or expenses
pursuant to Section 12.4(c)) as follows:
(A) Subject to clause (B) below, the Borrower
may, upon at least (1) fifteen Business Days' prior notice
to the Agent, in the case of a prepayment of Term Loans or
Revolving Loans, and (2) three Business Days' prior notice
to the Working Capital Agent, in the case of a prepayment of
Eurodollar Working Capital Loans, in each case (which shall
be irrevocable) stating the proposed date and aggregate
principal amount of the prepayment, prepay without premium
or penalty the outstanding principal amount of any Term
Loans or Revolving Loans, in whole or in part, together with
accrued interest to the date of such prepayment on the
principal amount prepaid.
(B) The Borrower may, upon at least three
Business Days' prior notice to the Working Capital Agent
(which shall be irrevocable) stating the proposed date and
aggregate principal amount of the prepayment, prepay without
premium or penalty the outstanding principal amount of any
Eurodollar Working Capital Loans in whole or in part,
together with accrued interest to the date of such
prepayment on the principal amount prepaid.
(C) Notwithstanding the foregoing, if any
principal amount of any Term Loan is prepaid by the Borrower
during the period from the Agreement Date through the second
anniversary thereof, then such prepayment of the Term Loans
made during such period shall be subject to a fee of 1/4 of
1% on the amount being prepaid.
(D) Term Loans prepaid pursuant to this Agreement
may not be reborrowed.
(ii) Allocation of Prepayments. Prepayments of any
type of Loan made at the Borrower's option may be allocated (A)
towards payment of the next payment due, (B) pro-rata among all
remaining maturities or (C) towards the final payment due, in any
case with respect to such Loans at the option of the Borrower.
(b) Mandatory Prepayment. The Borrower shall prepay Term
Loans, Revolving Loans, Working Capital Loans and/or Letter of
Credit Liabilities to the extent necessary to ensure that the
aggregate principal amount of all (i) Term Loans outstanding will
not at any time exceed the aggregate of the Term Loan Commitments
of the Banks, (ii) Revolving Loans, Working Capital Loans and
Letter of Credit Liabilities outstanding will not at any time
exceed the Revolving Credit Commitments of the Banks and (iii)
Working Capital Loans and Letter of Credit Liabilities
outstanding will not at any time exceed the Working Capital Loan
Commitments of the Working Capital Banks. Partial prepayments
pursuant to this subsection (b) shall be applied pro rata to all
Term Loans, Revolving Loans, Working Capital Loans or Letter of
Credit Liabilities, as the case may be, then outstanding.
(c) Indemnification of Banks. The Borrower shall
indemnify the Banks pursuant to Section 12.4(c) in the event that
any prepayment shall be made on a day other than the last day of
an Interest Period for the Loan or Loans being prepaid. In
addition to any amounts due by the Borrower to the Banks pursuant
to Section 12.4(c), the Borrower shall pay to the Agent and/or
the Working Capital Agent, as the case may be, for the account of
the Banks or the Working Capital Banks, as the case may be, an
additional fee of 1/4% per annum on the amount so prepaid for the
remainder of the Interest Period.
(d) Amount and Allocation of Prepayment. (i) Each
partial prepayment of Term Loans and Revolving Loans permitted
under this Section 5.4 shall be in an aggregate amount of not
less than $10,000,000 or integral multiples of $5,000,000 in
excess thereof. (ii) Each partial prepayment of Working Capital
Loans permitted under this Section 5.4 shall be in an aggregate
amount of not less than $5,000,0000 or integral multiples of
$1,000,000 in excess thereof.
5.5. Fees. (a) Commitment Fees. (i) Term Loan
Commitment. The Borrower will pay on the Term Loan Commitment
Termination Date to the Agent for the account of each Bank in
arrears a fee accruing from the Agreement Date until the Term
Loan Commitment Termination Date, on such Bank's aggregate daily
unused and uncancelled Term Loan Commitment as in effect from
time to time at the rate of 1/8% per annum.
(ii) Revolving Credit Commitment. The Borrower will
pay to the Agent for the account of each Bank quarterly in
arrears a fee accruing from the Agreement Date until the
Revolving Credit Commitment Termination Date on such Bank's
aggregate daily unused and uncancelled Revolving Credit
Commitment, as in effect from time to time, at the rate of 50% of
the Applicable Margin for each such quarter (such rate to be re-
determined on the occasion of each change in the Applicable
Margin).
(b) Arrangement Fee. The Borrower will pay to the
Arranger a fee (the "Arrangement Fee"), in an amount separately
agreed. Such fee shall be payable with five (5) Business Days of
the Agreement Date.
(c) Agency Fee. The Borrower will pay to the Agent an
annual fee (the "Agency Fee") in an amount separately agreed.
Such fee shall be paid (i) within seven days of the Agreement
Date, (ii) each year thereafter on the anniversary of the
Agreement Date, and (iii) on termination of this Agreement in an
amount equal to the accrued and unpaid portion of such fee.
(d) Working Capital Agency Fee. The Borrower will pay
to the Working Capital Agent, for its own account, an annual fee
(the "Working Capital Agency Fee") in accordance with a separate
undertaking between the Working Capital Agent and the Borrower.
such fee shall be paid (i) within seven days of the Agreement
Date, (ii) each year thereafter on the anniversary of the
Agreement Date, and (iii) on termination of this Agreement in an
amount equal to the accrued and unpaid portion of such fee.
5.6. Increased Costs. (a) If, due to either (i) the
introduction of or any change (other than any change by way of
imposition or increase of reserve requirements included in the
Eurodollar Reserve Requirement) in, or in the interpretation of,
any law or regulation or (ii) the compliance with any guideline
or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any
increase in the cost (other than with respect to income,
franchise or withholding taxes or other taxes of a similar
nature) to any Bank of agreeing to make or making, funding or
maintaining any Loans, then (A) such Bank shall, as soon as such
Bank becomes aware of such increased cost, but in any event not
later than 90 days after such increased cost was incurred,
deliver to the Borrower and the Agent a notice stating the actual
amount of such increased cost incurred by such Bank; (B) the
Borrower shall, promptly upon its receipt of such notice pay to
the Agent, for the account of such Bank amounts sufficient to
compensate such Bank for the increased cost incurred by it as set
forth in the notice referred to above and (C) such Bank shall use
its reasonable best efforts to designate another of its then
existing offices as its Lending Office if the making of such
designation would, without any detrimental effect to such Bank,
as determined by such Bank in its sole discretion, avoid the need
for, or reduce the amount of, future increased costs which are
probable of being incurred by such Bank. The amount of increased
costs payable by the Borrower to any Bank as stated in any such
notice delivered to the Borrower and the Agent pursuant to the
provisions of this Section 5.6(a) shall be conclusive and binding
for all purposes, absent manifest error.
(b) If any Bank shall be required under Regulation D to
maintain reserves with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities, then (i)
such Bank shall, within 45 days after the end of any Interest
Period with respect to any Loan during which such Bank was so
required to maintain such reserves, deliver to the Borrower and
the Agent a notice stating (A) that such Bank was required to
maintain reserves and as a result such Bank incurred additional
costs in connection with making Loans and (B) in reasonable
detail, such Bank's computations of the amount of additional
interest payable by the Borrower pursuant to the provisions of
this Section 5.6(b), and (ii) the Borrower shall promptly upon
receipt of any such notice, pay to the Agent for the account of
such Bank, additional interest on the unpaid principal amount of
each Loan of such Bank outstanding during the Interest Period
with respect to which the above-referenced notice was delivered
to the Borrower, at a rate per annum equal to the difference
obtained by subtracting (x) the Eurodollar Rate for such Interest
Period from (y) the rate obtained by dividing such Eurodollar
Rate by a percentage equal to 100% minus the Eurodollar Reserve
Requirement of such Bank for such Interest Period. The amount of
interest payable by the Borrower to any Bank as stated in any
certificate delivered to the Borrower and the Agent pursuant to
the provisions of this Section 5.6(b) shall be conclusive and
binding for all purposes, absent manifest error.
(c) The payments required under Sections 5.6(a) and
(b) are in addition to any other payments and indemnities
required under this Agreement.
5.7. Illegality. Notwithstanding any other provision
of this Agreement, if the introduction of or any change in or in
the interpretation of any law or regulation, in each case after
the date hereof, shall make it unlawful, or any central bank or
other Governmental Authority shall assert that it is unlawful,
for any Bank or its Lending Office to make Loans or to continue
to fund or maintain Loans, then, on notice thereof and demand
therefor by such Bank to the Borrower through the Agent, (i) the
obligation of such Bank to make Loans shall be suspended until
such Bank through the Agent shall notify the Borrower that the
circumstances causing such suspension no longer exist and (ii)
the Borrower shall forthwith prepay (without premium or penalty)
in full all Loans of such Bank then outstanding, together with
interest accrued thereon; provided, however, that before making
any such demand, each Bank agrees to use its reasonable best
efforts to designate another of its then existing offices as its
Lending Office if the making of such a designation would, without
any detrimental effect to such Bank, cause the making of Loans to
not be subject to this Section 5.7.
5.8. Capital Adequacy. If any Bank shall, at any time,
reasonably determine that (a) the adoption (i) after the date of
this Agreement, of any capital adequacy guidelines or (ii) at any
time, of any other applicable law, government rule, regulation or
order regarding capital adequacy of banks or bank holding
companies, (b) any change in (i) any of the foregoing or (ii) the
interpretation or administration of any of the foregoing by any
Governmental Authority, central bank or comparable agency or (c)
compliance with any policy, guideline, directive or request
regarding capital adequacy (whether or not having the force of
law and whether or not failure to comply therewith would be
unlawful) of any Governmental Authority, central bank or
comparable agency, would have the effect of reducing the rate of
return on the capital of such Bank to a level below that which
such Bank could have achieved but for such adoption, change or
compliance (taking into consideration the policies of such Bank
with respect to capital adequacy in effect immediately before
such adoption, change or compliance) and (x) such reduction is as
a consequence of the Commitment of, or the making of any Loans
by, such Bank hereunder and (y) such reduction is reasonably
deemed by such Bank to be material, then (1) such Bank shall
deliver to the Borrower and the Agent a notice stating the
reduction in the rate of return such Bank will in the future
suffer as a result of its Commitment or the making of any Loans
by it to the Borrower hereunder and (2) the Borrower shall,
promptly upon receipt of such notice pay to the Agent for the
account of such Bank from time to time as specified by such Bank
such amount as shall be sufficient to compensate such Bank for
such reduced return. The amount stated in any notice delivered
to the Borrower pursuant to the provisions of this Section 5.8
shall be conclusive and binding for all purposes, absent manifest
error. In determining any such amount, such Bank may use
reasonable averaging and attribution methods. The payments
required under this Section 5.8 are in addition to any other
payments and indemnities required hereunder.
5.9. Payments and Computations. (a) The Borrower shall
make each payment payable by it hereunder not later than 11:00
A.M. (New York City time) on the day when due, in Dollars, to (i)
in respect of Term Loans, Revolving Loans and Letter of Credit
Liabilities, the Agent at its address referred to in Section 12.2
and (ii) in respect of Working Capital Loans, the Working Capital
Agent, at its address referred to in Section 12.2, in each case
in immediately available funds without set-off or counterclaim.
The Agent or the Working Capital Agent, as the case may be, will
promptly thereafter cause to be distributed like funds relating
to the payment of principal or interest or fees ratably (other
than amounts payable pursuant to Section 5.6, 5.7 or 5.8) to the
Banks or Working Capital Banks, as the case may be, for the
account of their respective Lending Offices, and like funds
relating to the payment of any other amount payable to any Bank
to such Bank for the account of its Lending Office, in each case
to be applied in accordance with the terms of this Agreement.
Payment received by the Agent or Working Capital Agent, as the
case may be, after 11:00 A.M. (New York City time) shall be
deemed to be received on the next Business Day.
(b) No Reductions. (i) Subject to Section 5.9(b)(ii) and
(iii), payments due to the Agent, the Working Capital Agent, the
Documentation Agent, the Arranger or any Bank under the Loan
Documents, and all other terms, conditions, covenants and
agreements to be observed and performed by the Borrower
thereunder, shall be made, observed or performed by the Borrower
without any reduction or deduction whatsoever, including any
reduction or deduction for any set-off, recoupment, counterclaim
(whether sounding in tort, contract or otherwise) or Tax.
(ii)(x) If any withholding or deduction from any payment to
be made by the Borrower hereunder is required for any Taxes under
any applicable law, rule or regulation, then the Borrower will
(A) pay directly to the relevant taxing authority the
full amount required to be so withheld or deducted;
(B) promptly forward to the Agent or Working Capital
Agent, as the case may be, an official receipt or other
documentation satisfactory to the Agent or Working Capital
Agent, as the case may be, evidencing such payment to such
authority; and
(C) pay to the Agent or Working Capital Agent, as the
case may be, for the account of the Banks or Working Capital
Banks, as the case may be, such additional amount or amounts
necessary to ensure that the net amount actually received by
each Bank will equal the full amount such Bank would have
received had no such withholding or deduction been required.
In addition, to the extent permitted by applicable law, the
Borrower agrees to pay any present or future stamp or documentary
taxes, excise or property taxes, or any other charges or similar
levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect
to, this Agreement or the Notes (hereinafter referred to as
"Other Taxes").
Each Bank shall use its reasonable best efforts to designate
another of its then existing offices as its Lending Office if the
making of such designation would, without any detrimental effect
to such Bank (as determined by the Bank in its sole discretion),
avoid the need for, or reduce the amount of, such withholding or
deduction from any payment to be made to such Bank by the
Borrower hereunder required for any Taxes.
The Borrower will indemnify each Bank, the Agent and the
Working Capital Agent for the full amount of Taxes or Other Taxes
paid by such Bank, the Agent or Working Capital Agent (as the
case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or
not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within 30 days from the date
such Bank, the Agent or the Working Capital Agent (as the case
may be) makes written demand therefor.
If the Borrower fails to pay any Taxes or Other Taxes when
due to the appropriate taxing authority or fails to remit to the
Agent or the Working Capital Agent, for the account of the
respective Banks, the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agent, the
Working Capital Agent and the Banks for any incremental Taxes or
Other Taxes, penalties, interest or expenses that may become
payable by the Agent, the Working Capital Agent or any Bank as a
result of any such failure.
(y) Notwithstanding subsection (x), the Borrower shall not
be required to indemnify or pay additional amounts for or on
account of:
(A) Taxes imposed on or measured by the net income of
the Agent, the Working Capital Agent or any Bank or franchise
Taxes imposed on the Agent, the Working Capital Agent or any
Bank, but in each case only to the extent imposed by the
jurisdiction under the laws of which the Agent, the Working
Capital Agent or such Bank is organized or doing business (other
than as a result of the transactions contemplated by the Loan
Documents or the Agent's, the Working Capital Agent's or any
Bank's enforcement of its rights under any Loan Document) or any
political subdivision or taxing authority thereof or therein, or
by any jurisdiction in which the Agent's, the Working Capital
Agent's or such Bank's lending office or principal executive
office is located or any political subdivision or taxing
authority thereof or therein (except, in each case, to the extent
required by the following paragraph to make payments on a net
after-tax-basis), or
(B) any Tax or Other Tax imposed by reason of either
(i) the failure of the certification made by a Bank on any form
provided pursuant to Section 5.9(b)(iii) to be accurate and true
in all material respects unless any such failure is attributable
solely to a Change in Tax Law that occurs on or after the date on
which such form is provided by such Bank, or (ii) the failure by
a Bank to deliver to the Borrower and the Agent two duly
completed and executed copies of IRS Form 1001 or 4224 (or
successor applicable forms) in accordance with the second
sentence of Section 5.9(b)(iii), certifying that such Bank is
entitled to receive payments under this Agreement and the Loans
without deduction or withholding of any United States federal
income taxes, provided that this clause (B)(ii) will not apply if
such failure is attributable solely to a Change in Tax Law that
occurs on or after the date hereof.
All amounts payable as additional amounts or indemnities
pursuant to this Section 5.9(b) shall include an amount necessary
to hold the Agent, the Working Capital Agent or the relevant Bank
harmless on a net after-tax-basis from and against all Taxes
required to be paid with respect to or as a result of the payment
of such additional amount or indemnity (including, without
limitation, Taxes described in clause (A) of the preceding
paragraph.)
(iii) Each Bank that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) agrees that
it will, on or before the date that the Bank executes this
Agreement (or, in the case of a Bank that becomes a Bank pursuant
to an assignment described in Section 12.7, on or before the date
that the Agent records the Notice of the Assignment and
Acceptance by which it becomes a Bank), deliver to the Borrower
and the Agent two duly completed and executed copies of IRS Form
1001 or 4224 or successor applicable form, as the case may be,
certifying in each case that such Bank is entitled to receive
payments payable to it under this Agreement and the Loans without
deduction or withholding of any United States federal income
taxes. Each Bank that undertakes to deliver to the Borrower and
the Agent an IRS Form 1001 or 4224 under the preceding sentence
further undertakes to deliver to the Agent and the Borrower two
additional duly completed and executed copies of Form 1001 or
4224 (or successor applicable forms) on or before the date that
any such form expires or becomes obsolete or after the occurrence
of any event requiring a change in the most recent form
previously delivered by it to the Borrower and the Agent, and
such extensions or renewals thereof as may reasonably be required
by the Borrower, certifying, in the case of a Form 1001 or 4224,
that such Bank is entitled to receive payments under this
Agreement and the Loans without deduction or withholding of any
United States federal income taxes, unless, in any such case, an
event (including, without limitation, any Change in Tax Law) has
occurred before the date on which any such delivery would
otherwise be required which renders all such forms inapplicable
or which causes such Bank to be no longer eligible to complete
and deliver any such form with respect to it, in which case the
Bank shall either (1) furnish to the Borrower such forms or other
certification as the Bank (in its sole opinion) is legally
entitled to furnish evidencing the Bank's eligibility for a
complete exemption from or a reduced rate of withholding of
United States federal income taxes, or (2) notify the Borrower
that the Bank is not capable of receiving payments without any
deduction or withholding of United States federal income tax.
(c) Computations of the Commitment Fee. All computations of
the Commitment Fee and all computations of interest based on the
Eurodollar Rate shall be made by the Agent or the Working Capital
Agent (as the case may be) on the basis of a year of 360 days,
and all computations of other fees shall be made by the Agent or
the Working Capital Agent (as the case may be) on the basis of a
year of 365 or 366 days, as the case may be, in each case for the
actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest and
fees are payable. All computations of the Commitment Fee in
respect of any type of Loan shall be based on the aggregate daily
unused Term Loan Commitment or Revolving Credit Commitment (as
the case may be) of each Bank. Each determination by the Agent
or Working Capital Agent (as the case may be) of an interest rate
hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Payment Due on Other Than Business Day. Whenever any
payment hereunder shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as
the case may be.
(e) Notice of Non-Payment; Presumption of Payment. Unless
the Agent or Working Capital Agent (as the case may be) shall
have received notice from the Borrower prior to the date on which
any payment is due to the Banks or the Working Capital Banks
hereunder that the Borrower will not make such payment in full,
the Agent or Working Capital Agent (as the case may be) may
assume that the Borrower has made such payment in full to the
Agent or Working Capital Agent (as the case may be) on such date
and the Agent or Working Capital Agent (as the case may be) may,
in reliance upon such assumption, cause to be distributed to each
Bank or Working Capital Bank (as the case may be) on such due
date an amount equal to the amount then due such Bank. If and to
the extent that the Borrower shall not have so made such payment
in full to the Agent or Working Capital Agent (as the case may
be), each Bank or Working Capital Bank (as the case may be) shall
repay to the Agent or Working Capital Agent (as the case may be)
forthwith on demand such amount distributed to such Bank together
with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such
amount to the Agent or Working Capital Agent (as the case may
be), at the Federal Funds Rate.
5.10. Sharing of Payments, Etc. If any Bank shall obtain
any payment (whether voluntary, involuntary, through the exercise
of any right of set-off, or otherwise) on account of the Loans of
a certain type (i.e. Term Loans, Revolving Loans or Working
Capital Loans) made by it (other than pursuant to Section 5.6,
5.7, 5.8 or 5.9) in excess of its Ratable Portion of payments on
account of the Loans of the same type obtained by all the Banks,
such Bank shall forthwith purchase from the other Banks such
participation in the Loans of such type made by them as shall be
necessary to cause such purchasing Bank to share the excess
payment ratably with each of them; provided, however, that if all
or any portion of such excess payment is thereafter recovered
from such purchasing Bank, such purchase from each Bank shall be
rescinded and each such Bank shall repay to the purchasing Bank
the purchase price to the extent of such recovery together with
an amount equal to such Bank's ratable share (according to the
proportion of (i) the amount of such Bank's required repayment to
(ii) the total amount so recovered from the purchasing Bank) of
any interest or other amount paid or payable by the purchasing
Bank in respect of the total amount so recovered. The Borrower
agrees that any Bank so purchasing a participation from another
Bank pursuant to this Section 5.10 may, to the fullest extent
permitted by law, exercise all its rights of payment (including
the right of set-off) with respect to such participation as fully
as if such Bank were the direct creditor of the Borrower in the
amount of such participation.
ARTICLE VI
CONDITIONS OF LENDING
6.1. Conditions Precedent to the Making of the Initial Loans
and/or Initial Issuance of Letters of Credit. The making of the
initial Loans hereunder is subject to satisfaction of the
conditions precedent that:
(a) the Agent shall have received the following, in form and
substance satisfactory to the Agent, and in sufficient copies for
each Bank:
(i) Certified copies of (A) the resolutions of the
Board of Directors of each Loan Party approving each Loan
Document to which it is a party, and (B) all documents
evidencing any other necessary corporate action and required
governmental and any third party approvals, licenses and
consents with respect to each Loan Document to which it is a
party.
(ii) A copy of the certificate of incorporation of
each Loan Party certified as of a recent date by the
Secretary of State of such Person's jurisdiction of
incorporation (or by an official of equivalent standing in
the case of a Loan Party incorporated outside the U.S.),
together with certificates of such official attesting to the
good standing of such Person, and a copy of the By-Laws of
each such Person certified by its Secretary or one of its
Assistant Secretaries.
(iii) A certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying the names and true
signatures of its officers who have been authorized to
execute and deliver each Loan Document to which it is a
party and each other document and certificate to be executed
or delivered hereunder on behalf of such Person.
(iv) A favorable opinion of (A) Kirkland & Ellis,
special New York counsel to the Loan Parties, in
substantially the form of Exhibit J-1 hereto, (B) Robert
Wrobel, Vice President and Chief Legal Officer to the Loan
Parties, in substantially the form of Exhibit J-2 hereto,
(C) Watson, Farley & Williams, special New York counsel to
the Agent, in substantially the form of Exhibit J-3 hereto,
(D) Wikborg & Rein, special Norwegian counsel to the Agent,
in substantially the form of Exhibit J-4 hereto, (E)
Gorrissen & Federspiel, special Danish counsel to the Agent,
in substantially the form of Exhibit J-5 hereto, (F) Bird &
Bird, special English counsel to the Borrower in
substantially the form of Exhibit J-7, and (G) McCarter &
English, special New Jersey counsel to the Borrower, in
substantially the form of Exhibit J-6.
(v) the Notes, duly executed on behalf of the
Borrower.
(vi) a duly executed Parent Guaranty.
(vii) A Subsidiary Guaranty duly executed on behalf of
each of the Subsidiary Guarantors.
(viii) A duly executed Pledge Agreement in respect of
each Pledge Subsidiary (other than Dumex - Alpharma A/S a
Danish company), each of which shall be substantially in the
form of the pertinent exhibit attached hereto and duly
executed by the Shareholders of each such Pledge Subsidiary.
(ix) The Intercreditor Agreement, duly executed and
delivered by the Other Banks and the Credit Agreement
Parties (as defined in the Intercreditor Agreement) and all
parties thereto.
(b) On the date of such Loans, all Indebtedness (other
than Permitted Indebtedness) of the Parent Guarantor and its
Subsidiaries (including the Borrower) shall have been (or
shall simultaneously be) repaid and all commitments
thereunder canceled (including, without limitation, all
Indebtedness under the Summit Bank Facility, the Vanomycin
Facility and the Prior UBN Facility).
6.2. Conditions Precedent to the Making of Each Loan
and Issuance of Each Letter of Credit. The obligation of each
Bank to make any Loan, including the initial Loans, and to issue
any Letters of Credit, including the initial Letter of Credit,
shall be subject to the further conditions precedent that the
following statements shall be true on the date of the making of
such Loan or issuance of such Letter of Credit, before and after
giving effect thereto and to the application of the proceeds
therefrom (and the acceptance by the Borrower of the proceeds of
such Loan shall constitute a representation and warranty by the
Borrower that on the date of such Loan such statements are true):
(i) The representations and warranties contained in
Article VII hereof and in Section 5 of the Parent Guaranty
(other than those stated to be made as of a particular date)
are true and correct in all material respects on and as of
such date as though made on and as of such date.
(ii) No event has occurred and is continuing, or would
result from the Loans being made on such date, which
constitutes a Default or an Event of Default.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
To induce the Agent, the Working Capital Agent and Banks to
enter into this Agreement, the Borrower represents and warrants
to the Agent, the Working Capital Agent and the Banks as follows:
7.1. Corporate Existence. The Borrower, its
Subsidiaries and each other Loan Party (i) is a corporation duly
incorporated, validly existing and in good standing (in
jurisdictions where good standing is an applicable concept) and
all fees and taxes due or owing to any Governmental Authority
have been paid) under the laws of the jurisdiction of its
incorporation; (ii) is duly qualified and in good standing (in
jurisdictions where due qualification and good standing are
applicable concepts) as a foreign corporation under the laws of
each other jurisdiction in which the failure so to qualify would
have a Material Adverse Effect; (iii) has all requisite corporate
power and authority to conduct its business as now being
conducted and as proposed to be conducted; (iv) is in compliance
with its articles or certificate of incorporation and by-laws.
7.2. Corporate Power; Authorization; Enforceable
Obligations. (a) The execution, delivery and performance by the
Borrower and each other Loan Party of this Agreement or any other
Loan Document to which it is a party:
(i) are within its corporate powers;
(ii) have been duly authorized by all necessary
corporate action;
(iii) do not (A) contravene its certificate of
incorporation or by-laws, (B) violate any law or regulation
(including, without limitation, Regulations T, U or X ), or
any order or decree of any court or governmental
instrumentality, except those as to which the failure to
comply would not have a Material Adverse Effect, (C)
conflict with or result in the breach of, or constitute a
default under, any instrument, document or agreement binding
upon and material to the Borrower or such Loan Party, or (D)
result in the creation or imposition of any Lien (other than
Permitted Liens) upon any of the Property of the Borrower,
any of its Subsidiaries or any other Loan Party; and
(iv) do not and will not require any consent of,
authorization by, approval of, notice to, or filing or
registration with, any Governmental Authority or any other
consent or approval, including any consent or approval of
any Subsidiary of the Borrower or any consent or approval of
the stockholders of the Borrower or any Subsidiary of the
Borrower, other than (A) consents, authorizations and
approvals that have been obtained, are final and not subject
to review on appeal or to collateral attack, and are in full
force and effect and, in the case of any such required under
Applicable Law as in effect on the Agreement Date, are
listed on Schedule 7.2(a)(iv), (B) notices, filings or
registrations that have been given or effected, and (C) the
filing of copies of Loan Documents with the Securities and
Exchange Commission as exhibits to its public filings.
(b) This Agreement and each other Loan Document has been
duly executed and delivered by each Loan Party that is a party
hereto or thereto, and is the legal, valid and binding obligation
of each such Person, enforceable against it in accordance with
its terms, except where such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors rights generally or
equitable principles relating to enforceability.
7.3. Taxes. All federal, and all material state, local
and foreign tax returns, reports and statements required to be
filed by the Borrower or any of its Subsidiaries have been filed
with the appropriate governmental agencies in all jurisdictions
in which such returns, reports and statements are required to be
filed. All consolidated, combined or unitary returns which
include the Borrower or any of its Subsidiaries have been filed
with the appropriate governmental agencies in all jurisdictions
in which such returns, reports and statements are required to be
filed except where such filing is being contested or may be
contested. All federal, and all material state, local and foreign
taxes, charges and other impositions of the Borrower, its
Subsidiaries or any consolidated, combined or unitary group which
includes the Borrower or any of its Subsidiaries which are due
and payable have been timely paid prior to the date on which any
fine, penalty, interest, late charge or loss may be added thereto
for non-payment thereof except where contested in good faith and
by appropriate proceedings if adequate reserves therefor have
been established on the books of the Borrower or such Subsidiary
in accordance with GAAP. Proper and accurate amounts have been
withheld by or on behalf of the Borrower and each of its
Subsidiaries from their respective employees for all periods in
full and complete compliance with the tax, social security and
unemployment withholding provisions of applicable federal, state,
local and foreign law and such withholdings have been timely paid
to the respective governmental agencies, in all material
respects. Neither the Borrower nor any of its Tax Affiliates has
agreed or has been requested to make any adjustment under Section
481(a) of the Code by reason of a change in accounting method or
otherwise relating to the Borrower or any of its Subsidiaries
which will affect a taxable year of the Borrower or a Tax
Affiliate ending after December 31, 1993, which has not been
reflected in the financial statements delivered pursuant to
Section 8.8 and which would have a Material Adverse Effect. The
Borrower has no obligation to any Person other than the Parent
Guarantor and Subsidiaries of the Parent Guarantor under any tax
sharing agreement or other tax sharing arrangement.
7.4. Financial Information. (a) The reports of the
Parent Guarantor on Form 10-K for the Fiscal Year ended December
31, 1997 and on Form 10-Q for the Fiscal Quarters ended March 31,
1998, June 30, 1998 and September 30, 1998, which have been
furnished to the Agent and each Bank, are respectively, complete
and correct in all material respects as of such respective dates,
and the financial statements therein have been prepared in
accordance with GAAP and fairly present the financial condition
and results of operations of the Parent Guarantor and its
consolidated Subsidiaries as of such respective dates (subject,
in the case of such reports on Form 10-Q, to changes resulting
from normal year-end adjustments).
(b) Since December 31, 1997 there has been no Material
Adverse Change or Material Credit Agreement Change.
(c) None of the Parent Guarantor or any Subsidiary of the
Parent Guarantor had at September 30, 1998 any obligation,
contingent liability, or liability for taxes or long-term leases
material to the Parent Guarantor and its Subsidiaries taken as a
whole which is not reflected in the balance sheets referred to in
subsection (a) above or in the notes thereto.
7.5. Litigation. There are no pending, or to the best
knowledge of the Borrower threatened, actions, investigations or
proceedings against or affecting the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator
in which, individually or in the aggregate, there is a reasonable
probability of an adverse decision that could have a Material
Adverse Effect or result in a Material Credit Agreement Change.
7.6. Margin Regulations. The Borrower is not engaged
in the business of extending credit for the purpose of purchasing
or carrying Margin Stock, and no proceeds of any Borrowing will
be used to purchase or carry any Margin Stock or to extend credit
to others for the purpose of purchasing or carrying any Margin
Stock.
7.7. ERISA. (a) No liability under Sections 4062, 4063,
4064 or 4069 of ERISA has been or is expected by the Borrower to
be incurred by the Borrower or any ERISA Affiliate with respect
to any Plan which is a Single-Employer Plan in an amount that
could reasonably be expected to have a Material Adverse Effect.
(b) No Plan which is a Single-Employer Plan had an
accumulated funding deficiency, whether or not waived, as of the
last day of the most recent fiscal year of such Plan ended prior
to the date hereof. Neither the Borrower nor any ERISA Affiliate
is (A) required to give security to any Plan which is a
Single-Employer Plan pursuant to Section 401(a)(29) of the Code
or Section 307 of ERISA, or (B) subject to a Lien in favor of
such a Plan under Section 302(f) of ERISA.
(c) Each Plan of the Borrower, each of its Subsidiaries and
each of its ERISA Affiliates is in compliance in all material
respects with the applicable provisions of ERISA and the Code,
except where the failure to comply would not result in any
Material Adverse Effect.
(d) Neither the Borrower nor any of its Subsidiaries has
incurred a tax liability under Section 4975 of the Code or a
penalty under Section 502(i) of ERISA in respect of any Plan
which has not been paid in full, except where the incurrence of
such tax or penalty would not result in a Material Adverse
Effect.
(e) None of the Borrower, any of its Subsidiaries or any
ERISA Affiliate has incurred or reasonably expects to incur any
Withdrawal Liability under Section 4201 of ERISA as a result of a
complete or partial withdrawal from a Multiemployer Plan which
will result in Withdrawal Liability to the Borrower, any of its
Subsidiaries or any ERISA Affiliate in an amount that could
reasonably be expected to have a Material Adverse Effect.
7.8. No Defaults. Neither the Borrower nor any of its
Subsidiaries is in breach of or default under or with respect to
any instrument, document or agreement binding upon the Borrower
or such Subsidiary which breach or default is reasonably probable
to have a Material Adverse Effect or result in the creation of a
Lien on any Property of the Borrower or its Subsidiaries.
7.9. Investment Company Act. The Borrower is not an
"investment company" or an "affiliated person" of, or "promoter"
or "principal underwriter" for, an "investment company", as such
terms are defined in the Investment Company Act of 1940, as
amended. The making of the Loans by the Banks, the application of
the proceeds and repayment thereof by the Borrower and the
consummation of the transactions contemplated by this Agreement
will not violate any provision of such act or any rule,
regulation or order issued by the Securities and Exchange
Commission thereunder.
7.10. Insurance. All policies of insurance of any kind
or nature owned by the Borrower and its Subsidiaries are
maintained with reputable insurers which to the Borrower's best
knowledge are financially sound. The Borrower currently maintains
insurance with respect to its Properties and business and causes
its Subsidiaries to maintain insurance with respect to their
respective Properties and business against loss or damage of the
kinds customarily insured against by corporations engaged in the
same or similar business and similarly situated, of such types
and in such amounts as are customarily carried under similar
circumstances by such other corporations including, without
limitation, worker's compensation insurance.
7.11. Environmental Protection. (a) There are no known
conditions or circumstances known to the Borrower associated with
the currently or previously owned or leased properties or
operations of the Borrower or its Subsidiaries or tenants which
may give rise to any Environmental Liabilities and Costs which
would have a Material Adverse Effect; and
(b) No Environmental Lien has attached to any Property of
the Borrower or any of its Subsidiaries which would have a
Material Adverse Effect.
7.12. Regulatory Matters. Except as disclosed in the
Parent Guarantor's Form 10-K for the fiscal year ending December
31, 1997 or its Report on Form 10-Q for the fiscal quarter ending
September 30, 1998, the Borrower and its Subsidiaries are to the
best of their knowledge in compliance with all rules, regulations
and other requirements of the Food and Drug Administration
("FDA") and other regulatory authorities of jurisdictions in
which the Borrower or any of its Subsidiaries do business or
operate manufacturing facilities, including without limitation
those relating to compliance by the Borrower's or any such
Subsidiary's manufacturing facilities with "Current Good
Manufacturing Practices" as interpreted by the FDA, except to the
extent any such noncompliance would not have a Material Adverse
Effect. Except as so disclosed, neither the FDA nor any other
such regulatory authority has requested (or, to the Borrower's
knowledge, are considering requesting) any product recalls or
other enforcement actions that (a) if not complied with would
result in a Material Adverse Effect and (b) with which the
Borrower has not complied within the time period allowed.
7.13. Title and Liens. Each of the Borrower and its
Subsidiaries has good and marketable title to its real properties
and owns or leases all its other material Properties, in each
case, as shown on its most recent quarterly balance sheet, and
none of such Properties is subject to any Lien except for
Permitted Liens.
7.14. Compliance with Law. Each of the Borrower and its
Subsidiaries is in compliance with all Applicable Law, including,
without limitation, all Environmental Laws, except where any
failure to comply with any such laws would not, alone or in the
aggregate, have a Material Adverse Effect on the business or
financial condition of the Borrower and its Subsidiaries taken as
a whole, or the Borrower's ability to perform its obligations
under the Loan Documents.
7.15. Trademarks, Copyrights, Etc. The Borrower and
each of its Subsidiaries own or have the rights to use such
trademarks, service marks, trade names, copyrights, licenses or
rights in any thereof, as in the aggregate are adequate in the
reasonable judgment of the Borrower for the conduct of the
business of the Borrower and its Subsidiaries as now conducted.
7.16. Disclosure. All written information relating to
the Borrower, the Parent Guarantor and any of their respective
Subsidiaries which has been delivered by or on behalf of the
Borrower to the Agent, the Working Capital Agent or the Banks in
connection with the Loan Documents and all financial and other
information furnished to the Agent or the Working Capital Agent
is true and correct in all material respects and contains no
misstatement of a fact of a material nature. Any financial
projections and other information regarding anticipated future
plans or developments contained therein was based upon the
Borrower's best good faith estimates and assumptions at the time
they were prepared.
7.17. [Intentionally omitted.]
7.18. Subsidiaries. (a) Schedule 5(k) to the Parent
Guaranty sets forth all of the Subsidiaries, their jurisdictions
of incorporation and the percentages of the various classes of
their capital stock owned by the Parent Guarantor or another
Subsidiary of the Parent Guarantor, (b) the Parent Guarantor or
another Subsidiary, as the case may be, has the unrestricted
right to vote, and (subject to limitations imposed by Applicable
Law or the Loan Documents) to receive dividends and dividends on,
all capital stock indicated on such Schedule as owned by the
Parent Guarantor or such Subsidiary and (c) such capital stock
has been duly authorized and issued and is fully paid and
nonassessable.
7.19. Principal Subsidiaries. Schedule 5(l) to the
Parent Guaranty sets forth all of the Principal Subsidiaries in
existence as of the Agreement Date.
7.20. Year 2000 Issue. The Borrower and its
Subsidiaries have reviewed, and are continuing to review, the
effect of the Year 2000 Issue on the computer software, hardware
and firmware systems and equipment containing embedded microchips
owned or operated by or for the Borrower and its Subsidiaries or
used or relied upon in the conduct of their business (including
systems and equipment supplied by others or with which such
computer systems of the Borrower and its Subsidiaries interface).
The information contained in the Parent Guarantor's Form 10-Q for
the Fiscal Quarter ended September 30, 1998 as to the costs to
the Borrower and its Subsidiaries of any reprogramming required
as a result of the Year 2000 Issue to permit the proper
functioning of such systems and equipment and the proper
processing of data, and the testing of such reprogramming, and of
the reasonably foreseeable consequences of the Year 2000 Issue to
the Borrower or any of its Subsidiaries (including reprogramming
errors and the failure of systems or equipment supplied by
others) is complete and correct in all material respects as of
such date and such costs are not reasonably expected to result in
a Default or Event of Default or to have a material adverse
effect on the business, assets, operations, prospects or
condition (financial or otherwise) of the Borrower or any of its
Subsidiaries.
7.21. Pari Passu Obligations. The obligations of the
Borrower under this Agreement and the Notes do rank at least pari
passu in priority of payment with all other present unsecured
Indebtedness of the Borrower.
7.22. Corporate Headquarters. The Borrower maintains
dual corporate headquarters: in Oslo, Norway through Alpharma
A.S. and in northern New Jersey (currently Fort Lee), U.S.A.
through the Parent Guarantor.
ARTICLE VIII
AFFIRMATIVE COVENANTS
As long as any of the Loans or any other amounts shall
remain unpaid or any Bank shall have any Commitment hereunder,
unless otherwise agreed by the written consent of the Majority
Banks:
8.1. Compliance with Laws, Etc. The Borrower shall
comply, and cause each of its Subsidiaries to comply, in all
material respects with all Applicable Law except such
non-compliance as would not have a Material Adverse Effect or
result in a Material Credit Agreement Change.
8.2. Payment of Taxes, Etc. The Borrower and any
consolidated, combined or unitary group which includes the
Borrower or any of its Subsidiaries shall pay and discharge, and
cause each Subsidiary of the Borrower to pay and discharge,
before the same shall become delinquent, all lawful claims,
Taxes, assessments and governmental charges or levies except
where contested in good faith, by proper proceedings, and where
adequate reserves therefor have been established on the books of
the Borrower or such Subsidiary in accordance with GAAP.
8.3. Maintenance of Insurance. The Borrower shall
maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is
usually carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which the
Borrower or such Subsidiary operates. The Borrower will furnish
to the Agent from time to time such information as may be
requested as to such insurance.
8.4. Preservation of Corporate Existence, Etc. The
Borrower shall preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain, their respective corporate
existences; provided, that this Section 8.4 shall not apply at
any time with respect to the corporate existence of a Subsidiary
of the Borrower in any case where the Parent Guarantor's Board of
Directors determines in good faith that such termination of
corporate existence is in the best interests of the Parent
Guarantor, the Borrower and their respective Subsidiaries taken
as a whole and where noncompliance will not have a Materially
Adverse Effect on the Borrower and its Subsidiaries or any Loan
Document (other than a Loan Document delivered by a Subsidiary
that at such time is no longer a Principal Subsidiary, as
determined at such time); provided, further, that this Section
8.4 shall be without prejudice to the other provisions of this
Agreement and the Parent Guaranty.
8.5. Books and Access. The Borrower shall, and shall
cause each of its Subsidiaries to, keep proper books of record
and accounts in conformity with GAAP, and upon reasonable notice
and at such reasonable times during the usual business hours as
often as may be reasonably requested, permit representatives of
the Agent, at its own initiative or at the request of any Bank,
to make inspections of its Properties, to examine its books,
accounts and records and make copies and memoranda thereof and to
discuss its affairs and finances with its officers or directors
and independent public accountants.
8.6. Maintenance of Properties, Etc. The Borrower
shall maintain and preserve, and cause each of its Subsidiaries
to maintain and preserve, all of their respective Properties
which are used or useful in the conduct of its business in good
working order and condition and, from time to time make or cause
to be made all appropriate repairs, renewals and replacements,
except where the failure to do so would not have a Material
Adverse Effect.
8.7. Application of Proceeds. The Borrower shall use
the proceeds of the Loans (i) to refinance Indebtedness existing
at the date hereof of the Borrower under the Summit Bank
Facility, the Prior UBN Facility and the Vancomycin Facility
Agreements, and (ii) general corporate purposes.
8.8. Financial Statements. The Borrower shall furnish,
or shall cause to be furnished, to the Agent (with sufficient
copies to the Banks):
(a) the financial statements and reports required by
Sections 6(g) and (h) of the Parent Guaranty.
(b) together with each delivery of financial statements of
the Parent Guarantor and its Subsidiaries pursuant to clauses (a)
above, and commencing with the Fiscal Quarter ending September
30, 1998, a certificate signed by a Responsible Financial Officer
of the Borrower stating that (i) such officer is familiar with
both this Agreement and the business and financial condition of
the Borrower, (ii) that the representations and warranties set
forth in Article VII hereof are true and correct in all material
respects as though such representations and warranties had been
made by the Borrower on and as of the date thereof; and (iii) no
Event of Default or Default has occurred and is continuing or if
an Event of Default or Default has occurred and is continuing a
statement as to the nature thereof, and whether or not the same
shall have been cured.
8.9. Reporting Requirements. The Borrower shall
furnish to the Agent for distribution to the Banks:
(a) from time to time as the Agent may reasonably request,
copies of such statements, lists of Property, accounts, reports
or information prepared by or for the Borrower or within the
Borrower's control. In addition, the Borrower shall furnish to
the Agent for distribution to the Banks, within five (5) days
after delivery thereof to the Borrower's Board of Directors,
copies of budgets and forecasts prepared by or for the Borrower
or within the Borrower's control;
(b) promptly and in any event within thirty (30) days after
the Borrower, any of its Subsidiaries or any ERISA Affiliate
knows that any ERISA Event has occurred (other than a Reportable
Event for which notice to the PBGC is waived), a written
statement of the chief financial officer or other appropriate
officer of the Borrower describing such ERISA Event and the
action, if any, which the Borrower, any of its Subsidiaries or
any ERISA Affiliate proposes to take with respect thereto, and a
copy of any notice filed with the PBGC or the IRS pertaining
thereto;
(c) promptly and in any event within thirty (30) days after
notice or knowledge thereof, notice that the Borrower or any of
its Subsidiaries becomes subject to the tax on prohibited
transactions imposed by Section 4975 of the Code, together with a
copy of Form 5330;
(d) promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, against or affecting the Borrower or any of
its Subsidiaries, in which there is a reasonable probability of
an adverse decision which would have a Material Adverse Effect;
(e) promptly upon the Borrower or any of its Subsidiaries
learning of (i) any Event of Default or any Default, or (ii) any
Material Credit Agreement Change, telephonic or telegraphic
notice specifying the nature of such Event of Default, Default or
Material Credit Agreement Change, including the anticipated
effect thereof, which notice shall be promptly confirmed in
writing within five days;
(f) promptly after the sending or filing thereof, copies of
all reports which the Borrower sends to its security holders
generally, and copies of all reports and registration statements
which the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any national securities
exchange;
(g) promptly upon, and in any event within 30 days of, the
Borrower or any of its Subsidiaries learning of any of the
following:
(i) notice that any Property of the Borrower or any of
its Subsidiaries is subject to any Environmental Liens
individually or in the aggregate which would have a Material
Adverse Effect;
(ii) any proposed acquisition of stock, assets or real
estate, or any proposed leasing of Property, or any other
action by the Borrower or any of its Subsidiaries in which
there is a reasonable probability that the Borrower or any
of its Subsidiaries would be subject to any material
Environmental Liabilities and Costs, provided, that, in the
event of any such proposed acquisition or lease, the
Borrower must furnish to the Banks evidence in a form
acceptable to the Banks that the proposed acquisition will
not have a Material Adverse Effect;
(h) prior to the effectiveness thereof, information
relating to any proposed change in the accounting treatment or
reporting practices of the Borrower and its Subsidiaries the
nature or scope of which materially affects the calculation of
any component of any financial covenant, standard or term
contained in this Agreement;
(i) prior to the Borrower, or any of its Subsidiaries, (i)
entering into any agreement relating to the sale of, or the
granting of a Lien on, assets having a fair market value of
$10,000,000 or more, or (ii) incurring Indebtedness (other than
under the Loan Documents) pursuant to a single transaction the
aggregate principal amount of which is $10,000,000 or more, the
Borrower shall give the Agent 15 days' notice of its intention to
enter into such an agreement; and
(j) from time to time, such other information and materials
as the Agent (or the Banks through the Agent) may reasonably
request.
8.10. Acquisition Related Loan. Where the proceeds of a
Loan, including the initial Loans, are to be made available,
either directly or indirectly, to an Affiliate of the Borrower in
connection with an acquisition of Equity or assets, the Borrower
shall, within 15 Business Days of the making of such Loan,
deliver to the Agent (a) an Acquisition Related Guaranty duly
executed by such Affiliate (an "Acquisition Related Guarantor")
(which shall be in addition to, and not in substitution of, any
Credit Support Document previously delivered by such Affiliate)
or (b) if such Affiliate is incorporated outside the United
States of America and so long as such Affiliate is not itself a
Subsidiary of an Affiliate of the Borrower incorporated outside
the United States, a Pledge Agreement duly executed by the
Shareholders of such Affiliate; provided that Clause (b) shall
not apply to any Affiliate the stock of which is at that time
already subject to a valid and binding Pledge Agreement.
8.11. Additional Credit Support Documents. The Borrower
shall deliver, or shall cause to be delivered, within five (5)
Business Days of delivery to the Agent of a certificate pursuant
to Section 6(g)(v) of the Parent Guaranty, in respect of each
Principal Subsidiary disclosed on the schedule attached to such
certificate (a) a Subsidiary Guaranty duly executed by each such
Principal Subsidiary or (b) if any such Principal Subsidiary is a
Non-U.S. Subsidiary, either (i) a Pledge Agreement duly executed
by the Shareholders of such Non-U.S. Subsidiary or (ii) if such
Principal Subsidiary is a Subsidiary of a Non-U.S. Affiliate of
the Borrower, a Pledge Agreement duly executed by the
Shareholders of the Person that (x) directly or indirectly, owns
all of the stock of such Principal Subsidiary and (y) is not a
Subsidiary of a Non-U.S. Affiliate of the Borrower; provided,
that this Section 8.11 shall not apply to any Principal
Subsidiary as to which there already is at such time a valid and
binding Subsidiary Guaranty or Pledge Agreement (as the case may
be).
8.12. Delivery of Opinions. Concurrently with the
execution and delivery of any additional Credit Support Documents
pursuant to Sections 8.10 or 8.11 hereof, the Borrower shall
deliver, or shall cause to be delivered, to the Agent an opinion
of counsel relating to such additional Credit Support Document in
form and substance substantially similar to the opinions rendered
in connection with comparable agreements on the Effective Date.
8.13. Year 2000 Compliance. The Borrower shall take,
and shall cause each of its Subsidiaries to take, all necessary
action to complete in all material respects by the end of the
time periods set forth in the Parent Guarantor's Form 10-Q for
the Fiscal Quarter ended September 30, 1998, the reprogramming of
computer software, hardware and firmware systems and equipment
containing embedded microchips owned or operated by or for the
Borrower and its Subsidiaries or used or relied upon in the
conduct of their business (including systems and equipment
supplied by others or with which such systems of the Borrower or
any of its Subsidiaries interface) as described in such Form 10-Q
and required as a result of the Year 2000 Issue to permit the
proper functioning of such computer systems and other equipment
and the testing of such systems and equipment, as so reprogrammed
except to the extent that failure to so comply would not have a
Material Adverse Effect. At the request of the Bank, the
Borrower shall provide, and shall cause each of its Subsidiaries
to provide, to the Bank reasonable assurance of its compliance
with the preceding sentence.
8.14 Pari Passu Obligations. The Borrower will ensure
that its obligations under this Agreement and the Notes will at
all time rank at least pari passu in priority of payment with
all other present and future unsecured Indebtedness of the
Borrower.
8.15 Corporate Headquarters. The Borrower shall
continue to maintain dual corporate headquarters: in Oslo, Norway
through Alpharma A.S. and in northern New Jersey (currently Fort
Lee), U.S.A. through the Parent Guarantor.
8.16 Indebtedness Under Other Facilities. The Borrower
shall ensure that (i) on and as of the Agreement Date, neither
the Borrower nor any of the Parent's Guarantors Subsidiaries
shall incur any additional Indebtedness under the Summit Bank
Facility, the Vanomycin Facility and the Prior UBN Facility and
(ii) on and as of February 5, 1999, all amounts outstanding under
the Summit Bank Facility, the Vanomycin Facility and the Prior
UBN Facility shall have been repaid and all commitments
thereunder canceled.
ARTICLE IX
NEGATIVE COVENANTS
So long as any of the Loans or any other amounts shall
remain unpaid or any Bank shall have any Commitment hereunder,
unless otherwise agreed by the written consent of the Majority
Banks:
9.1. Liens, Etc. The Borrower shall not, directly or
indirectly, create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien upon or with
respect to any of its Properties, whether now owned or hereafter
acquired, or assign, or permit any of its Subsidiaries to assign,
any right to receive income, in each case to secure or provide
for the payment of any Indebtedness of any Person, except
Permitted Liens.
9.2. Mergers. The Borrower shall not merge or
consolidate in any transaction in which it is not the surviving
Person. The Borrower shall not, without the consent of the
Majority Banks, permit any of its Subsidiaries to merge or
consolidate in any transaction in which such Subsidiary is not
the surviving Person other than in mergers of any Subsidiary into
the Borrower, the Parent Guarantor or any other wholly owned
Subsidiary of the Borrower or the Parent Guarantor that is
incorporated in the U.S.; provided, that with respect to mergers
in which the surviving entity is not the Borrower or the Parent
Guarantor, then the Borrower shall cause such surviving entity to
deliver a Subsidiary Guaranty if immediately after the merger the
surviving entity is a Principal Subsidiary (as determined at such
time) in respect of which there is not, at such time, a valid,
legal and binding Subsidiary Guaranty or Pledge Agreement.
9.3. Substantial Asset Sale. The Borrower shall not, and
shall not permit any of its Subsidiaries to, sell, lease,
transfer or otherwise dispose of all or any substantial part of
its or their assets (including any of the stock of the
Scandinavian Principal Companies owned by it or them), except
that this Section 9.3 shall not apply to:
(a) any disposition of assets in the ordinary course of
business;
(b) any disposition of assets (other than assets consisting
of the stock of the Scandinavian Principal Companies or assets
owned by the Scandinavian Principal Companies) (A) to the
Borrower, the Parent Guarantor or any Principal Subsidiary (in
respect of which there is in existence a legal, valid and binding
Subsidiary Guaranty or Pledge Agreement) or (B) where the
proceeds of such disposition (I) consist solely of cash or Cash
Equivalents and (II) the Net Cash Proceeds of such disposition
are first applied towards the prepayment of any Loans then
outstanding in accordance with Section 5.4(a); provided, that for
purposes of this Section 9.3, any such prepayment shall be
effected on the next succeeding day on which an interest payment
is due in respect of the Loan being prepaid after consummation of
the asset sale, and if such day is not the last day of the
Interest Period in respect of the Loan or Loans being prepaid,
the Borrower shall continue to be liable for any costs or
expenses pursuant to Section 12.4(c); or
(c) the contribution by Wade Jones Company, Inc., a Texas
corporation, an indirect wholly-owned Subsidiary of the Parent
Guarantor ("Wade Jones"), of assets relating to the distribution
activities of Wade Jones in connection with the formation of
Wynco, LLC, a limited liability company, among Wade Jones, G&M
Animal Health Distributors, Inc., a corporation duly organised
under the State of Arkansas, and T&H Distributors, LLC, a
Delaware limited liability company.
9.4. Transactions with Affiliates. The Borrower shall not
engage in, and will not permit any of its Subsidiaries to engage
in, any transaction with an Affiliate of the Borrower or of such
Subsidiary other than transactions in the ordinary course of
business between a Subsidiary and its parent or among
Subsidiaries of the Borrower that are on terms no less favorable
to the Borrower or such Subsidiaries than as would be obtained in
a comparable arms-length transaction.
9.5. Restrictions on Indebtedness. (a) The Borrower
shall not incur, and shall not permit its Subsidiaries to incur,
Indebtedness except (subject to clause (b) below) Permitted
Indebtedness.
(b) No Permitted Indebtedness may be incurred unless the
Parent Guarantor or the Borrower shall have complied with the
provisions of Section 7(f) of the Parent Guaranty.
(c) The Borrower shall not, and shall not permit any of its
Subsidiaries to, make any voluntary prepayments of principal in
respect of Subordinated Indebtedness so long as there are any
amounts outstanding under this Agreement or the Notes. For the
avoidance of doubt, the parties agree that this clause (c) shall
not restrict payments of principal in respect of Subordinated
Indebtedness so long as (i) such Subordinated Indebtedness is
evidenced by convertible bonds, notes or debentures, (ii) such
payment is being made in connection with the exercise by the
issuer thereof of the conversion option applicable to such
Indebtedness at a time when the conversion option applicable to
such Indebtedness is at a price lower than the then present
market price of the security issuable upon conversion, (iii) such
payment is not being made any earlier than three years of the
date of issuance of such Indebtedness and (iv) the Majority Banks
have consented to such payment (which consent shall not be
unreasonably withheld).
ARTICLE X
EVENTS OF DEFAULT
10.1. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower or any other Loan Party shall fail to pay
(i) any principal when due in accordance with the terms and
provisions of this Agreement or any other Loan Document, or (ii)
any interest on any amounts due hereunder or thereunder, or any
fee or any other amount due hereunder or thereunder within five
Business Days after the same becomes due and payable; or
(b) Any representation or warranty made by any Loan Party in
this Agreement or any other Loan Document or by any Loan Party
(or any of its officers) in connection with this Agreement or any
other Loan Document shall prove to have been incorrect in any
material respect when made; or
(c) The Borrower or any other Loan Party shall default in
the performance or observance of any term, covenant condition or
agreement contained in Section 8.9(e) of the Credit Agreement or
Section 6(h)(v) of the Parent Guaranty, respectively; or
(d) Any Loan Party shall fail to perform or observe any
term, covenant or agreement contained in this Agreement or any
other Loan Document, which failure or change shall remain
unremedied for (i) forty-five (45) days, in the case of the terms
and covenants contained in Section 8 of the Parent Guaranty, and
(ii) thirty (30) days, in the case of all other terms, covenants
or agreements not otherwise specifically dealt with in this
Section 10.1, and in either case after the earlier of the date on
which (x) telephonic, telefaxed or telegraphic notice thereof
shall have been given to the Agent by the Borrower pursuant to
Section 8.9(e), (y) written notice thereof shall have been given
to the Borrower by the Agent or (z) the Borrower or any other
Loan Party knows, or should have known, of such failure; or
(e) The Borrower, the Parent Guarantor or any of their
Subsidiaries shall fail to pay any principal of, or premium or
interest on, any Indebtedness for Borrowed Money of the Borrower,
the Parent Guarantor or such Subsidiary, in an aggregate amount
of not less than $2,500,000 when the same becomes due and payable
(whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise); or any other event shall
occur or condition shall exist under any agreement or instrument
relating to any such Indebtedness for Borrowed Money, if the
effect of such event or condition is to accelerate, or to permit
the acceleration of, the maturity of such Indebtedness or to
terminate any commitment to lend; or any such Indebtedness shall
be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior
to the stated maturity thereof and, with respect to all of the
foregoing, after the expiration of the earlier of (i) any
applicable grace period or the giving of any required notice or
both and (ii) a period of 30 days after such Indebtedness for
Borrowed Money first became due; or
(f) Each of the Borrower, the Parent Guarantor or any of the
Principal Subsidiaries shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the
benefit of creditors, or any proceedings shall be instituted by
or against the Borrower, the Parent Guarantor or any of the
Principal Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it
or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee or
other similar official for it or for a material part of its
Property employed in its business or any writ, attachment,
execution or similar process shall be issued or levied against a
material part of the Property employed in the business of the
Borrower or the Parent Guarantor and their respective
Subsidiaries taken as a whole, and, in the case of any such
proceedings instituted against the Borrower or the Parent
Guarantor or any of the Principal Subsidiaries (but not
instituted by it), either such proceedings shall remain
undismissed or unstayed for a period of 60 days or any of the
actions sought in such proceedings shall occur; or the Borrower,
the Parent Guarantor or any of the Principal Subsidiaries shall
take any corporate action to authorize any of the actions set
forth above in this subsection (f); or
(g) Any order for the payment of money or judgment of any
court, not appealable or not subject to certiorari or appeal (a
"Final Judgment"), which, with other outstanding Final Judgments,
exceeds an aggregate of $5,000,000 shall be rendered against the
Borrower or any of its Principal Subsidiaries and, within 60 days
after entry thereof, such Final Judgment shall not have been
discharged; or
(h) (i) With respect to any Plan, a final determination is
made that a prohibited transaction within the meaning of Section
4975 of the Code or Section 406 of ERISA occurred which results
in direct or indirect liability of the Borrower or any of its
Principal Subsidiaries, (ii) with respect to any Title IV Plan,
the filing of a notice to voluntarily terminate any such plan in
a distress termination, (iii) with respect to any Multiemployer
Plan, the Borrower, any of its Principal Subsidiaries or any of
its or their ERISA Affiliates shall incur any Withdrawal
Liability, or (iv) with respect to any Qualified Plan, the
Borrower, any of its Principal Subsidiaries or any of its or
their ERISA Affiliates shall incur an accumulated funding
deficiency or request a funding waiver from the IRS; provided
that, in each case in clause (i) through (iv) above, such event
or condition, together will all other such events or conditions,
if any, would be reasonably likely to have a Material Adverse
Effect; or
(i) This Agreement or any other Loan Document shall cease to
be valid or enforceable for any reason in any material respect;
provided, that in the case of the invalidity or unenforceability
of a Credit Support Document, such event shall not constitute a
Default if the Borrower shall have delivered, or caused to be
delivered, within 15 days of learning or receiving notice of such
invalidity or unenforceability additional security or credit
support in form and substance satisfactory to the Agent;
(j) A Material Adverse Change shall occur; or
(k) The Borrower, the Parent Guarantor or any of their
Subsidiaries (i) shall incur Indebtedness other than Permitted
Indebtedness the aggregate amount of which at any time
outstanding exceeds $1,000,000, (ii) shall become liable to any
Person in respect of Permitted Indebtedness and such Person shall
not have (within 30 days of the incurrence thereof) become a
party to the Intercreditor Agreement or (iii) any party to the
Intercreditor Agreement (other than a Bank) shall have materially
breached any term or provision of the Intercreditor Agreement;
then, (A) and in any such event, the Agent (I) shall at the
request, or may with the consent, of the Majority Banks, by
notice to the Borrower, declare the obligation of each Bank to
make Loans to be terminated, whereupon the same shall forthwith
terminate, and (II) shall at the request, or may with the
consent, of the Majority Banks, by notice to the Borrower,
declare all amounts due under this Agreement (including, without
limitation, all amounts of Letter of Credit Liabilities, whether
or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder)
and all interest thereon to be forthwith due and payable,
whereupon all amounts due under this Agreement and all such
interest and all such amounts shall become and be forthwith due
and payable; provided, however, that upon an actual or deemed
entry of an order for relief with respect to the Borrower or the
Guarantor or any of its Principal Subsidiaries under the federal
Bankruptcy Code, (x) the obligation of each Bank to make Loans
shall automatically be terminated and (y) all amounts due under
this Agreement and all such interest and all such amounts shall
automatically and without further notice become and be due and
payable. In addition to the remedies set forth above, the Agent
may exercise any other remedies provided for by this Agreement in
accordance with the terms hereof or any other remedies provided
by applicable law; and
(B) with respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an
acceleration pursuant to the preceding paragraph, the Borrower
shall at such time deposit in a cash collateral account opened by
the Working Capital Agent an amount equal to the aggregate then
undrawn and unexpired amount of such Letters of Credit. Amounts
held in such cash collateral account shall be applied by the
Working Capital Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such
Letters of Credit shall have expired or been fully drawn upon, if
any, shall be applied to repay other obligations of the Borrower
hereunder and under the Notes. After all such Letters of Credit
shall have expired or been fully drawn upon, all Reimbursement
Obligations shall have been satisfied and all other obligations
of the Borrower hereunder and under the Notes then due and
payable shall have been paid in full, the balance, if any, in
such cash collateral account shall be returned to the Borrower.
The Borrower hereby grants to the Agent, for the ratable benefit
of the Lenders, as collateral security for the payment in full of
the obligations of the Borrower under the Loan Documents, a
security interest in all amounts from time to time held in the
cash collateral account maintained pursuant to this paragraph.
ARTICLE XI
THE AGENT AND WORKING CAPITAL AGENT
11.1. Authorization and Action. (a) Each Bank hereby
appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement as
are delegated to such Agent by the terms hereof, together with
such powers as are reasonably incidental thereto. As to any
matters not expressly provided for by this Agreement, the Agent
shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting
(and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Majority Banks (or when
expressly required hereunder, all the Banks), and such
instructions shall be binding upon all Banks; provided, however,
that the Agent shall not be required to take any action that
exposes the Agent to personal liability or that is contrary to
this Agreement or applicable law. The Agent agrees to give to
each Bank prompt notice of each notice given to it by the
Borrower pursuant to the terms of this Agreement.
(b) Each Working Capital Bank hereby appoints and authorizes
the Working Capital Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are
delegated to such Working Capital Agent by the terms hereof,
together with such powers as are reasonably incidental thereto.
As to any matters not expressly provided for by this Agreement,
the Working Capital Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority
Working Capital Banks (or when expressly required hereunder, all
the Working Capital Banks), and such instructions shall be
binding upon all Working Capital Banks; provided, however, that
the Working Capital Agent shall not be required to take any
action that exposes the Working Capital Agent to personal
liability or that is contrary to this Agreement or applicable
law. The Working Capital Agent agrees to give to each Working
Capital Bank prompt notice of each notice
11.2. The Agent's Reliance, Etc. Neither the Agent or
the Working Capital Agent, their respective Affiliates nor any of
their respective directors, officers, agents or employees shall
be liable for any action taken or omitted to be taken by any of
them under or in connection with this Agreement, except for its
own gross negligence or willful misconduct. Without limitation of
the generality of the foregoing, (i) the Agent and the Working
Capital Agent may consult with legal counsel (including counsel
to the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action
taken or omitted to be taken in good faith by it in accordance
with the advice of such counsel, accountants or experts; (ii)
neither the Agent nor the Working Capital Agent make any warranty
or representation to any Bank or Working Capital Bank (as the
case may be) and it shall not be responsible to any Bank for any
statements, warranties or representations made in or in
connection with this Agreement; (iii) the Agent and the Working
Capital Agent shall have no duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of the Borrower or to
inspect the Properties (including the books and records) of the
Borrower; (iv) the Agent and the Working Capital Agent shall not
be responsible to any Bank for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of
this Agreement or any other instrument or document furnished
pursuant hereto; and (v) the Agent and the Working Capital Agent
shall not incur liability under or in respect of this Agreement
by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper
party or parties.
11.3. Union Bank of Norway and Den norske Bank ASA.
With respect to the Commitments of Union Bank of Norway, Den
norske Bank ASA and Summit Bank, respectively, and the Loans made
by each of them, each of Union Bank of Norway, Den norske Bank
ASA and Summit Bank shall have the same rights and powers under
this Agreement as any other Bank and may exercise the same as
though it were not an Agent, Working Capital Agent, Documentation
Agent, Arranger or Co-Arranger, as the case may be; and the term
"Bank" or "Banks" shall, unless otherwise expressly indicated,
include each of Union Bank of Norway, Den norske Bank ASA and
Summit Bank in their individual capacities. Each of Union Bank of
Norway, Den norske Bank ASA and Summit Bank and their respective
Affiliates may accept deposits from, lend money to, act as
trustee under indentures of, and generally engage in any kind of
business with, the Borrower, any of its Subsidiaries and any
Person who may do business with or own securities of the Borrower
or any such Subsidiary, all as if Union Bank of Norway, Den
norske Bank ASA and Summit Bank as the case may be, were not an
Agent, Working Capital Agent, Documentation Agent, Arranger or Co-
Arranger, as the case may be, and without any duty to account
therefor to the Banks.
11.4. Bank Credit Decision. Each Bank acknowledges that
it has, independently and without reliance upon the Agent, the
Working Capital Agent, the Documentation Agent, the Arranger or
the Co-Arranger or any other Bank, and based on the financial
statements referred to in Article VII and such other documents
and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank
also acknowledges that it will, independently and without
reliance upon the Agent, the Working Capital Agent, the Arranger,
the Co-Arranger or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action
under this Agreement.
11.5. Determinations Under Sections 6.1. and 6.2. For
purposes of determining compliance with the conditions specified
in Sections 6.1 and 6.2, each Bank shall be deemed to have
consented to, approved or accepted, or to be satisfied with each
document or other matter required thereunder to be consented to
or approved by or acceptable or satisfactory to the Banks unless
an officer of the Agent responsible for the transactions
contemplated by this Agreement shall have received notice from
such Bank prior to the applicable Borrowing specifying its
objection thereto (unless such objection shall have been
withdrawn by notice to the Agent to that effect or such Bank
shall have made available to the Agent or Working Capital Agent
(as the case may be) such Bank's ratable portion of such
Borrowing).
11.6. Indemnification. Each (a) Bank agrees to
indemnify the Agent and its respective Affiliates, and its
respective directors, officers, employees, agents and advisors
(to the extent not reimbursed by the Borrower), ratably according
to such Bank's Ratable Portion of the Term Loan Commitments and
the Revolving Credit Commitments, and (b) Working Capital Bank
agrees to indemnify the Working Capital Agent and its respective
Affiliates, and its respective directors, officers, employees,
agents and advisors (to the extent not reimbursed by the
Borrower), ratably according to such Bank's Ratable Portion of
the Working Capital Loan Commitments, in each case from and
against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements (including, without limitation, fees and
disbursements of legal counsel) of any kind or nature whatsoever
which may be imposed on, incurred by, or asserted against, any
such Person in any way relating to or arising out of this
Agreement or any action taken or omitted by any such Person under
this Agreement; provided, however, that no Bank shall be liable
for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from any such Person's gross negligence
or willful misconduct or from any violation or alleged violation
by any such Person or any other Bank of any law, rule or
regulation or any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of
law) or, with respect to the Agent or the Working Capital Agent,
any conflict or alleged conflict between its rights and duties in
its capacity as such or as a Bank under this Agreement and any
other rights or duties it may have in any other capacity in which
it may act in connection with the consummation of the
transactions contemplated by this Agreement, whether or not such
Bank is a party to such transactions. Without limitation of the
foregoing, each Bank agrees to reimburse any such Person promptly
upon demand for its ratable share of any out-of-pocket expenses
(including fees and disbursements of one counsel) incurred by
such Person in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise)
of, or legal advice in respect of rights or responsibilities
under, this Agreement, to the extent that such Person is not
reimbursed for such expenses by the Borrower.
11.7. Successor Agents/Working Capital Agents. Any
Agent or the Working Capital Agent may resign at any time by
giving written notice thereof to the Banks and the Borrower and
may be removed at any time with cause by the Majority Banks. Upon
any such resignation or removal, the Majority Banks shall have
the right to appoint a successor to such Agent or Working Capital
Agent, as the case may be. If no successor to such Agent or
Working Capital Agent, as the case may be, shall have been so
appointed by the Majority Banks, and shall have accepted such
appointment, within 30 days after the retiring Agent's or Working
Capital Agent's, as the case may be, giving of notice of
resignation or the Majority Banks removal of such retiring Agent
or Working Capital Agent, as the case may be, then such
(retiring) Agent on behalf of the Banks, shall appoint a
successor Agent or Working Capital Agent, as the case may be,
(which successor Agent or Working Capital Agent, as the case may
be, shall be a Bank or another commercial bank organized under
the laws of a member nation of the Organization for Economic
Cooperation and Development and having a combined capital and
surplus of at least $100,000,000). Upon the acceptance of any
appointment as an Agent or Working Capital agent, as the case may
be, hereunder by any successor Agent or Working Capital agent, as
the case may be, such successor Agent or Working Capital Agent,
as the case may be, shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the
retiring Agent or Working Capital Agent, as the case may be, and
such retiring Agent or Working Capital Agent, as the case may
be, shall be discharged from its duties and obligations under
this Agreement. After any retiring Agent's or Working Capital
Agent's resignation or removal hereunder, the provisions of this
Article XI shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent or Working Capital
Agent, as the case may be.
11.8. Notices and Forwarding of Documents to Banks.
Promptly upon receipt of the same, the Agent and the Working
Capital Agent (as the case may be) shall furnish to the Banks and
the Working Capital Banks (as the case may be) copies of all
notices received from the Borrower or any other Loan Party.
ARTICLE XII
MISCELLANEOUS
12.1. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or any other Loan Document, nor
consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed
by the Majority Banks and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given; provided, however, that:
(a) no amendment, waiver or consent shall, unless in writing
signed by all the Banks and consented to by all of the Banks, do
any of the following: (i) waive any of the conditions specified
in Section 6.1 or 6.2; (ii) increase the Commitments of the Banks
or subject the Banks to any additional obligations; (iii) change
the principal of, or decrease the interest on, any amounts
payable hereunder or reduce the amount of any Commitment Fee
payable to the Banks hereunder; (iv) postpone any date fixed for
any scheduled payment of any Commitment Fee, or scheduled payment
of principal of, or interest on, any amounts, payable hereunder;
(v) change the definition of Majority Banks; (vi) terminate, or
release the Parent Guarantor from its obligations under, the
Parent Guaranty or (vii) amend this Section 12.1; and
(b) no amendment, waiver or consent shall, unless in writing
and signed by the Agent or the Working Capital Agent in addition
to the Persons required above to take such action, affect the
rights or duties of the Agent or the Working Capital Agent,
respectively, under this Agreement.
12.2. Notices, Etc. Except as otherwise set forth
herein, all notices and other communications provided for
hereunder shall be in writing (including telegraphic, telex,
telecopy or cable communication) and mailed, telegraphed,
telexed, telecopied, cabled or delivered by hand,
(i) if to the Borrower, at:
Alpharma U.S. Inc.
c/o Alpharma Inc.
One Executive Drive
Fort Lee, NJ 07024
Attn: Albert Marchio
Treasurer
Telephone: (201) 947-7774
Telefax: (201) 947-0795
and to:
Robert Wrobel, Esq.
Vice President and
Chief Legal Officer
Telephone: (201) 947-7774
Telecopy: (201) 592-1481
(ii) if to the Agent, at:
Union Bank of Norway
Loan Administration
P.O. Box 1172 Sentrum
N-0107 Oslo
Telephone: 011-47-22-31-90-50
Telecopy: 011-47-22-31-85-58
Attn: Loan Administration
(iii) if to the Working Capital Agent, at:
Summit Bank
750 Walnut Avenue
Cranford, New Jersey 07016
Telephone: (908) 709-5458
Telecopy: (908) 931-0399
Attn: Syndications/Loan Operations
(iv) if to any Bank, at its Lending Office specified on
the signature pages hereof, and if to any other lender
that becomes a "Bank", at its Lending Office specified
in the Notice of Assignment and Acceptance by which it
became a Bank;
or, as to the Borrower, any Bank, the Agent or the Working
Capital Agent, at such other address as shall be designated by
such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by
such party in a written notice to the Borrower and the Agent. All
such notices and communications shall, when mailed, telegraphed,
telexed, telecopied, cabled or delivered, be effective when
deposited in the mails, delivered to the telegraph company,
confirmed by telex answerback, telecopied with confirmation of
receipt, delivered to the cable company, delivered by overnight
courier with confirmation of receipt or delivered by hand to the
addressee, or its agent, respectively, except that notices and
communications to the Agent or the Working Capital Agent pursuant
to Articles II, III, IV or XI shall not be effective until
received by the Agent or the Working Capital Agent (as the case
may be).
12.3. No Waiver; Remedies. No failure on the part of
any Bank, the Agent or the Working Capital Agent to exercise, and
no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
12.4. Costs; Expenses; Indemnities. (a) The Borrower
agrees to pay on demand all reasonable costs and expenses in
connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the
other Loan Documents and the other documents to be delivered
hereunder or thereunder, including, without limitation, the
specified reasonable fees and out-of-pocket expenses of counsel
to the Agent with respect thereto (such fees and expenses to be
payable on the Effective Date) and with respect to advising the
Agent as to their rights and responsibilities under this
Agreement, and all costs and expenses of the Agent and the Banks
(including, without limitation, reasonable counsel fees and
expenses) in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Agreement,
the other Loan Documents and the other documents to be delivered
hereunder and thereunder.
(b) The Borrower agrees to defend, indemnify and hold
harmless each of the Agent, the Arranger, the Co-Arranger, the
Working Capital Agent, the Documentation Agent and the Banks and
their respective affiliates and their respective directors,
officers, attorneys, agents, employees, successors and assigns
(each, an "Indemnified Person") from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
claims, judgments, suits, costs, expenses and disbursements of
any kind or nature whatsoever (including, without limitation,
fees and disbursements of counsel of the Agent, the Working
Capital Agent, the Documentation Agent, the Arranger, the Co-
Arranger or the Banks) which may be incurred by or asserted or
awarded against any Indemnified Person, in each case arising in
any manner of or in connection with or by reason of this
Agreement, the other Loan Documents, the Commitments or any
undertakings in connection therewith, or the proposed or actual
application of the proceeds of the Loans (all of the foregoing
collectively, the "Indemnified Liabilities") and will reimburse
each Indemnified Person on a current basis for all properly
documented expenses (including outside counsel fees as they are
incurred by such party) in connection with investigating,
preparing or defending any such action, claim or suit, whether or
not in connection with pending or threatened litigation
irrespective of whether such Indemnified Person is designated a
party thereto; provided that the Borrower shall not have any
liability hereunder to any Indemnified Person with respect to
Indemnified Liabilities which are determined by a court of
competent jurisdiction to have arisen primarily from the gross
negligence or willful misconduct of such Indemnified Person; and
provided further, that if the Borrower has determined in good
faith that such Indemnified Liabilities were primarily the result
of such Indemnified Person's gross negligence or willful
misconduct, it shall not be obligated to pay such Indemnified
Liabilities until a court of competent jurisdiction has
determined whether such Indemnified Person acted with gross
negligence or willful misconduct. If for any reason the foregoing
indemnification is unavailable to an Indemnified Person or
insufficient to hold an Indemnified Person harmless, then the
Borrower shall contribute to the amount paid or payable by such
Indemnified Person as a result of any Indemnified Liability in
such proportion as is appropriate to reflect not only the
relative benefits received by the Borrower and the Agent, the
Arranger, the Co-Arranger, the Working Capital Agent, the
Documentation Agent, and each Bank, but also the relative fault
of the Borrower and the Agent, the Arranger, the Co-Arranger, the
Working Capital Agent, the Documentation Agent and each Bank, as
well as any other relevant equitable considerations. The
foregoing indemnity shall be in addition to any rights that any
Indemnified Person may have at common law or otherwise,
including, but not limited to, any right to contribution.
(c) If any Eurodollar Loans are Consolidated or if any Bank
receives any payment of principal of any Eurodollar Loan other
than on the last day of an Interest Period relating to such Loan,
as a result of any payment made by the Borrower or acceleration
of the maturity of the amounts due under this Agreement pursuant
to Section 11.1 or for any other reason, the Borrower shall, upon
demand by such Bank (with a copy of such demand to the Agent (or,
in the event such demand relates to a Eurodollar Working Capital
Loan, the Working Capital Agent), pay to the Agent of the Working
Capital Agent (as the case may be) for the account of such Bank
any amounts required to compensate such Bank for any additional
losses, costs or expenses which it may reasonably incur as a
result of such payment or Consolidation, including, without
limitation, any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired
by such Bank to fund or maintain such Loan. The foregoing
obligations of the Borrower contained in paragraphs (a), (b) and
(c) of this Section 12.4, and the obligations of the Borrower
contained in Sections 5.6(b), 5.8 and 5.9, shall survive the
payment of the Loans.
12.5. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the
making of the request or the granting of the consent specified by
Section 10.1 to authorize the Agent to declare all amounts under
this Agreement due and payable pursuant to the provisions of
Section 10.1 or the automatic acceleration of such amounts
pursuant to the proviso to that Section, each Bank is hereby
authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing
by such Bank to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement irrespective of whether
or not such Bank shall have made any demand under this Agreement
and although such obligations may be unmatured. Each Bank agrees
promptly to notify the Borrower after any such set-off and
application made by such Bank; provided, however, that the
failure to give such notice shall not affect the validity of such
set-off and application. The rights of each Bank under this
Section 12.5 are in addition to any other rights and remedies
(including, without limitation, any other rights of set-off)
which such Bank may have.
12.6. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrower, the
Agent, the Arranger, the Co-Arranger, the Documentation Agent and
the Working Capital Agent and when the Agent shall have been
notified by each of the Banks that such Bank has executed it and
thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agent, the Arranger, the Co-Arranger, the Working
Capital Agent, the Documentation Agent and each of the Banks and
their respective successors and assigns, except that (i) the
Borrower shall have no right to assign its rights hereunder or
any interest herein without the prior written consent of the
Banks and (ii) no Bank may sell, transfer, assign, pledge or
grant participation in any of its Loans or any of its rights or
obligations hereunder except in accordance with Section 12.7 or
as expressly required hereunder.
12.7. Assignments and Participation; Additional Banks.
(a) Any Bank may, at any time, by notice substantially in the
form of Exhibit K hereto (each, a "Notice of Assignment and
Acceptance") delivered to the Agent for its acceptance and
recording, together with a recording fee in the amount of $1,500,
assign all or any part of its rights and obligations and delegate
its duties under this Agreement (A) to any other Bank or any
affiliate of any Bank which actually controls, is controlled by,
or is under common control with such Bank or to any Federal
Reserve Bank (in either case without limitation as to amount), or
(B) with the prior consent of the Borrower (provided that if all
amounts due under this Agreement have been declared immediately
due and payable no such consent shall be required), to any other
Person (but if in part, in a minimum amount of $10,000,000 or, if
less, the balance of such Bank's Term Loan Commitment and
Revolving Credit Commitment); provided, however, that no Bank may
make any such assignment or delegation of any of its rights or
duties under this Agreement until the one hundredth day after the
Effective Date (or such other date as may be agreed by the Agent
and the Banks), except to any affiliate of such Bank which
actually controls, is controlled by, or is under common control
with such Bank or to any Federal Reserve Bank; and provided,
further, that after any such assignment, the assigning Bank's
aggregate Commitments hereunder shall not be less than
$10,000,000.
(b) Any Bank may at any time sell or grant participations in
its Commitment, or the obligations owing to or from any Person
existing under this Agreement; provided, however, that (i) as
between such Bank and the Borrower, the existence of such
participation shall not give rise to any direct rights or
obligations between the Borrower and the participants; (ii) such
Bank shall remain solely responsible to the other parties hereto
for the performance of such obligations; (iii) the Borrower, the
Agent, the Working Capital Agent (if applicable) and the other
Banks shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this
Agreement; and (iv) no such sale or grant of a participation
shall, without the consent of the Borrower, require the Borrower
to file a registration statement with the Securities and Exchange
Commission or apply to qualify the Commitments or the Loans under
the securities laws of any state.
(c) If an assignment is made by any Bank in accordance with
the provisions of paragraph (a) above, upon acceptance and
recording by the Agent, and approval by the Borrower, where
applicable, of each Notice of Assignment and Acceptance, (i) the
assignee thereunder shall become a party to this Agreement and
the Borrower shall release and discharge the assigning Bank from
its duties, liabilities or obligations under this Agreement to
the extent the same are so assigned and delegated by such Bank,
provided that no such consent, release or discharge shall have
effect until the Borrower shall have received a fully executed
copy of the Notice of Assignment and Acceptance relating to such
assignment and (ii) Schedule II shall be deemed amended to give
effect to such assignment. The Borrower agrees that each such
disposition will give rise to a direct obligation of the Borrower
to any such assignee. The Borrower agrees that, promptly
following any such assignment, it shall deliver upon delivery of
the applicable outstanding Notes or Notes for cancellation a new
Note or Notes to the assignee and a replacement Note or Notes to
the transferor, in amounts properly reflecting such assignment.
(d) The Borrower authorizes each Bank to disclose to any
prospective assignee or participant and any assignee or
participant any and all financial information in such Bank's
possession concerning the Borrower and this Agreement; provided,
however, that prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information
relating to the Borrower received by it from such Bank in
accordance with Section 12.11.
(e) Any Bank which sells or grants participations in any
Loans or its Commitment may not grant to the participants the
right to vote other than on amendments, consents, waivers,
modifications or other actions which change the principal amount
of, postpone the scheduled maturity of, or decrease the interest
rates applicable to, any Loans under, or increase the amount of,
such Commitment (except with respect to participating Affiliates
actually controlled by, controlling or under common control with,
such Bank); provided, however, that as between the Bank and the
Borrower, only the Bank shall be entitled to cast such votes.
(f) No participant in any Bank's rights or obligations shall
be entitled to receive any greater payment under Section 5.6, 5.8
or 5.9 than such Bank would have been entitled to receive with
respect to the rights participated, and no participation shall be
sold or granted to any Person as to which the events specified in
Section 5.7 have occurred on or before the date of participation.
(g) (i) The Agent shall maintain at its address referred
to in Section 12.2 a copy of each Notice of Assignment and
Acceptance received by it and a register, containing the terms of
each Notice of Assignment and Acceptance, for the recordation of
the names and addresses of each Bank and the Commitment of, and
principal amount of the Loans owing to, each Bank from time to
time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error,
and the Borrower, the Banks, and the Agent may treat each Person
whose name is recorded in the Register as a Bank hereunder for
all purposes of this Agreement. The Register shall be available
for inspection by the Borrower, or any Bank, at any reasonable
time and from time to time upon reasonable prior notice.
(ii) The Working Capital Agent shall maintain at its
address referred to in Section 12.2 a register for the
recordation of the names and addresses of each Working Capital
Bank and the Working Capital Loan Commitment of, and principal
amount of the Working Capital Loans owing to, each Working
Capital Bank from time to time (the "Working Capital Register").
The entries in the Working Capital Register shall be conclusive
and binding for all purposes, absent manifest error, and the
Borrower, the Working Capital Banks, and the Working Capital
Agent may treat each Person whose name is recorded in the Working
Capital Register as a Working Capital Bank hereunder for all
purposes of this Agreement. The Working Capital Register shall be
available for inspection by the Borrower, or any Working Capital
Bank, at any reasonable time and from time to time upon
reasonable prior notice.
12.8. GOVERNING LAW; SEVERABILITY. THIS AGREEMENT AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK. WHEREVER POSSIBLE, EACH PROVISION OF THIS
AGREEMENT SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE
AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS
AGREEMENT SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW,
SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH
PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF
SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS AGREEMENT.
12.9. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE AGENT,
THE WORKING CAPITAL AGENT AND THE BANKS HEREBY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH ANY OF THEM MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING
IN SUCH RESPECTIVE JURISDICTIONS.
(b) Each of the Borrower, the Agent, the Working Capital
Agent and the Banks irrevocably consents to the service of
process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to the Borrower at its address
specified for notices in or pursuant to Section 12.2 hereof, to
the Agent at Watson, Farley & Williams, 380 Madison Avenue, New
York, NY 10017; to the Working Capital Agent at 750 Walnut
Avenue, Cranford, New Jersey 07016; and to the Banks as set forth
on Schedule I, such service to become effective 30 days after
such mailing.
(c) Nothing contained in this Section 12.9 shall affect the
right of the Agent, the Working Capital Agent or any Bank to
serve process in any other manner permitted by law or commence
legal proceedings or otherwise proceed against the Borrower or
any other Loan Party in any other jurisdiction.
(d) Each of the parties hereto waives any right it may have
to trial by jury in any proceeding arising out of this Agreement.
12.10. Confidentiality. Each Bank, the Working Capital
Agent and the Agent agrees to keep confidential information
obtained by it pursuant hereto (or otherwise obtained from the
Borrower in connection with this Agreement) confidential in
accordance with such Person's customary practices and agrees that
it will only use such information in connection with the
transactions contemplated by this Agreement and not disclose any
of such information other than (i) to such Person's employees,
counsel, representatives and agents who are or are expected to be
involved in the evaluation of such information in connection with
the transactions contemplated by this Agreement and who in each
case agree to be bound by the provisions of this sentence, (ii)
to the extent that disclosure by such Person is required, or to
the extent that such Person has been advised by counsel that
disclosure is required, in order to comply with any law,
regulation or judicial order or requested or required by bank
regulators or auditors or other Governmental Authority, (iii) to
assignees or participants of the Loans or Commitments or
potential assignees or participants of the Loans or Commitments
who in each case agree in writing to be bound by the provisions
of this sentence or (iv) to the extent that such information has
otherwise been disclosed or made public other than by such
Person, or such Person's employees, counsel, representatives or
agents, in violation of this Section 12.10.
12.11. Section Titles. The Section titles contained in this
Agreement are and shall be without substantive meaning or content
of any kind whatsoever and are not a part of the agreement
between the parties hereto.
12.12. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different Parties
hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Credit Agreement to be duly executed as of the date first above
written.
ALPHARMA U.S. INC., as
Borrower
By
________________________
Name:
Title:
UNION BANK OF NORWAY, as Agent
By
________________________
Name:
Title:
UNION BANK OF NORWAY, as Arranger
By
_________________________
Name:
Title:
UNION BANK OF NORWAY, as Bank
By
_________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By
___________________________
Name:
Title:
DEN NORSKE BANK ASA, as Co-Arranger
By
__________________________
Name:
Title:
DEN NORSKE BANK ASA, as Bank
By
__________________________
Name:
Title:
BANQUE NATIONALE DE PARIS OSLO BRANCH
By ______________________
Name:
Title:
LANDESBANK SCHLESWIG-HOLSTEIN
GIROZENTRALE COPENHAGEN BRANCH
By ______________________
Name: Nils E.
Emilsson
Title: Deputy General
Manager
SUMMIT BANK, as Bank
By ______________________
Name:
Title:
SUMMIT BANK, as Working Capital Agent
By ______________________
Name:
Title:
SUMMIT BANK, as Documentation Agent
By ______________________
Name:
Title:
Agreement Date: January 20, 1999
ANNEX A
PRICING GRID
A. The Applicable Margin shall be determined quarterly by
reference to the Margin Ratio (as determined for the period of
four consecutive Fiscal Quarters of the Parent Guarantor ending
at the end of the period covered by the most recently delivered
financial statements of the Parent Guarantor delivered pursuant
to Section 6(g) of the Parent Guaranty, subject to paragraph (B)
below) and certain other conditions all as set forth below;
provided, however, that in no event shall the Applicable Margin
be less than 1.50% during the period from the Agreement Date
through the Adjustment Date (as defined below) immediately
succeeding June 30, 1999; and provided, further, that if at any
time the Parent Guarantor, in order to comply with Section 8(a)
of the Parent Guaranty, relies on proviso (A) or (B) of such
Section 8(a), then the Applicable Margin as determined hereunder
shall be increased by (a) .125% per annum, in the case of proviso
(A), or (b) .75% per annum, in the case of proviso (B), and in
each case such increase shall remain effective until such time as
the Parent Guarantor no longer relies on proviso (A) or (B) to
comply with Section 8(a) of the Parent Guaranty:
Applicable Margin
Margin Ratio Eurodollar Loans Alternate Base Rate
Working Capital Loans
less than 2.5 and .875% -0.75%
the Equity Ratio at
such time is at
least 0.35:1*
less than 3.5 1.125% -0.5%
3.5 or greater but 1.375% -0.25%
less than 4.25
4.25 or greater but 1.50% 0%
less than 5.25
5.25 or greater 1.625% .25%
* This pricing not effective until the Adjustment Date following
April 1, 2001.
B. Changes in the Applicable Margin resulting from changes
in the Margin Ratio shall become effective on the date (the
"Adjustment Date") that is five (5) Business Days after the date
on which financial statements are delivered to the Agent pursuant
to Sections 6(g) (i) and (ii) of the Parent Guaranty (but in any
event (x) not later than the 50th day after the end of each of
the first three Fiscal Quarters and (y) not later than the 95th
day after the end of each Fiscal Year (but not earlier than March
31)) and shall remain in effect until the next change to be
effected pursuant to this paragraph. If any financial statements
referred to above are not delivered within the time periods
specified above, then, until such financial statements are
delivered, the Margin Ratio as at the end of the fiscal period
that would have been covered thereby shall for the purposes of
this Pricing Grid be deemed to be 5.25 or greater.
C. For the avoidance of doubt, to the extent that
financial information for periods prior to the Agreement Date is
necessary in order to determine the Margin Ratio in effect on the
Initial Funding Date and thereafter, the Agent shall refer to the
financial statements of the Parent Guarantor most recently
delivered pursuant to the Prior UBN Facility.
Schedule I
FIRST UNION NATIONAL BANK Lending Office:
First Union National Bank
1345 Chestnut Street
P.O. Box 7618
F.C. 1-8-3-18
Philadelphia, PA 19101
Attn: Foreign Corporate Department
Stephen E. Stambaugh, V.P.
Telephone: 215-973-3791
Telecopier: 215-973-6894
Address for Notice Purposes:
1345 Chestnut Street
P.O. Box 7618
F.C. 1-8-3-18
Philadelphia, PA 19101
Attn: International Corporate
Department
Stephen E. Stambaugh, V.P.
Telephone: 215-973-3791
Telecopier: 215-973-6894
Address for Service of Process:
First Union National Bank
Legal Department
F. C. 1-1-17-1
Broad & Chestnut Streets
P.O. Box 7618
Philadelphia, PA 19101
DEN NORSKE BANK ASA Lending Office:
Stranden 21
0107 Oslo
Norway
Attn: Credit Administration
Telecopier: +47-22-48-10-46
Address for Notice Purposes:
Stranden 21
0107 Oslo
Norway
Attn: Credit Administration
Telecopier: +47-22-48-10-46
Address for Service of Process:
Den norske Bank ASA, New York Branch
200 Park Avenue
New York, NY 10166-0396
SUMMIT BANK Lending Office:
Summit Bank
750 Walnut Avenue
Cranford, NJ 07016
Attn: Syndications/Loan Operations
Telephone: (908) 709-5458
Telecopier: (908) 931-0399
Address for Notice Purposes:
Summit Bank
750 Walnut Avenue
Cranford, NJ 07016
Attn: Wayne Trotman, Sr. Vice President
Telephone: 908-709-5339
Telecopier: 908-709-6433
Address for Service of Process:
Summit Bank
Deposit Services - Elizabeth
288 North Broad Street
Elizabeth, NJ 07207
UNION BANK OF NORWAY Lending Office:
Union Bank of Norway
Kirkegaten 18
P.O. Box 1172 Sentrum
0107 Oslo
Norway
Attn: Loan Administration
Telephone: 011-47-22-31-90-50
Telecopier: 011-47-22-31-85-58
Address for Notice Purposes:
Union Bank of Norway
Kirkegaten 18
P.O. Box 1172 Sentrum
0107 Oslo
Norway
Attn: Loan Administration
Telephone: +011-47-22-31-90-50
Telecopier: +011-47-22-31-85-58
Address for Service of Process:
Watson, Farley & Williams
380 Madison Avenue, 19th Floor
New York, NY 10017
Attn: John S. Osborne, Jr.
LANDESBANK SCHLESWIG-HOLSTEIN
GIROZENTRALE COPENHAGEN
BRANCH Lending Office:
LB Kiel, Copenhagen Branch
Holmeus Kanal 7
Postbox 1600
1020 Copenhagen
Denmark
Attn.: Loan Administrator
Telephone: +45 33 95 01 00
Telecopier: +45 33 95 01 95
Address for Notice Purporses:
LB Kiel, Copenhagen Branch
Holmeus Kanal 7
Postbox 1600
1020 Copenhagen
Denmark
Attn.: Loan Administrator
Telephone: +45 33 95 01 00
Telecopier: +45 33 95 01 95
Address for Service of Process:
LB Kiel, Copenhagen Branch
Holmeus Kanal 7
Postbox 1600
1020 Copenhagen
Denmark
Attn.: Loan Administrator
Telephone: +45 33 95 01 00
Telecopier: +45 33 95 01 95
BANQUE NATIONALE DE PARIS
OSLO BRANCH Lending Office:
Banque Nationale de Paris Oslo Branch
Biskop Gunnerus' gt. 2
Postboks 106 Sentrum
0102 OSLO
Norway
Attn: Irene Stoback Johansen,
Corporate & International
Telephone: +47 22 82 95 00, (direct
line: +47 22 82 96 21)
Telecopies: +47 22 41 08 44
Email: [email protected]
Address for Notice Purposes:
Banque Nationale de Paris Oslo Branch
Biskop Gunnerus' gt. 2
Postboks 106 Sentrum
0102 OSLO
Norway
Attn: Ivar Stautland, Loan
Administration
Telephone: +47 22 82 95 00, (direct
line: 47 22 82 95 61)
Address for Service of Process:
Banque Nationale de Paris New York
Branch
499 Park Avenue
P.O. Box 127 Church Street Station
New York, NY 10008
Schedule II
Commitments
The Banks listed below will participate in the Credit Agreement
in the following manner:
Term Loan Revolving
Commitment Credit Sum
Bank Commitment
Union Bank of 30,000,000 60,000,000 90,000,000
Norway
Den norske Bank 28,000,000 57,000,000 85,000,000
ASA
Summit Bank 18,000,000 37,000,000 55,000,000
First Union 8,000,000 17,000,000 25,000,000
National Bank
Banque Nationale 7,000,000 13,000,000 20,000,000
de Paris Oslo
Branch
Landesbank Kiel 8,000,000 17,000,000 25,000,000
Sum 100,000,000 200,000,000 300,000,000
Portion of Revolving Credit Commitment
Available as Working Capital Loan Commitment
Working Capital Loan Commitment
First Union National Bank, N.A. 15,000,000
Summit Bank 15,000,000
30,000,000
Schedule 7.2(a)(iv)
Required Consents and Approvals
None
Alpharma Inc.
Subsidiaries of the Registrant
EXHIBIT 21
NAME JURISDICTION WHICH
ORGANIZED
United States:
A.L. Specialty Chemicals, Inc. Delaware
Alpharma NW Inc. Washington
Alpharma U.S. Inc. Delaware
Barre Parent Corporation Delaware
Alpharma USPD Inc. Maryland
G. F. Reilly Company Delaware
ParMed Pharmaceuticals, Inc. Delaware
NMC Laboratories, Inc. New York
Odin Pharmaceuticals Inc. New Jersey
Wade Jones Company, Inc. Texas
MikJan Corporation Arkansas
Alpharma U.K. Holding Inc. Delaware
Foreign:
A.L-Pharma A/S Denmark
Alpharma AS Norway
Allabinc de Mexico, S.A. de C.V. Mexico
Empressa Laboratories De
Mexico S.A. de C.V. Mexico
Dumex-Alpharma A/S Denmark
Dumex AG Switzerland
Dumex B.V. Holland
Dumex-Alpharma AB Sweden
Dumex Limited United Kingdom
Oy Dumex-Alpharma AB Finland
PT Dumex-Alpharma Indonesia Indonesia
Alpharma do Brazil LTDA Brazil
Alpharma SARL France
Arthur H. Cox & Co. Limited United Kingdom
Alpharma Holdings Ltd. United Kingdom
Alpharma U.K. Ltd. United Kingdom
Cox Investments Ltd. United Kingdom
Alpharma Fine Chemicals, Kft. Hungary
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement of Alpharma Inc. on Form S-8 (File No. 33-
60495) and Form S-3 (File Nos. 333-57501 and 333-70229) of our
report dated February 24, 1999, on our audits of the consolidated
financial statements of Alpharma Inc. and Subsidiaries as of
December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, which report is included in
this Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
March 25, 1999
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PARENT GUARANTY
GUARANTY, dated as of January 20, 1999, made by Alpharma
Inc., a Delaware corporation (together with its successors and
assigns, the "Parent Guarantor"), in favor of the banks (the
"Banks") parties from time to time to the Credit Agreement (as
defined below), Union Bank of Norway as agent (the "Agent"),
Summit Bank, as working capital agent, documentation agent and co-
syndication agent, Union Bank of Norway, as arranger (the
"Arranger"), and Den norske Bank ASA, as co-arranger (the "Co-
Arranger", and collectively with the Banks, the Agent, the
Documentation Agent and the Arranger, the "Guaranteed Parties").
W I T N E S S E T H:
WHEREAS, the Guaranteed Parties have entered into the Credit
Agreement dated as of January 20, 1999 (said agreement, as it may
hereafter be amended, supplemented or otherwise modified from
time to time, being the "Credit Agreement") with Alpharma U.S.
Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Borrower");
WHEREAS, it is a condition precedent to the Initial Funding
Date under the Credit Agreement that the Parent Guarantor shall
have executed and delivered this a Guaranty;
NOW, THEREFORE, in consideration of the premises and in
order to induce the Banks to make the loans under the Credit
Agreement, the Parent Guarantor hereby agrees as follows (with
terms used herein and not otherwise defined used with the meaning
ascribed thereto in the Credit Agreement):
SECTION 1. Guaranty. The Parent Guarantor hereby
unconditionally and irrevocably guarantees the punctual payment
when due, whether at stated maturity, by acceleration or
otherwise, of all obligations of the Borrower now or hereafter
existing under (a) the Loan Documents and (b) Swap Agreements
entered into with a Bank, in either case whether for borrowed
money, reimbursement on account of letters of credit, interest,
fees or any other amounts due thereunder or otherwise (the
"Guaranteed Obligations") and any and all expenses (including
counsel fees and expenses) reasonably incurred by any Guaranteed
Party in enforcing any rights under this Guaranty.
SECTION 2. Guaranty Absolute. The Parent Guarantor
guarantees that the obligations will be paid strictly in
accordance with the terms of the Loan Documents, regardless of
any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of any
Guaranteed Party with respect thereto. The liability of the
Parent Guarantor under this Guaranty shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of the Loan
Documents (including this Guaranty) or any other agreement or
instrument relating thereto;
(b) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Guaranteed
Obligations, or any other amendment or waiver of or any consent
to departure from the Loan Documents;
(c) any exchange, release or nonperfection of any
collateral, or any release or amendment or waiver of or consent
to departure from any other guaranty, for all or any of the
Guaranteed Obligations; or
(d) any other circumstance which might otherwise constitute
a defense available to, or a discharge of, the Borrower, or a
guarantor.
SECTION 3. Waiver. The Parent Guarantor hereby waives all
notices with respect to any of the Guaranteed Obligations and
this Guaranty and any requirement that any Guaranteed Party
protect, secure, perfect or insure any security interests or lien
on any property subject thereto or exhaust any right or take any
action against the Borrower, or any other person or entity or any
collateral.
SECTION 4. Subrogation. (a) The Parent Guarantor shall not
exercise any rights which it may have acquired by way of
subrogation under this Guaranty, by any payment made hereunder or
otherwise nor shall the Parent Guarantor seek any reimbursement
from the Borrower in respect of payments made by the Parent
Guarantor hereunder, unless and until all of the Guaranteed
Obligations shall have been paid and discharged, in full, and if
any payment shall be made to the Parent Guarantor on account of
such subrogation or reimbursement rights at any time when the
Guaranteed Obligations shall not have been paid and discharged,
in full, each and every amount so paid shall forthwith be paid to
the Agent to be credited and applied against the Guaranteed
Obligations, whether matured or unmatured.
(b) If, pursuant to Applicable Law, the Parent Guarantor,
by payment or otherwise, becomes subrogated to all or any of the
rights of the Guaranteed Parties under any of the Loan Documents,
the rights of the Guaranteed Parties to which the Parent
Guarantor shall be subrogated shall be accepted by the Parent
Guarantor "as is" and without any representation or warranty of
any kind by the Guaranteed Parties, express or implied, with
respect to the legality, value, validity or enforceability of any
of such rights, or the existence, availability, value,
merchantability or fitness for any particular purpose of any
collateral and shall be without recourse to the Guaranteed
Parties.
SECTION 5. Representations and Warranties. The Parent
Guarantor hereby represents and warrants as follows:
(a) Incorporation and Good Standing. It is (i) a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware; and (ii) duly
qualified and in good standing as a foreign corporation under the
laws of each other jurisdiction in which the failure so to
qualify would have a Material Adverse Effect.
(b) Corporate Power and Authorization. The execution,
delivery and performance by the Parent Guarantor of this Guaranty
are within the Parent Guarantor's corporate powers, have been
duly authorized by all necessary corporate action, do not
contravene the Parent Guarantor's charter or by-laws, any law or
any contractual restriction binding on or affecting and material
to the Parent Guarantor, and do not result in or require the
creation of any Lien upon or with respect to any of its
properties.
(c) Authorization. No authorization, consent or approval
or other action by, and no notice to or filing with, any
Governmental Authority or regulatory body is required for the due
execution, delivery and performance by the Parent Guarantor of
this Guaranty, other than (i) consents, authorizations and
approvals that have been obtained, are final and not subject to
review on appeal or to collateral attack, and are in full force
and effect and, in the case of any such required under Applicable
Law as in effect on the Agreement Date, are listed on Schedule
7.2(a)(iv) of the Credit Agreement, (ii) notices, filings or
registrations that have been given or effected, and (iii) the
filing of copies of Loan Documents with the Securities and
Exchange Commission as exhibits to its public filings.
(d) Valid Guaranty. This Guaranty is a legal, valid and
binding obligation of the Parent Guarantor, enforceable against
the Parent Guarantor in accordance with its terms, except where
such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or
limiting creditor's rights generally or equitable principles
relating to enforceability.
(e) Litigation. There is no pending or threatened action
or proceeding affecting the Parent Guarantor or its Subsidiaries
before any court, governmental agency or arbitrator, in which,
individually or in the aggregate, there is a reasonable
probability of an adverse decision which could have a Material
Adverse Effect or result in a Material Credit Agreement Change.
(f) Taxes. All federal, and all material state, local and
foreign tax returns, reports and statements required to be filed
by the Parent Guarantor or any of its Subsidiaries have been
filed with the appropriate governmental agencies in all
jurisdictions in which such returns, reports and statements are
required to be filed. All consolidated, combined or unitary
returns which include the Parent Guarantor or any of its
Subsidiaries have been filed with the appropriate governmental
agencies in all jurisdictions in which such returns, reports and
statements are required to be filed except where such filing is
being contested or may be contested. All federal, and all
material state, local and foreign taxes, charges and other
impositions of the Parent Guarantor, its Subsidiaries or any
consolidated, combined or unitary group which includes the Parent
Guarantor or any of its Subsidiaries which are due and payable
have been timely paid prior to the date on which any fine,
penalty, interest, late charge or loss may be added thereto for
non-payment thereof except where contested in good faith and by
appropriate proceedings if adequate reserves therefor have been
established on the books of the Parent Guarantor or such
Subsidiary in accordance with GAAP. Proper and accurate amounts
have been withheld by or on behalf of the Parent Guarantor and
each of its Subsidiaries from their respective employees for all
periods in full and complete compliance with the tax, social
security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have
been timely paid to the respective governmental agencies, in all
material respects. Neither the Parent Guarantor nor any of its
Tax Affiliates has agreed or has been requested to make any
adjustment under Section 481(a) of the Code by reason of a change
in accounting method or otherwise relating to the Borrower or any
of its Subsidiaries which will affect a taxable year of the
Parent Guarantor or a Tax Affiliate ending after December 31,
1993, which has not been reflected in the financial statements
delivered pursuant to Section 6(g) and which would have a
Material Adverse Effect. The Parent Guarantor has no obligation
to any Person other than the Borrower and the Parent Guarantor's
Subsidiaries under any tax sharing agreement or other tax sharing
arrangement.
(g) Financial Information. (i) The reports of the Parent
Guarantor on Form 10-K for the Fiscal Year ended December 31,
1997 and on Form 10-Q for the Fiscal Quarters ended March 31,
1998, June 30, 1998 and September 30, 1998 which have been
furnished to the Agent and each Bank, are respectively complete
and correct in all material respects as of such respective dates,
and the financial statements therein have been prepared in
accordance with GAAP and fairly present the financial condition
and results of operations of the Parent Guarantor and its
consolidated Subsidiaries as of such respective dates (subject,
in the case of such reports on Form 10-Q, to changes resulting
from normal year-end adjustments).
(ii) Since December 31, 1997 there has been no
Material Adverse Change or Material Credit Agreement Change.
(iii) None of the Parent Guarantor or any Subsidiary
of the Parent Guarantor had at September 30, 1998 any
obligation, contingent liability, or liability for taxes or
long-term leases material to the Parent Guarantor and its
Subsidiaries taken as a whole which is not reflected in the
balance sheets referred to in subsection (i) above or in the
notes thereto.
(h) ERISA.
(i) No liability under Sections 4062, 4063, 4064 or
4069 of ERISA has been or is expected by the Parent
Guarantor to be incurred by the Parent Guarantor or any
ERISA Affiliate with respect to any Plan which is a
Single-Employer Plan in an amount that could reasonably be
expected to have a Material Adverse Effect.
(ii) No Plan which is a Single-Employer Plan had an
accumulated funding deficiency, whether or not waived, as of
the last day of the most recent fiscal year of such Plan
ended prior to the date hereof. Neither the Parent
Guarantor nor any ERISA Affiliate is (A) required to give
security to any Plan which is a Single-Employer Plan
pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA, or (B) subject to a Lien in favor of such a Plan
under Section 302(f) of ERISA.
(iii) Each Plan of the Parent Guarantor, each of its
Subsidiaries and each of its ERISA Affiliates is in
compliance in all material respects with the applicable
provisions of ERISA and the Code, except where the failure
to comply would not result in any Material Adverse Effect.
(iv) Neither the Parent Guarantor nor any of its
Subsidiaries has incurred a tax liability under Section 4975
of the Code or a penalty under Section 502(i) of ERISA in
respect of any Plan which has not been paid in full, except
where the incurrence of such tax or penalty would not result
in a Material Adverse Effect.
(v) None of the Parent Guarantor, any of its
Subsidiaries or any ERISA Affiliate has incurred or
reasonably expects to incur any Withdrawal Liability under
Section 4201 of ERISA as a result of a complete or partial
withdrawal from a Multiemployer Plan which will result in
Withdrawal Liability to the Parent Guarantor, any of its
Subsidiaries or any ERISA Affiliate in an amount that could
reasonably be expected to have a Material Adverse Effect.
(i) No Defaults. Neither the Parent Guarantor nor any of
its Subsidiaries is in breach of or default under or with respect
to any instrument, document or agreement binding upon the Parent
Guarantor or such Subsidiary which breach or default is
reasonably probable to have a Material Adverse Effect or result
in the creation of a Lien on any Property of the Parent Guarantor
or its Subsidiaries.
(j) Disclosure. All written information relating to the
Parent Guarantor and any of its Subsidiaries which has been
delivered by or on behalf of the Parent Guarantor or the Borrower
to the Agent or the Banks in connection with the Loan Documents
and all financial and other information furnished to the Agent is
true and correct in all material respects and contains no
misstatement of a fact of a material nature. Any financial
projections and other information regarding anticipated future
plans or developments contained therein was based upon the Parent
Guarantor's best good faith estimates and assumptions at the time
they were prepared.
(k) Subsidiaries. (i) Schedule 5(k) hereto sets forth all
of the Subsidiaries, their jurisdictions of incorporation and the
percentages of the various classes of their capital stock owned
by the Parent Guarantor or another Subsidiary of the Parent
Guarantor, (ii) the Parent Guarantor or another Subsidiary, as
the case may be, has the unrestricted right to vote, and to
receive dividends and dividends on, all capital stock indicated
on such Schedule as owned by the Parent Guarantor or such
Subsidiary (subject to limitations imposed by Applicable Law or
the Loan Documents) and (iii) such capital stock has been duly
authorized and issued and is fully paid and nonassessable.
(l) Principal Subsidiaries. Schedule 5(l) hereto sets
forth all of the Principal Subsidiaries in existence as of the
Agreement Date.
(m) Insurance. All policies of insurance of any kind or
nature owned by the Parent Guarantor and its Subsidiaries are
maintained with reputable insurers which to the Parent
Guarantor's best knowledge are financially sound. The Parent
Guarantor currently maintains insurance with respect to its
Properties and business and causes its Subsidiaries to maintain
insurance with respect to their respective Properties and
business against loss or damage of the kinds customarily insured
against by corporations engaged in the same or similar business
and similarly situated, of such types and in such amounts as are
customarily carried under similar circumstances by such other
corporations including, without limitation, worker's compensation
insurance.
(n) Environmental Protection. (i) There are no known
conditions or circumstances known to the Parent Guarantor
associated with the currently or previously owned or leased
properties or operations of the Parent Guarantor or its
Subsidiaries or tenants which may give rise to any Environmental
Liabilities and Costs which would have a Material Adverse Effect;
and
(ii) No Environmental Lien has attached to any Property
of the Parent Guarantor or any of its Subsidiaries which would
have a Material Adverse Effect.
(o) Regulatory Matters. Except as disclosed in the Parent
Guarantor's Form 10-K for the fiscal year ending December 31,
1997 or its Report on Form 10-Q for the fiscal quarter ending
September 30, 1998, the Parent Guarantor and its Subsidiaries are
to the best of their knowledge in compliance with all rules,
regulations and other requirements of the Food and Drug
Administration ("FDA") and other regulatory authorities of
jurisdictions in which the Parent Guarantor or any of its
Subsidiaries do business or operate manufacturing facilities,
including without limitation those relating to compliance by the
Parent Guarantor's or any such Subsidiary's manufacturing
facilities with "Current Good Manufacturing Practices" as
interpreted by the FDA, except to the extent any such
noncompliance would not have a Material Adverse Effect. Except
as so disclosed, neither the FDA nor any other such regulatory
authority has requested (or, to the Parent Guarantor's knowledge,
are considering requesting) any product recalls or other
enforcement actions that (a) if not complied with would result in
a Material Adverse Effect and (b) with which the Borrower has not
complied within the time period allowed.
(p) Title and Liens. Each of the Parent Guarantor and its
Subsidiaries has good and marketable title to its real properties
and owns or leases all its other material Properties, in each
case, as shown on its most recent quarterly balance sheet, and
none of such Properties is subject to any Lien except for
Permitted Liens.
(q) Compliance with Law. Each of the Parent Guarantor and
its Subsidiaries is in compliance with all Applicable Law,
including, without limitation, all Environmental Laws, except
where any failure to comply with any such laws would not, alone
or in the aggregate, have a Material Adverse Effect on the
business or financial condition of the Parent Guarantor and its
Subsidiaries taken as a whole, or the Parent Guarantor's ability
to perform its obligations under the Loan Documents.
(r) Trademarks, Copyrights, Etc. The Parent Guarantor and
each of its Subsidiaries own or have the rights to use such
trademarks, service marks, trade names, copyrights, licenses or
rights in any thereof, as in the aggregate are adequate in the
reasonable judgment of the Parent Guarantor for the conduct of
the business of the Parent Guarantor and its Subsidiaries as now
conducted.
(s) Year 2000 Issue. The Parent Guarantor and its
Subsidiaries have reviewed, and are continuing to review, the
effect of the Year 2000 Issue on the computer software, hardware
and firmware systems and equipment containing embedded microchips
owned or operated by or for the Parent Guarantor and its
Subsidiaries or used or relied upon in the conduct of their
business (including systems and equipment supplied by others or
with which such computer systems of the Parent Guarantor and its
Subsidiaries interface). The information contained in the Parent
Guarantor's Form 10-Q for the Fiscal Quarter ended September 30,
1998 as to the costs to the Parent Guarantor and its Subsidiaries
of any reprogramming required as a result of the Year 2000 Issue
to permit the proper functioning of such systems and equipment
and the proper processing of data, and the testing of such
reprogramming, and of the reasonably foreseeable consequences of
the Year 2000 Issue to the Parent Guarantor or any of its
Subsidiaries (including reprogramming errors and the failure of
systems or equipment supplied by others) is complete and correct
in all material respect as of such date and such costs are not
reasonably expected to result in a Default or Event of Default or
to have a material adverse effect on the business, assets,
operations, prospects or condition (financial or otherwise) of
the Parent Guarantor or any of its Subsidiaries.
(t) Pari Passu Obligations. The obligations of the Parent
Guarantor under this Guaranty do rank at least pari passu in
priority of payment with all other present unsecured Indebtedness
of the Parent Guarantor.
(u) Corporate Headquarters. The Parent Guarantor and the
Borrower maintain dual corporate headquarters: in Oslo, Norway
through Alpharma A.S. and in northern New Jersey (currently Fort
Lee), U.S.A. through the Parent Guarantor.
SECTION 6. Affirmative Covenants. As long as any of the
Guaranteed Obligations or any other amounts shall remain unpaid,
or any Bank shall have any Commitment under the Credit Agreement,
unless otherwise agreed by the written consent of the Majority
Banks:
(a) Compliance with Laws, Etc. The Parent Guarantor shall
comply, and cause each of its Subsidiaries to comply, in all
material respects with all Applicable Law except such
non-compliance as would not have a Material Adverse Effect or
result in a Material Credit Agreement Change.
(b) Payment of Taxes, Etc. The Parent Guarantor and any
consolidated, combined or unitary group which includes the Parent
Guarantor or any of its Subsidiaries shall pay and discharge, and
cause each Subsidiary of the Parent Guarantor to pay and
discharge, before the same shall become delinquent, all lawful
claims, Taxes, assessments and governmental charges or levies
except where contested in good faith, by proper proceedings, and
where adequate reserves therefor have been established on the
books of the Parent Guarantor or such Subsidiary in accordance
with GAAP.
(c) Maintenance of Insurance. The Parent Guarantor shall
maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is
usually carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which the
Parent Guarantor or such Subsidiary operates. The Parent
Guarantor will furnish to the Agent from time to time such
information as may be requested as to such insurance.
(d) Preservation of Corporate Existence, Etc. The Parent
Guarantor shall preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain, their respective corporate
existences; provided, that this Section 6(d) shall not apply at
any time with respect to the corporate existence of a Subsidiary
of the Parent Guarantor (other than the Borrower and the
Scandinavian Principal Companies) in any case where the Parent
Guarantor's Board of Directors determines in good faith that such
termination of corporate existence is in the best interests of
the Parent Guarantor and its Subsidiaries taken as a whole and
where noncompliance will not have a Materially Adverse Effect on
the Parent Guarantor and its Subsidiaries or any Loan Document
(other than a Loan Document delivered by a Subsidiary that at
such time is no longer a Principal Subsidiary, as determined at
such time); provided, further that this Section 6(d) shall be
without prejudice to the other provisions of this Guaranty and
the Credit Agreement.
(e) Books and Access. The Parent Guarantor shall, and
shall cause each of its Subsidiaries to, keep proper books of
record and accounts in conformity with GAAP, and upon reasonable
notice and at such reasonable times during the usual business
hours as often as may be reasonably requested, permit
representatives of the Agent, at its own initiative or at the
request of any Bank, to make inspections of its Properties, to
examine its books, accounts and records and make copies and
memoranda thereof and to discuss its affairs and finances with
its officers or directors and independent public accountants.
(f) Maintenance of Properties, Etc. The Parent Guarantor
shall maintain and preserve, and cause each of its Subsidiaries
to maintain and preserve, all of their respective Properties
which are used or useful in the conduct of its business in good
working order and condition and, from time to time make or cause
to be made all appropriate repairs, renewals and replacements,
except where the failure to do so would not have a Material
Adverse Effect.
(g) Financial Statements. The Parent Guarantor shall
furnish, or cause to be furnished, to the Agent (with sufficient
copies for the Banks):
(i) as soon as available but not later than fifty (50)
days after the close of each of the first three (3) Fiscal
Quarters of each Fiscal Year of the Parent Guarantor,
consolidated and consolidating balance sheets of the Parent
Guarantor and its Subsidiaries as at the end of such Fiscal
Quarter and the related consolidated and consolidating
statements of operations and the consolidated statement of
cash flows of the Parent Guarantor and its Subsidiaries for
such Fiscal Quarter and (in the case of the second and third
Fiscal Quarters) for the period from the beginning of the
then current Fiscal Year to the end of such Fiscal Quarter,
setting forth in each case in comparative form the
consolidated figures for the corresponding periods of the
previous Fiscal Year, all in reasonable detail and certified
by a Responsible Financial Officer of the Parent Guarantor
as fairly presenting, in accordance with GAAP, the financial
condition and results of operations of the Parent Guarantor
and its Subsidiaries, subject to changes resulting from
normal year-end audit adjustments; provided, that to the
extent set forth therein and otherwise complying with the
requirements of this clause, the Parent Guarantor may
satisfy the requirements hereof by delivering its Form 10Q
for the applicable period;
(ii) (1) as soon as available but no later than ninety-
five (95) days after the close of each Fiscal Year of the
Parent Guarantor, consolidated and consolidating balance
sheets of the Parent Guarantor and its Subsidiaries as at
the end of such year and the related consolidated and
consolidating statements of operations and the consolidated
statement of cash flows of the Borrower and its Subsidiaries
for such year, setting forth in each case in comparative
form the consolidated and consolidating figures for the
previous Fiscal Year, all in reasonable detail and certified
in the case of the consolidated financial statements by
PriceWaterhouseCoopers or another firm of nationally
recognized independent public accountants, which report
shall state without qualification as to the scope of the
audit or as to going concern that such consolidated
financial statements present fairly the financial position
and the results of operations as at the dates and for the
periods indicated in conformity with GAAP and that the audit
by such accountants in connection with such consolidated
financial statements has been made in accordance with GAAS,
(2) as soon as available but not later than one hundred
twenty (120) days after the close of each Fiscal Year of the
Parent Guarantor, a certificate from such accounting firm
that in the course of the regular audit of the business of
the Parent Guarantor and its Subsidiaries, which audit was
conducted by such accounting firm in accordance with GAAS,
such accounting firm reviewed the financial covenants
included in Section 8 and such review disclosed no evidence
that an Event of Default or Default has occurred based on
such financial covenants or, if in the opinion of such
accounting firm, such an Event of Default or Default has
occurred and is continuing, a statement as to the nature
thereof; provided, that to the extent set forth therein and
otherwise complying with the requirements of this clause,
the Parent Guarantor may satisfy the requirements hereof by
delivering its Form 10K for the applicable period;
(iii) together with each delivery of financial
statements of the Parent Guarantor pursuant to clauses (i)
and (ii) above and commencing with the Fiscal Quarter ending
December 31, 1998, a certificate issued by a Responsible
Financial Officer of the Parent Guarantor (1) demonstrating
compliance at the end of the accounting period described in
such statements with the financial covenants contained
herein and (2) containing in reasonable detail the component
figures contained in the respective total figures stated in
such certificate;
(iv) together with each delivery of financial
statements of the Parent Guarantor and its Subsidiaries
pursuant to clauses (i) or (ii) above, and commencing with
the Fiscal Quarter ending September 30, 1998, a certificate
signed by a Responsible Financial Officer of the Parent
Guarantor stating that (1) such officer is familiar with
both this Guaranty and the business and financial condition
of the Parent Guarantor (2) that the representations and
warranties set forth in Section 5 hereof are true and
correct in all material respects as though such
representations and warranties had been made by the Parent
Guarantor on and as of the date thereof (other than those
that are expressly stated to be made as of a certain date),
and (3) no Event of Default or Default has occurred and is
continuing or if an Event of Default or Default has occurred
and is continuing a statement as to the nature thereof, and
whether or not the same shall have been cured;
(v) together with each delivery of financial statements
of the Parent Guarantor and its Subsidiaries pursuant to
clause (ii) above, a certificate signed by a Responsible
Financial Officer of the Parent Guarantor stating that as of
the date of such certificate, the entities listed on a
schedule attached thereto are all of the Principal
Subsidiaries in existence at such time (describing any
changes in the entities constituting Principal Subsidiaries
since the delivery of the last such certificate);
(vi) together with each delivery of financial
statements of the Parent Guarantor and its Subsidiaries
pursuant to clauses (i) or (ii) above, a schedule
substantially in the form of Schedule 6(g)(vi) hereto,
certified by a Responsible Financial Officer of the Parent
Guarantor, setting forth any changes in the outstanding long-
term indebtedness of the Parent Guarantor and its
Subsidiaries since the date of the previously delivered
schedule.
(vii) together with each delivery of financial
statements of the Parent Guarantor pursuant to clauses (i)
and (ii) above and commencing with the Fiscal Year ending
December 31, 1998, a report providing information on the
status of actions taken by the Parent Guarantor and its
Subsidiaries in order to comply with Section 6(l) of the
Parent Guaranty; provided, that to the extent set forth
therein and otherwise complying with the requirements of
this clause, the Parent Guarantor may satisfy the
requirements hereof by delivering its Form 10K for the
applicable period.
(h) Reporting Requirements. The Parent Guarantor shall
furnish to the Agent for distribution to the Banks:
(i) from time to time as the Agent may reasonably
request, copies of such statements, lists of Property,
accounts, reports or information prepared by or for the
Parent Guarantor or within the Parent Guarantor's control.
In addition, the Parent Guarantor shall furnish to the Agent
for distribution to the Banks, within fifteen (15) days
after delivery thereof to the Parent Guarantor's Board of
Directors, copies of budgets and forecasts prepared by or
for the Parent Guarantor or within the Parent Guarantor's
control (including, without limitation, any such accounts,
reports, information, final budgets and forecasts delivered
to the Parent Guarantor's Board of Directors in connection
with a proposed Acquisition, except to the extent that any
such information about the company or product to be Acquired
is subject to a confidentiality agreement and cannot be
properly disclosed);
(ii) promptly and in any event within thirty (30)
days after the Parent Guarantor, any of its Subsidiaries or
any ERISA Affiliate knows that any ERISA Event has occurred
(other than a Reportable Event for which notice to the PBGC
is waived), a written statement of the chief financial
officer or other appropriate officer of the Parent Guarantor
describing such ERISA Event and the action, if any, which
the Borrower, any of its Subsidiaries or any ERISA Affiliate
proposes to take with respect thereto, and a copy of any
notice filed with the PBGC or the IRS pertaining thereto;
(iii) promptly and in any event within thirty (30)
days after notice or knowledge thereof, notice that the
Parent Guarantor or any of its Subsidiaries becomes subject
to the tax on prohibited transactions imposed by Section
4975 of the Code, together with a copy of Form 5330;
(iv) promptly after the commencement thereof, notice
of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, against or
affecting the Parent Guarantor or any of its Subsidiaries,
in which there is a reasonable probability of an adverse
decision which would have a Material Adverse Effect;
(v) promptly upon the Parent Guarantor or any of its
Subsidiaries learning of (i) any Event of Default or any
Default, or (ii) any Material Credit Agreement Change,
telephonic or telegraphic notice specifying the nature of
such Event of Default, Default or Material Credit Agreement
Change, including the anticipated effect thereof, which
notice shall be promptly confirmed in writing within five
days;
(vi) promptly after the sending or filing thereof,
copies of all reports which the Parent Guarantor sends to
its security holders generally, and copies of all reports
and registration statements which the Parent Guarantor or
any of its Subsidiaries files with the Securities and
Exchange Commission or any national securities exchange;
(vii) promptly upon, and in any event within 30 days
of, the Parent Guarantor or any of its Subsidiaries learning
of any of the following:
(1) notice that any Property of the Parent
Guarantor or any of its Subsidiaries is subject to any
Environmental Liens individually or in the aggregate
which would have a Material Adverse Effect;
(2) any proposed acquisition of stock, assets
or real estate, or any proposed leasing of Property, or
any other action by the Parent Guarantor or any of its
Subsidiaries in which there is a reasonable probability
that the Parent Guarantor or any of its Subsidiaries
would be subject to any material Environmental
Liabilities and Costs, provided, that, in the event of
any such proposed acquisition or lease, the Parent
Guarantor must furnish to the Agent evidence in a form
acceptable to the Agent that the proposed acquisition
will not have a Material Adverse Effect;
(viii) prior to the effectiveness thereof,
information relating to any proposed change in the
accounting treatment or reporting practices of the Parent
Guarantor and its Subsidiaries the nature or scope of which
materially affects the calculation of any component of any
financial covenant, standard or term contained in this
Guaranty; and
(ix) prior to the Parent Guarantor, or any of its
Subsidiaries, (i) entering into any agreement relating to
the sale of, or the granting of a Lien on, assets having a
fair market value of $10,000,000 or more, or (ii) incurring
Indebtedness pursuant to a single transaction the aggregate
principal amount of which is $10,000,000 or more, the Parent
Guarantor shall give the Agent 15 days' notice of its
intention to enter into such an agreement; and
(x) from time to time, such other information and
materials as the Agent (or the Banks through the Agent may
reasonably request.
(i) Additional Credit Support Documents. The Parent
Guarantor shall deliver, or shall cause to be delivered, within
five (5) Business Days of delivery to the Agent of a certificate
pursuant to Section 6(g)(v) hereof, in respect of each Principal
Subsidiary, disclosed on the schedule attached to such
certificate (a) a Subsidiary Guaranty duly executed by each such
Principal Subsidiary or (b) if any such Principal Subsidiary is a
Non-U.S. Subsidiary, a Pledge Agreement duly executed by the
Shareholders of such Non-U.S. Subsidiary; provided, that this
Section (i) shall not apply to any Principal Subsidiary as to
which there already is at such time a valid and binding
Subsidiary Guaranty or Pledge Agreement (as the case may be).
(j) Delivery of Opinions. Concurrently with the execution
and delivery of any additional Credit Support Documents pursuant
to Section 6(i) hereof, the Parent Guarantor shall deliver, or
shall cause to be delivered, to the Agent an opinion of counsel
relating to such additional Credit Support Document in form and
substance substantially similar to the opinions rendered in
connection with comparable agreements on the Effective Date.
(k) Stock Exchange Listing. The Parent Guarantor's Class A
common stock shall at all times be listed on The New York Stock
Exchange.
(l) Year 2000 Compliance. The Parent Guarantor shall take,
and shall cause each of its Subsidiaries to take, all necessary
action to complete in all material respects by the end of the
time periods set forth in the Parent Guarantor's Form 10-Q for
the Fiscal Quarter ended September 30, 1998, the reprogramming of
computer software, hardware and firmware systems and equipment
containing embedded microchips owned or operated by or for the
Parent Guarantor and its Subsidiaries or used or relied upon in
the conduct of their business (including systems and equipment
supplied by others or with which such systems of the Parent
Guarantor or any of its Subsidiaries interface) as described in
such Form 10-Q and required as a result of the Year 2000 Issue to
permit the proper functioning of such computer systems and other
equipment and the testing of such systems and equipment, as so
reprogrammed except to the extent that failure to so comply would
not have a Material Adverse Effect. At the request of the Bank,
the Parent Guarantor shall provide, and shall cause each of its
Subsidiaries to provide, to the Bank reasonable assurance of its
compliance with the preceding sentence.
(m) Pari Passu Obligations. The obligations of the Parent
Guarantor under this Agreement and the Notes do rank and will at
all time rank at least pari passu in priority of payment with
all other present and future unsecured Indebtedness of the Parent
Guarantor.
(n) Appointment of Financial Adviser. If at any time the
Parent Guarantor, in order to comply with Section 8(a) hereof,
relies on proviso (B) of such Section 8(a), then the Parent
Guarantor shall promptly retain a financial adviser or an
investment bank (in either case of internationally recognized
standing) to advise and assist the Parent Guarantor in raising
sufficient Equity to restore (i) the Equity Ratio to a minimum of
0.25:1 and (ii) the Adjusted Equity Ratio to a minimum of 0.30:1.
Copies of the engagement letter pursuant to which such financial
adviser or investment bank is retained shall be promptly
delivered to each of the Banks.
(o) Corporate Headquarters. The Parent Guarantor shall,
and shall cause the Borrower to, maintain dual corporate
headquarters: in Oslo, Norway through Alpharma A.S. and in
northern New Jersey (currently Fort Lee), U.S.A. through the
Parent Guarantor.
SECTION 7. Negative Covenants. So long as any of the
Guaranteed Obligations or any other amounts shall remain unpaid
or any Bank shall have any Commitment under the Credit Agreement,
unless otherwise agreed by the written consent of the Majority
Banks:
(a) Liens, Etc. The Parent Guarantor shall not, directly
or indirectly, create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien upon or with
respect to any of its Properties, whether now owned or hereafter
acquired, or assign, or permit any of its Subsidiaries to assign,
any right to receive income, in each case to secure or provide
for the payment of any Indebtedness of any Person, except the
following (collectively, "Permitted Liens").
(i) Liens created by the Loan Documents;
(ii) Liens listed on Schedule 7(a)(ii) hereto;
(iii) Liens securing a tax, assessment or other
governmental charge or levy or the claim of a materialman,
mechanic, carrier, warehouseman or landlord for labor,
materials, supplies or rentals and any other statutory lien
(other than Environmental Liens), but only if (A) such Lien
was incurred in the ordinary course of business and (B) the
liability secured by such Lien (1) is not delinquent or (2)
is being contested in good faith by appropriate proceedings
and adequate reserves or other appropriate provisions have
been provided therefor in an amount not less than the amount
required by GAAP;
(iv) Liens consisting of a deposit or pledge made in
the ordinary course of business in connection with, or to
secure payment of, obligations under worker's compensation,
unemployment insurance or similar legislation;
(v) Liens constituting an encumbrance in the nature of
zoning restrictions, easements and rights or restrictions of
record on the use of real property that does not have a
materially adverse effect on the Parent Guarantor or its
Subsidiaries;
(vi) Liens of landlords or of mortgagees of landlords
arising by operation of law or pursuant to the terms of real
property leases, provided that the rental payments secured
thereby are not yet due and payable;
(vii) Any interest or title of a lessor under any lease
entered into by the Parent Guarantor or any of its
Subsidiaries in the ordinary course of its business and
covering only the assets so leased;
(viii) Liens to secure the performance of bids, trade
contracts (other than for borrowed money), obligations for
utilities leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(ix) judgment or other similar Liens arising in
connection with legal proceedings, provided that there shall
be no period of more than 15 consecutive days during which a
stay of enforcement of the related judgment shall not be in
effect
(b) Mergers. The Parent Guarantor shall not merge or
consolidate in any transaction in which it or the Borrower is not
the surviving Person. The Parent Guarantor shall not, without
the consent of the Majority Banks, permit any of its Subsidiaries
to merge or consolidate in any transaction in which such
Subsidiary is not the surviving Person other than in mergers of
any Subsidiary (other than the Borrower) into the Parent
Guarantor, the Borrower or any other wholly owned Subsidiary of
the Parent Guarantor or the Borrower that is incorporated in the
U.S.; provided, that with respect to mergers in which the
surviving entity is not the Parent Guarantor or the Borrower,
then the Parent Guarantor shall cause such surviving entity to
deliver a Subsidiary Guaranty if immediately after the merger the
surviving entity is a Principal Subsidiary (as determined at such
time) in respect of which there is not, at such time, a valid,
legal and binding Subsidiary Guaranty or Pledge Agreement.
(c) Substantial Asset Sale. The Parent Guarantor shall
not, and shall not permit any of its Subsidiaries to, sell,
lease, transfer or otherwise dispose of all or any substantial
part of its or their assets (including any of the stock of the
Scandinavian Principal Companies owned by it or them), except
that this Section 7(c) shall not apply to (i) any disposition of
assets (A) in the ordinary course of business or (B) any
disposition of assets (other than assets consisting of the stock
of the Scandinavian Principal Companies or assets owned by the
Scandinavian Principal Companies) (I) to the Parent Guarantor,
the Borrower or any Principal Subsidiary (in respect of which
there is in existence a legal, valid and binding Subsidiary
Guaranty or Pledge Agreement) or (II) where the proceeds of such
disposition (x) consist solely of cash or Cash Equivalents and
(y) the Net Cash Proceeds of such disposition are first applied
towards the prepayment of any Loans then outstanding in
accordance with Section 5.4(a) of the Credit Agreement; provided,
that for purposes of this Section 7(c), any such prepayment shall
be effected on the next succeeding day on which an interest
payment is due in respect of the Loan being prepaid after
consummation of the asset sale, and if such day is not the last
day of the Interest Period in respect of the Loan or Loans being
prepaid, the Borrower shall continue to be liable for any costs
or expenses pursuant to Section 12.4(c) or (ii) the contribution
by Wade Jones Company, Inc., a Texas corporation, an indirect
wholly-owned Subsidiary of the Parent Guarantor ("Wade Jones"),
of assets relating to the distribution activities of Wade Jones
in connection with the formation of Wynco, LLC, a limited
liability company, among Wade Jones, G&M Animal Health
Distributors, Inc., a corporation duly organised under the State
of Arkansas, and T&H Distributors, LLC, a Delaware limited
liability company.
(d) Transactions with Affiliates. The Parent Guarantor
shall not engage in, and will not permit any of its Subsidiaries
to engage in, any transaction with an Affiliate of the Parent
Guarantor or of such Subsidiary other than transactions in the
ordinary course of business between a Subsidiary and its parent
or among Subsidiaries of the Parent Guarantor that are on terms
no less favorable to the Parent Guarantor or such Subsidiaries
than as would be obtained in a comparable arms-length
transaction.
(e) Activities. The Parent Guarantor shall not engage in
any business activities, own any Properties or incur any
obligations or Indebtedness other than (a) as contemplated by the
Loan Documents, (b) the ownership of the Equity of its
Subsidiaries and of the real estate and improvements thereon
relating to its manufacturing facility in Chicago Heights,
Illinois , (c) business activities, the ownership of Properties
and the incurrance of obligations or Permitted Indebtedness in
connection with the operation of its animal health business and
(d) the incurrance of obligations in connection with the guaranty
or similar assurance of payment or performance of the obligations
or Permitted Indebtedness of its Subsidiaries; provided that in
the case of the foregoing sub-clauses (c) or (d) only so long as
such business activities or obligations do not violate any other
provision of this Guaranty or any other Loan Document.
(f) Restrictions on Indebtedness. (i) Subject to clause
(ii) below, the Parent Guarantor shall not incur, and shall not
permit its Subsidiaries to incur, Indebtedness except the
following (collectively, "Permitted Indebtedness"):
(A) Indebtedness under the Loan Documents;
(B) Any Indebtedness incurred by the Parent Guarantor
or the Borrower (but not any other Subsidiary of the Parent
Guarantor) if prior to, and immediately after, the
incurrence thereof, the Senior Ratio is equal to or less
than 3.5;
(C) Subordinated Indebtedness of the Parent Guarantor
or the Borrower; or
(D) Permitted Intercompany Indebtedness;
(E) Indebtedness incurred pursuant to a Permitted
Credit Line up to an aggregate principal amount which does
not exceed the principal amount disclosed on Schedule
7(f)(i)(E) hereto under the heading "Total Permitted Credit
Line"; or
(F) Indebtedness of the Parent Guarantor or the
Borrower under Swap Agreements entered into in the ordinary
course of business with any Bank.
provided, that prior to the incurrence of Subordinated
Indebtedness, the Agent shall have received an opinion of counsel
relating to such Subordinated Indebtedness and stating that in
the opinion of such counsel the Indebtedness of the Loan Parties
under the Loan Documents is senior indebtedness within the
meaning of such term (or a term analogous thereto) as used in the
terms and provisions relating to such Subordinated Indebtedness.
(ii) Notwithstanding clause (i) above, no Permitted
Indebtedness may be incurred unless (A) the Parent Guarantor or
the Borrower shall have given the Agent at least 7 Business Days'
prior notice of the intention to incur such Indebtedness in
accordance with the terms hereof and (B) if the principal amount
of such Indebtedness is $1,000,000 or more, the Person to whom
the debtor in respect of such Indebtedness shall be obligated
becomes a party to the Intercreditor Agreement (unless it is
already a party to such agreement); provided, however, that
clause (B) hereof shall not apply to (1) Subordinated Debt or (2)
Indebtedness that is otherwise Permitted Indebtedness and that is
issued pursuant to a (x) registration statement filed with the
Securities and Exchange Commission or (y) a private placement
with institutional investors. In the case of such a private
placement with institutional investors, the Parent Guarantor or
the Borrower shall use its reasonable best efforts to ensure that
the institutional investors in such private placement become
parties to the Intercreditor Agreement.
(iii) The Parent Guarantor shall not, and shall not permit
any of its Subsidiaries to, make any voluntary pre-payments of
principal in respect of Subordinated Indebtedness so long as
there are any amounts outstanding under the Loan Documents. For
the avoidance of doubt, the parties agree that this clause (iii)
shall not restrict payments of principal in respect of
Subordinated Indebtedness so long as (A) such Subordinated
Indebtedness is evidenced by convertible bonds, notes or
debentures, (B) such payment is being made in connection with the
exercise by the issuer thereof of the conversion option
applicable to such Indebtedness at a time when the conversion
option applicable to such Indebtedness is at a price lower than
the then present market price of the security issuable upon
conversion, (C) such payment is not being made any earlier than
three years from the date of issuance of such Indebtedness and
(D) the Majority Banks have consented to such payment (which
consent shall not be unreasonably withheld).
SECTION 8. Financial Covenants. As long as any of the
Guaranteed Obligations shall remain unpaid or any Bank shall have
any Commitment under the Credit Agreement, unless otherwise
agreed by the written consent of the Majority Banks:
(a) Minimum Equity Ratio. The Equity Ratio of the Parent
Guarantor and its Subsidiaries shall not at any time be less than
(i) 0.2:1, from the Agreement Date through December 31, 1998, and
(ii) 0.3:1 thereafter; provided, however, (A) if at any time
after December 31, 1998 the Adjusted Equity Ratio is equal to or
greater than 0.3:1, then the Equity Ratio during any such period
shall not at any time be less than 0.25:1 and provided, further,
(B) if prior to December 31, 1999 the Parent Guarantor or any of
its Subsidiaries makes a Significant Acquisition, then from the
Significant Acquisition Date through the earlier of (x) June 30,
2000 and (y) six (6) months after such transaction is
consummated, during any period for which the Adjusted Equity
Ratio is equal to or greater than 0.3:1, the Equity Ratio shall
for such period not be less than 0.20:1. For purposes of this
Section 8(a), the "Adjusted Equity Ratio" shall mean, at any
time, the ratio of (A) the sum of (I) the Net Worth of the Parent
Guarantor and its Subsidiaries on a consolidated basis plus (II)
50% of the aggregate principal amount of Subordinated
Indebtedness outstanding at such time to (B) the total value of
the assets of the Parent Guarantor and its Subsidiaries on a
consolidated basis as shown on the Parent Guarantor's then most
recent quarterly consolidated balance sheet.
(b) Total Indebtedness to EBITDA. The ratio of (i) Total
Indebtedness to (ii) EBITDA as at the last day of any period of
four consecutive Fiscal Quarters of the Parent Guarantor shall
not be less than (A) 5.50:1, from the Agreement Date through
December 31, 2000, (B) 5.25:1, from January 1, 2001 through
December 31, 2001, and (C) 5.00:1 thereafter; provided, however,
that if prior to December 31, 2000 the Parent Guarantor or any of
its Subsidiaries makes a Significant Acquisition, then the ratio
of Total Indebtedness to EBITDA shall not be less than 6.0:1 from
the Significant Acquisition Date through the earlier of (x)
December 31, 2000 and (y) eighteen (18) months after such
transaction is consummated.
(c) Interest Coverage Ratio. The ratio of (i) EBITDA to
(ii) Total Interest Expense for any period of four consecutive
Fiscal Quarters of the Parent Guarantor shall not be less than
(A) 2.25:1, from the Agreement Date through December 31, 2000,
(B) 2.50:1, from January 1, 2001 through December 31, 2001, and
(C) 3.00:1 thereafter; provided, however, that if prior to
December 31, 2000 the Parent Guarantor or any of its Subsidiaries
makes a Significant Acquisition, then the ratio of EBITDA to
Total Interest Expense shall not be less than 2.0:1 from the
Significant Acquisition Date through the earlier of (x) December
31, 2000 and (y) eighteen (18) months after such transaction is
consummated.
SECTION 9. Payments and Computations. (a) The Parent
Guarantor shall make each payment payable by it hereunder not
later than 11:00 A.M. (New York City time) on the day when due,
in Dollars, to the Agent at its address referred to in Section
12.2 of the Credit Agreement in immediately available funds
without set-off or counterclaim, for the account of the several
Banks.
(b) No Reductions. (i) Subject to Section 9(b)(ii) and
(iii), payments due to the Agent, the Arranger, the Co-Arranger
or any Bank hereunder, and all other terms, conditions, covenants
and agreements to be observed and performed by the Parent
Guarantor hereunder, shall be made, observed or performed by the
Parent Guarantor without any reduction or deduction whatsoever,
including any reduction or deduction for any set-off, recoupment,
counterclaim (whether sounding in tort, contract or otherwise) or
Tax.
(ii)(x) If any withholding or deduction from any payment to
be made by the Parent Guarantor hereunder is required for any
Taxes under any applicable law, rule or regulation, then the
Parent Guarantor will
(A) pay directly to the relevant taxing authority
the full amount required to be so withheld or deducted;
(B) promptly forward to the Agent an official
receipt or other documentation satisfactory to the Agent
evidencing such payment to such authority; and
(C) pay to the Agent for the account of the Banks
such additional amount or amounts necessary to ensure that
the net amount actually received by each Bank will equal the
full amount such Bank would have received had no such
withholding or deduction been required.
In addition, to the extent permitted by applicable law, the
Parent Guarantor agrees to pay any present or future stamp or
documentary taxes, excise or property taxes, or any other charges
or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise
with respect to, this Guaranty or the Notes (hereinafter referred
to as "Other Taxes").
Each Bank shall use its reasonable best efforts to designate
another of its then existing offices as its Lending Office if the
making of such designation would, without any detrimental effect
to such Bank (as determined by the Bank in its sole discretion),
avoid the need for, or reduce the amount of, such withholding or
deduction from any payment to be made to such Bank by the Parent
Guarantor hereunder required for any Taxes.
The Parent Guarantor will indemnify each Bank and the Agent
for the full amount of Taxes or Other Taxes paid by such Bank or
the Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be
made within 30 days from the date such Bank or the Agent (as the
case may be) makes written demand therefor.
If the Parent Guarantor fails to pay any Taxes or Other
Taxes when due to the appropriate taxing authority or fails to
remit to the Agent, for the account of the respective Banks, the
required receipts or other required documentary evidence, the
Parent Guarantor shall indemnify the Agent and the Banks for any
incremental Taxes or Other Taxes, penalties, interest or expenses
that may become payable by the Agent or any Bank as a result of
any such failure.
(y) Notwithstanding subsection (x), the Parent Guarantor
shall not be required to indemnify or pay additional amounts for
or on account of:
(A) Taxes imposed on or measured by the net income of the
Agent or any Bank or franchise Taxes imposed on the Agent or any
Bank, but in each case only to the extent imposed by the
jurisdiction under the laws of which the Agent or such Bank is
organized or doing business (other than as a result of the
transactions contemplated by the Loan Documents or the Agent's or
any Bank's enforcement of its rights under any Loan Document) or
any political subdivision or taxing authority thereof or therein,
or by any jurisdiction in which the Agent or such Bank's lending
office or principal executive office is located or any political
subdivision or taxing authority thereof or therein (except, in
each case, to the extent required by the following paragraph to
make payments on a net after-tax-basis), or
(B) any Tax or Other Tax imposed by reason of either (i)
the failure of the certification made by a Bank on any form
provided pursuant to Section 9(b)(iii) to be accurate and true in
all material respects unless any such failure is attributable
solely to a Change in Tax Law that occurs on or after the date on
which such form is provided by such Bank, or (ii) the failure by
a Bank to deliver to the Parent Guarantor (or the Borrower) and
the Agent two duly completed and executed copies of IRS Form 1001
or 4224 (or successor applicable forms) in accordance with the
second sentence of Section 9(b)(iii), certifying that such Bank
is entitled to receive payments under this Guaranty and the Loans
without deduction or withholding of any United States federal
income taxes, provided that this clause (B)(ii) will not apply if
such failure is attributable solely to a Change in Tax Law that
occurs on or after the date hereof.
All amounts payable as additional amounts or indemnities
pursuant to this Section 9(b) shall include an amount necessary
to hold the Agent or the relevant Bank harmless on a net after-
tax-basis from and against all Taxes required to be paid with
respect to or as a result of the payment of such additional
amount or indemnity (including, without limitation, Taxes
described in clause (A) of the preceding paragraph.)
(iii) Each Bank that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) agrees that
it will, on or before the date that the Parent Guarantor delivers
this Guaranty (or, in the case of a Bank that becomes a Bank
pursuant to an assignment described in Section 12.7 of the Credit
Agreement, on or before the date that the Agent records the
Notice of the Assignment and Acceptance by which it becomes a
Bank), deliver to the Parent Guarantor and the Agent two duly
completed and executed copies of IRS Form 1001 or 4224 or
successor applicable form, as the case may be, certifying in each
case that such Bank is entitled to receive payments payable to it
under this Guaranty and the Loans without deduction or
withholding of any United States federal income taxes. Each Bank
that undertakes to deliver to the Parent Guarantor and the Agent
an IRS Form 1001 or 4224 under the preceding sentence further
undertakes to deliver to the Agent and the Parent Guarantor two
additional duly completed and executed copies of Form 1001 or
4224 (or successor applicable forms) on or before the date that
any such form expires or becomes obsolete or after the occurrence
of any event requiring a change in the most recent form
previously delivered by it to the Parent Guarantor and the Agent,
and such extensions or renewals thereof as may reasonably be
required by the Parent Guarantor, certifying, in the case of a
Form 1001 or 4224, that such Bank is entitled to receive payments
under this Guaranty and the Loans without deduction or
withholding of any United States federal income taxes, unless, in
any such case, an event (including, without limitation, any
Change in Tax Law) has occurred before the date on which any such
delivery would otherwise be required which renders all such forms
inapplicable or which causes such Bank to be no longer eligible
to complete and deliver any such form with respect to it, in
which case the Bank shall either (1) furnish to the Parent
Guarantor such forms or other certification as the Bank (in its
sole opinion) is legally entitled to furnish evidencing the
Bank's eligibility for a complete exemption from or a reduced
rate of withholding of United States federal income taxes, or (2)
notify the Parent Guarantor that the Bank is not capable of
receiving payments without any deduction or withholding of United
States federal income tax.
SECTION 10. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing
(including telegraphic or telecopy communication) and mailed,
telegraphed, telecopied or delivered, if to the Parent Guarantor,
addressed to it at One Executive Drive, Fort Lee, New Jersey
07024, Tel: (201) 947-7774, Fax: (201) 947-0795 Attention: Albert
N. Marchio, II, Treasurer, if to the Agent, addressed to it at
the address specified in the Credit Agreement, or as to each
party at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery
with the terms of this Section. All such notices and other
communications shall, when mailed or telegraphed, respectively,
be effective when deposited in the mails or delivered to the
telegraph company, respectively, addressed as aforesaid, and
shall, when delivered or telecopied, be effective when received.
SECTION 11. No Waiver; Remedies. No failure on the part of
any Guaranteed Party to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 12. Right of Set-off. Upon the occurrence and
during the continuance of any Event of Default (as defined in the
Credit Agreement), each Bank is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to
set-off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Bank to or for the credit
or the account of the Parent Guarantor against any and all of the
obligations of the Parent Guarantor now or hereafter existing
under this Guaranty, irrespective of whether or not such Bank
shall have made any demand under this Guaranty. Each Bank agrees
promptly to notify the Parent Guarantor after any such set-off
and application made by such Bank; provided, however, that the
failure to give such notice shall not affect the validity of such
set-off and application. The rights of each Bank under this
Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which such Bank may
have.
SECTION 13. Continuing Guaranty; Transfer of Interest.
This Guaranty is a continuing guaranty and shall (i) remain in
full force and effect until indefeasible payment in full of the
Guaranteed Obligations and all other amounts payable under this
Guaranty, (ii) be binding upon the Parent Guarantor, its
successors and permitted assigns, provided that the Parent
Guarantor may not assign or transfer its obligations hereunder
without the consent of the Majority Banks, and (iii) inure to the
benefit of and be enforceable by any Guaranteed Party and its
respective successors, transferees, and assigns, without limiting
the generality of the foregoing clause (iii), any Bank may assign
or otherwise transfer all or any part of its rights and
obligations under the Credit Agreement in accordance therewith,
and such other person or entity shall thereupon become vested
with all the rights in respect thereof granted to such Bank
herein or otherwise, subject, however, to the provisions of
Article XII of the Credit Agreement.
SECTION 14. Reinstatement. This Guaranty shall remain in
full force and effect and continue to be effective should any
petition be filed by or against any Loan Party (as defined in the
Credit Agreement) for liquidation or reorganization, should any
Loan Party become insolvent or make an assignment for the benefit
of creditors or should a receiver or trustee be appointed for all
or any significant part of any Loan Party's assets, and shall, to
the fullest extent permitted by law, continue to be effective or
be reinstated, as the case may be, if at any time payment and
performance of the Guaranteed Obligations, or any part thereof,
is, pursuant to applicable law, rescinded or reduced in amount,
or must otherwise be restored or returned by any obligee of the
Guaranteed Obligations, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment
or performance had not been made. In the event that any payment,
or any part thereof, is rescinded, reduced, restored, or
returned, the Guaranteed Obligations shall, to the fullest extent
permitted by law, be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
SECTION 15. Defined Terms. (a) As used in this Guaranty,
the following terms have the following meanings (such meanings to
be equally applicable to both the singular and plural forms of
the terms defined):
"Adjusted Equity Ratio" has the meaning specified in Section
8(a).
"Current Assets" means, at any time, as to the Parent
Guarantor and its Subsidiaries, the consolidated current assets
of the Parent Guarantor and its Subsidiaries for the then most
recently ended Fiscal Quarter, as shown on the Parent Guarantor's
then most recent consolidated balance sheet at such time.
"Current Liabilities" of the Parent Guarantor and its
Subsidiaries means, at any time, (a) the consolidated current
liabilities of the Parent Guarantor and its Subsidiaries plus (b)
to the extent not included in (a), the current liabilities of any
Person (other than the Parent Guarantor or any of its
Subsidiaries) that are guaranteed by the Parent Guarantor or any
of its Subsidiaries, in each case for the then most recently
ended Fiscal Quarter as shown on the Parent Guarantor's then most
recent consolidated balance sheet at such time.
"Earnings from Operations" means, at any time, operating
income for the Parent Guarantor and its Subsidiaries on a
consolidated basis as set forth in the consolidated statement of
income of the Parent Guarantor and its Subsidiaries for the
immediately preceding four consecutive Fiscal Quarters (or such
fewer number of consecutive Fiscal Quarters as shall have ended
immediately following the Effective Date) for which financial
statements have been delivered to the Banks pursuant to Section
6(g) of this Guaranty; provided, however, that if the Parent
Guarantor or any of its Subsidiaries makes a Significant
Acquisition, then there shall be in the foregoing calculation of
EBIT the EBIT attributable to the product or product line so
acquired.
"EBIT" means, at any time, an amount equal to (a) the
consolidated net income of the Parent Guarantor and its
Subsidiaries before interest expense and provision for taxes
(excluding extraordinary gains and losses and gains from sales of
assets other than sales of inventory in the ordinary course of
business), in each case determined in accordance with GAAP for
the immediately preceding four consecutive Fiscal Quarters (as
shown on the Parent Guarantor's consolidated financial statements
and other reports, statements, budgets and forecasts, if any,
most recently delivered to the Agent);
"EBITDA" means, for any period, an amount equal to (a) the
consolidated net income of the Parent Guarantor and its
Subsidiaries plus, to the extent deducted in computing such net
income, interest expense and provision for taxes plus (b) the
amount of all amortization of intangibles and depreciation that
were deducted in arriving at such amount minus (c) the amount of
all non-cash gains that were added in arriving at such amount, in
each case determined in accordance with GAAP for such period (as
shown on the Parent Guarantor's most recent consolidated
financial statements delivered to the Agent); provided, however,
that extraordinary gains and losses and gains from sales of
assets other than sales of inventory in the ordinary course of
business shall be excluded from the calculation of such
consolidated net income; provided further, that if the Parent
Guarantor or any of its Subsidiaries makes a Significant
Acquisition during such period, then there shall be included in
the foregoing calculation of EBITDA the EBITDA of the acquired
Person and/or the EBIT attributable to the acquired product or
product line, as the case may be, for such period; provided,
further, that subject to the consent of the Banks (which shall
not be unreasonably withheld), the following items may be
excluded from the calculation of EBITDA for purposes of
calculating the Margin Ratio under the Credit Agreement and
compliance with Sections 7(f)(i)(B), 8(b) and 8(c) of this
Guaranty: (i) one time charges resulting from reorganizations of
the Parent Guarantor and/or both existing and new Subsidiaries,
(ii) gains and/or losses from the sale of a business and (iii)
one time charges in connection with an acquisition as may be
required in accordance with GAAP (and, for the avoidance of
doubt, the Banks have consented to the exclusion of the one time
charge relating to the acquisition of Arthur H. Cox & Co.
Limited, a U.K. company, and English company, and its
Subsidiaries from the calculation of EBITDA as aforesaid).
"Equity Ratio" means, at any time, the ratio of (a) the Net
Worth of the Parent Guarantor and its Subsidiaries to (b) the
total value of the assets of the Parent Guarantor and its
Subsidiaries as shown on the Parent Guarantor's then most recent
quarterly consolidated balance sheet.
"Net Worth" means, at any time, as to the Parent Guarantor
and its Subsidiaries on a consolidated basis, the excess of total
assets over total liabilities, as shown on the Parent Guarantor's
then most recent consolidated balance sheet.
"Permitted Credit Lines" means the lines of credit available
to the Parent Guarantor and its Subsidiaries that are listed on
Schedule 7(f)(i)(E) hereto.
"Permitted Indebtedness" has the meaning specified in
Section 7(a).
"Permitted Liens" has the meaning specified in Section 7(a).
"Permitted Intercompany Indebtedness" means Indebtedness
incurred by the Parent Guarantor, the Borrower, a Subsidiary
Guarantor or a Pledged Subsidiary and owing to the Parent
Guarantor, the Borrower, a Subsidiary Guarantor or a Pledged
Subsidiary (as the case may be).
"Senior Ratio" means at any time the sum of (a) the
aggregate principal amount of all Senior Indebtedness at such
time outstanding divided by (b) EBITDA at such time.
"Senior Indebtedness" means all Indebtedness of the Parent
Guarantor and its Subsidiaries on a consolidated basis other than
Subordinated Indebtedness.
"Significant Acquisition" means an acquisition (whether in a
single transaction or in a series of transactions over any 12
month period) of Equity or assets having a fair market value
greater than $50,000,000 in the aggregate.
"Significant Acquisition Date" means, with respect to a
Significant Acquisition, the date on which the transaction
involving such Significant Acquisition (or, if a series of
transactions, the first transaction in which the fair market
value of the Acquisition when aggregated with all other
acquisitions during such 12 month period exceeded $50,000,000) is
consummated.
"Subordinated Indebtedness" means, as to the Parent
Guarantor and its Subsidiaries, Indebtedness that (a) is subject
to subordination terms that are no less favorable to the Banks
than those contained in Exhibit A hereto and that are otherwise
satisfactory to the Agent and (b) does not commence to amortize
or otherwise require any mandatory installments of principal
until six months after the Termination Date.
"Total Capital" means, at any time, as to the Parent
Guarantor and its Subsidiaries on a consolidated basis, the sum
for the Parent Guarantor and its Subsidiaries of (a) Net Worth
plus (b) Subordinated Indebtedness.
"Total Interest Expense" means, for any period, the cash
interest expense incurred by the Parent Guarantor and its
Subsidiaries, on a consolidated basis, for such period with
respect to the aggregate amount of all Indebtedness outstanding
during such period; provided, however, that if the Parent
Guarantor or any of its Subsidiaries makes a Significant
Acquisition during such period, then there shall be included in
the foregoing calculation of Total Interest Expense the Total
Interest Expense of the acquired Person and/or the Total Interest
Expense attributable to the acquired product or product line, as
the case may be, for such period.
"Total Indebtedness" means, at any time, the aggregate
principal amount of Indebtedness of the Parent Guarantor and its
Subsidiaries (on a consolidated basis) outstanding at such time.
"Year 2000 Issue" means the failure of computer software,
hardware and firmware systems and equipment containing embedded
computer chips to properly receive, transmit, process,
manipulate, store, retrieve, re-transmit or in any other way
utilize data and information due to the occurrence of the year
2000 or the inclusion of dates on or after January 1, 2000.
(b) Any terms used in this Guaranty and not otherwise
defined are used with the meaning ascribed thereto in the Credit
Agreement.
SECTION 16. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 17. WAIVER OF JURY TRIAL. THE PARENT GUARANTOR
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER,
UNDER THE CREDIT AGREEMENT OR UNDER THE OTHER LOAN DOCUMENTS
RELATIVE TO EACH OF THE FOREGOING.
IN WITNESS WHEREOF, the Parent Guarantor has caused this
Guaranty to be duly executed and delivered by its officer
thereunto duly authorized as of the date first above written.
ALPHARMA INC.
By: _______________________
Name:
Title:
Schedule 5(k)
Subsidiaries
Schedule 5(l)
Principal Subsidiaries
A. Non-U.S.
1. Alpharma AS
2. Dumex-Alpharma A/S
3. Alpharma Holdings Limited
B. U.S.
1. Alpharma USPD Inc.
2. Alpharma U.K. Holding Inc.
Schedule 6(g)(vi)
Long Term Indebtedness
[To be attached]
Schedule 7(a)(ii)
Permitted Liens
Schedule 7(f)(i)(E)
Permitted Credit Lines
[To be attached.]
Exhibit A
to
Parent Guaranty
Subordination Terms
[To be attached.]
