[DESCRIPTION] MEDICIS PHARMACEUTICAL CORPORATION FORM 10-Q, 12/31/96
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or the transition period from _________ to ________
Commission file number 0-18443
MEDICIS PHARMACEUTICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 52-1574808
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4343 East Camelback Road, Suite 250
Phoenix, Arizona 85018-2700
(Address of principal executive offices)
(602) 808-8800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 1, 1997
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Class A Common Stock $.014 Par Value 9,248,097
Class B Common Stock $.014 Par Value 187,982
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MEDICIS PHARMACEUTICAL CORPORATION
Table of Contents
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PART I. FINANCIAL INFORMATION Page
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Item 1-- Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1996, and June 30, 1996 3
Condensed Consolidated Statements of
Operations for the Three Months and Six Months
Ended December 31, 1996, and 1995 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
December 31, 1996, and 1995 6
Notes to the Condensed Consolidated Financial Statements 7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 4 -- Submission of Matters to a Vote of Security Holders 14
Item 6 -- Exhibits and Reports on Form 8-K 15
SIGNATURE 16
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Part I. Financial Information
Item 1. Financial Statements
MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
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<CAPTION>
December 31, 1996 June 30, 1996
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Assets
Current assets:
Cash and cash equivalents $65,081,224 $7,956,050
Short-term investments 39,272,465 --
Accounts receivable, net 4,797,481 5,210,704
Inventories, net 1,421,084 2,080,014
Deferred tax assets 5,000,000 3,000,000
Other current assets 784,264 738,911
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Total current assets 116,356,518 18,985,679
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Property and equipment:
Furniture and equipment 369,951 336,544
Leasehold improvements 170,000 170,000
Less accumulated depreciation (149,850) (100,897)
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Net property and equipment 390,101 405,647
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Intangible assets:
Intangible assets related to the
Esoterica(r) products acquisition 9,168,853 9,168,853
Other intangible assets 1,403,327 203,326
Less accumulated amortization (2,695,332) (2,450,705)
Net intangible assets 7,876,848 6,921,474
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$124,623,467 $26,312,800
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</TABLE>
The accompanying notes are an integral part of this statement.
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MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
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December 31, 1996 June 30, 1996
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Liabilities
Current liabilities:
Accounts payable $1,952,817 $3,371,184
Accrued salaries and wages -- 204,750
Notes payable 10,325 10,000
Accrued incentives 702,696 1,184,111
Accrued royalties 831,986 552,952
Other accrued liabilities 2,302,091 1,262,134
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Total current liabilities 5,799,915 6,585,131
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Long-term liabilities:
Notes payable 111,335 116,580
Other non-current liabilities 135,948 151,437
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value, 5,000,000
shares authorized; no shares issued - -
Class A Common Stock, $0.014 par value,
shares authorized: 50,000,000; 9,159,467
and 6,816,318 issued and outstanding at
December 31, 1996 and at June 30, 1996,
respectively 128,233 95,429
Class B Common Stock, $0.014 par value,
1,000,000 shares authorized; 187,982
issued and outstanding at
December 31, 1996 and
at June 30, 1996 2,632 2,632
Additional paid-in capital 136,480,103 44,251,471
Accumulated deficit (18,034,699) (24,889,880)
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Total stockholders' equity 118,576,269 19,459,652
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$124,623,467 $26,312,800
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</TABLE>
The accompanying notes are an integral part of this statement.
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MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
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<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
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Net sales $8,507,804 $6,448,653 $15,776,031 $11,022,663
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Operating costs and expenses:
Cost of product revenue 2,252,865 1,781,876 4,207,473 3,099,245
Selling, general and administrative 3,352,961 2,910,867 6,763,350 5,102,514
Research and development 453,068 170,511 612,832 421,040
Depreciation and amortization 149,931 144,251 298,228 285,290
---------- ---------- ----------- -----------
Operating costs and expenses 6,208,825 5,007,505 11,881,883 8,908,089
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Operating income 2,298,979 1,441,148 3,894,148 2,114,574
Interest income 1,313,276 11,473 1,434,900 32,443
Interest expense (7,137) (14,312) (16,468) (37,815)
Income tax benefit (expense), net (353,622) (34,264) 1,542,602 (59,177)
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Net income $3,251,496 $1,404,045 $6,855,182 $2,050,025
========== ========== =========== ===========
Net income per common and common
equivalent share $0.33 $0.20 $0.78 $0.30
========== ========== =========== ===========
Shares used in computing net income
per common and common
equivalent share 9,940,184 6,977,200 8,830,211 6,855,705
========== ========== =========== ===========
</TABLE>
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MEDICIS PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
Six Months Ended
December 31, December 31
1996 1995
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Net income $ 6,855,182 $2,050,025
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 298,228 285,290
Deferred income tax benefit (2,000,000) -
Non-cash interest - 13,100
Other non-cash expenses 43,500 -
Change in operating assets and liabilities
Inventories 658,930 (414,271)
Accounts receivable 413,223 122,176
Accounts payable (1,418,368) (108,258)
Accrued salaries and wages (204,750) -
Accrued incentives (481,416) (155,034)
Other current liabilities 735,985 (172,975)
Other current assets (45,358) 9,369
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Net cash provided by operating activities 4,855,156 1,629,422
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Cash flows from investing activities:
Purchase of property and equipment (38,055) (126,806)
Payment of license agreement (616,667) -
Purchase of available-for-sale investments (39,320,852) -
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Net cash used in investing activities (39,975,574) (126,806)
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Cash flows from financing activities:
Proceeds from the exercise of stock options 2,119,263 -
Payments of notes payable (5,245) (740,000)
Payment of other non-current liabilities (15,489) (20,731)
Proceeds from common stock sale 90,147,063 -
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Net cash provided by/(used in) financing activities 92,245,592 (760,731)
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Net increase in cash and cash equivalents 57,125,174 741,885
Cash and cash equivalents at beginning of period 7,956,050 953,438
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Cash and cash equivalents at end of period $65,081,224 $1,695,323
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $16,468 $24,714
Taxes $365,948 $78,443
</TABLE>
The accompanying notes are an integral part of this statement.
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MEDICIS PHARMACEUTICAL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Medicis Pharmaceutical Corporation ("Medicis" or the "Company") is an
independent pharmaceutical company in the United States that offers
prescription and non-prescription (over-the-counter) products exclusively
to treat dermatological conditions. Emphasizing the clinical
effectiveness, quality, affordability and cosmetic elegance of its
products, the Company has achieved a leading position in the treatment of
acne and acne-related conditions using prescription pharmaceuticals, while
also offering the leading domestic over-the-counter ("OTC") fade cream
product line. The Company has built its business through the successful
introduction of DYNACIN(R) and TRIAZ(R) products for the treatment of acne,
and the acquisition of the ESOTERICA(R) fade cream product line. Medicis
has also agreed to acquire the prescription topical steroid brands LIDEX(R)
and SYNALAR(R). These topical corticosteriods combat inflammatory skin
diseases by reducing swelling and pain, relieving itching and constricting
blood vessels in the skin. The LIDEX(R) and SYNALAR(R) product lines
consist of various potencies and cosmetically elegant formulations,
allowing dermatologists to prescribe the most appropriate product based on
the severity and location of the patients condition.
Certain immaterial amounts on the face of the balance sheet have been
reclassified to conform with the current years presentation.
The financial information is unaudited but reflects all adjustments,
consisting only of normal recurring accruals, which are, in the opinion
of the Company's management, necessary to a fair statement of the results
for the interim periods presented. Interim results are not necessarily
indicative of results for a full year. The financial statements should
be read in conjunction with the Company's audited financial statements for
the fiscal year ended June 30, 1996.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT
Net income per common and common equivalent share have been computed by
using the weighted average number of shares outstanding and common
equivalent shares.
3. CONTINGENCIES
The Company and certain of its subsidiaries, from time to time, are parties
to certain actions and proceedings incident to their business. Liability
in the event of final adverse determinations in any of these matters is
either covered by insurance and/or established reserves or, in the opinion
of management, after consultation with counsel, should not, in the
aggregate, have a material adverse effect on the consolidated financial
position or results of operations of the Company and its subsidiaries.
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4. INVENTORIES
Although the Company utilizes third parties to manufacture and package
inventories held for sale, the Company takes title to certain inventories
and records the associated liability once inventories are manufactured.
Inventories are valued at the lower of cost or market as determined by net
realizable value using the first-in-first-out method. Inventories, net of
reserves, at December 31, 1996, and June 30, 1996, consist of the
following:
December 31, 1996 June 30, 1996
Raw materials $88,969 $72,633
Work in process -- 23,749
Finished goods 1,332,115 1,983,632
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Total inventories $1,421,084 $2,080,014
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5. SUBSEQUENT EVENT
On January 22, 1997, Medicis Pharmaceutical Corporation announced that it
agreed to acquire the United States and Canadian dermatology assets of
Syntex USA, Inc. ("Syntex") from various affiliates of Syntex and its
parent company, F.Hoffmann-La Roche, Ltd. ("Roche"). Medicis entered into
four separate Asset Purchase Agreements with various Roche affiliates (the
"Purchase Agreements") for the acquisition of the intellectual property
rights, know-how and all finished goods inventory specifically associated
with Syntex's topical corticosteroid dermatology products ("the Purchased
Products") in the United States and Canada. Consummation of the proposed
transaction is subject to the conditions set forth in the Purchase
Agreements, including the expiration of the Hart-Scott-Rodino waiting
period. The parties intend to consummate the transaction as soon as
possible upon satisfaction of such conditions.
The Purchased Products include the prescription topical steroid brands
LIDEX(R) and SYNALAR(R). These topical corticosteroids combat inflammatory
skin diseases by reducing swelling and pain, relieving itching and
constricting blood vessels in the skin. The LIDEX(R) and SYNALAR(R)
product lines consist of various potencies and cosmetically elegant
formulations, allowing dermatologists to prescribe the most appropriate
product based on the severity and location of a patient's condition.
Medicis does not currently market any products in this category of
dermatological care. Medicis, using cash reserves, will pay a total of
up to $31 million, subject to adjustments, or less than 2.5 times sales
over the past 12 months, for the Purchased Products.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto and with the
Company's audited financial statements, notes to the consolidated financial
statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations relating thereto included or incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996.
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The foregoing Form 10-Q contains certain forward-looking statements which
are subject to risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996, which are incorporated by reference herein.
Results of Operations
Three Months Ended December 31, 1996 Compared to the Three Months Ended
December 31, 1995
Net Sales
Net sales for the three months ended December 31, 1996 (the "second quarter of
fiscal 1997") increased 32%, or $2.1 million, to $8.5 million from $6.4 million
for the three months ended December 31, 1995 (the "second quarter of fiscal
1996"). The Company's net sales increased in the second quarter of fiscal 1997
primarily as a result of both unit and dollar sales growth of the DYNACIN(R)
products, as well as, an increase in sales attributable to the TRIAZ(R)
products. The Company's prescription products accounted for 84.7% of net
sales in the second quarter of fiscal 1997 and 82.4% in the second quarter of
fiscal 1996. The over-the-counter products accounted for 15.3% of net sales in
the second quarter of fiscal 1997 and 17.6% in the second quarter of fiscal
1996.
Gross Profit
Gross profit during the second quarter of fiscal 1997 increased 34.0%, or $1.6
million, to $6.3 million from $4.7 million in the second quarter of fiscal 1996.
As a percentage of net sales, gross profit grew to 73.5% in the second quarter
of fiscal 1997 from 72.4% in the second quarter of fiscal 1996 primarily as a
result of the increased sales of the Company's TRIAZ(R) products which enjoy a
higher gross profit than the Company's other products, an increase in the
Company's gross profit for ESOTERICA(R) products, and a modest increase in the
average sales price of the Company's products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the second quarter of fiscal
1997 increased 15.2%, or $0.4 million, to $3.3 million from $2.9 million in the
second quarter of fiscal 1996, primarily due to an increase in variable
compensation commensurate with increased sales volume, personnel cost
attributable to a rise in full-time equivalent employees, and cost of living
salary adjustments. Selling, general and administrative costs, as a
percentage of sales, decreased 5.7% in the second quarter of fiscal 1997
relative to the second quarter of fiscal 1996.
Research and Development Expenses
Research and development expenses in the second quarter of fiscal 1997 increased
165.7%, or approximately $283,000, to approximately $453,000 from approximately
$171,000 in the second quarter of fiscal 1996, primarily due to expansion of
research and development activities of new projects and an increase in expenses
associated with the clinical support of the Company's existing products.
<PAGE>
Depreciation and Amortization Expenses
Depreciation and amortization expenses remain materially unchanged, at
approximately $150,000 in the second quarter of fiscal 1997 compared with
approximately $144,000 in the second quarter of fiscal 1996.
Operating Income
Operating income during the second quarter of fiscal 1997 increased 59.5%, or
$0.9 million, to $2.3 million from $1.4 million in the second quarter of fiscal
1996. This increase was primarily a result of higher sales volume, coupled
with a 1.1% increase in the Company's gross profit as a percentage of net sales
and a decrease in selling, general, and administrative cost as a percentage of
net sales.
Interest Income (Expense)
Interest income in the second quarter of fiscal 1997 increased to approximately
$1.3 million from approximately $11,000 in the second quarter of fiscal 1996,
primarily due to higher cash equivalent and short-term investment balances in
the second quarter of fiscal 1997 as a result of the Company's cash flow from
operations and the Company's public offering which raised, before expenses,
approximately $95.7 million.
Net Income
Net income during the second quarter of fiscal 1997 increased approximately
131.6%, or $1.8 million, to $3.2 million from $1.4 million from the second
quarter of fiscal 1996. The increase is primarily attributable to an increase
in sales volume, an increase in gross profit as a percentage of net sales and
a decrease in selling, general and administrative costs as a percentage of net
sales.
Six Months Ended December 31, 1996 Compared to the Six Months Ended
December 31, 1995
Net Sales
Net sales for the six months ended December 31, 1996 (the "1997 six months")
increased 43.1%, or $4.8 million, to $15.8 million from $11.0 million for the
six months ended December 31, 1995 (the "1996 six months") primarily as a result
of an increase in unit and dollar sales of the Company's prescription products.
The Company's prescription products accounted for 85.0% of net sales in the 1997
six months as compared to 77.7% of net sales in the 1996 six months. The over-
the-counter products accounted for 15.0% of net sales in the 1997 six months,
and 22.3% for the 1996 six months. The Company continues to invest a majority
of its marketing funds in the Company's prescription products.
Gross Profit
Gross profit for the 1997 six months increased 46%, or $3.6 million, to $11.5
million from $7.9 million in the 1996 six months. As a percentage of net sales,
gross profit grew to 73.3% in the 1997 six months from 71.9% in the 1996 six
months primarily due to an increase in sales of the TRIAZ(R) products which has
a higher gross profit than the Company's other products, an increase in the
gross profit related to the Company's ESOTERICA(R) products, and a modest
increase in the average sales price of the Company's products.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses in the 1997 six months increased
32.6%, or $1.7 million, to $6.8 million from $5.1 million in the 1996 six
months. The increase is primarily due to personnel costs attributable to an
increase in variable compensation commensurate with increased sales volume,
personnel cost attributable to a rise in full-time equivalent employees, and
cost of living salary adjustments. Selling, general and administrative costs
also increased due to promotional costs attributable to increased advertising
expenses for the Company's products. Selling, general and administrative costs,
as a percentage of sales, have decreased 3.4% in the 1997 six months compared to
the 1996 six months.
Research and Development Expenses
Research and development expenses in the 1997 six months increased 45.6% or
$192,000 to approximately $613,000, from $421,000 in the 1996 six months
primarily due to expansion of research and development activities of new
projects and an increase in expenses associated with the clinical support of
the Company's existing products.
Operating Income
Operating income during the 1997 six months increased 84.2% or, $1.8 million
to $3.9 million from $2.1 million in the 1996 six months. This increase was
primarily a result of higher sales volume coupled with a 1.4% increase in the
Company's gross profit as a percentage of net sales and a decrease in selling,
general, and administrative costs as a percentage of net sales.
Interest Income (Expense)
Interest income in the 1997 six months increased to $1.4 million from
approximately $32,000 in the 1996 six months, primarily due to higher cash and
short-term investment balance in the 1997 six months. Cash and short-term
investments balances have increased primarily due to the Company's public
offering which raised approximately $95.7 million before any related expenses
and the Company's cash flow from operations. Interest expense in the 1997 six
months decreased 56.5%, or approximately $21,000, to $16,000 from $38,000 in the
1996 six months.
Income Tax Benefit (Expense)
Income tax benefit (expense) during the 1997 six months increased $1.6 million
to a benefit of $1.5 million from an expense of $59,000 in the 1996 six months.
During the first quarter of fiscal 1997, the Company reassessed the estimated
amount of valuation allowance required in light of the funds to be received
from the public offering to reduce deferred tax assets in accordance with
Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes
("SFAS No. 109") to an amount the Company, with consultation from its
independent accountants, believed appropriate. Accordingly, a credit to income
tax benefit of $2.0 million was reflected in the first quarter of fiscal 1997's
Condensed Consolidated Statement of Operations and the corresponding deferred
tax asset on the Company's Condensed Consolidated Balance Sheets. The amount
of net deferred tax assets estimated to be recoverable was based upon the
Company's assessment of the likelihood of near term operating income coupled
with uncertainties with respect to the impact of future competitive and market
conditions. No such income tax benefit was recorded in the 1996 six months.
<PAGE>
Net Income
Net income during the 1997 six months increased approximately 234.4%, or $4.8
million, to $6.8 million from $2.0 million in the 1996 six months. The increase
was primarily attributable to an increase in sales volume, an increase in gross
profit as a percentage of net sales and the recording of the $2.0 million income
tax benefit in the 1997 six months.
Liquidity and Capital Resources
At December 31, 1996 and June 30, 1996, the Company had cash equivalents and
short-term investments of approximately $104.4 million and $8.0 million,
respectively. The Company's working capital was $110.6 million and $12.4
million at December 31, 1996 and June 30, 1996, respectively. The increase in
working capital is primarily attributable to the Company's public offering of
approximately $95.7 million before related expenses, income from operations of
approximately $2.3 million, the $2.0 million income tax benefit and funds
received due to the exercise of stock options of approximately $2.1 million.
At December 31, 1996 and June 30, 1996, the Company had inventories of $1.4
million and $2.1 million, respectively. The decrease in the Company's inventory
balance is primarily due to a decrease in the level of inventory at the
Company's manufacturers attributable to their production cycle, which is
reflected in the Company's inventory balance.
At December 31, 1996 and June 30, 1996, the Company had accounts payable
balances of $2.0 million and $3.3 million, respectively. The decrease in the
Company's accounts payable balance is primarily due to amounts due manufacturers
attributable to their inventory production cycle.
During the first quarter of fiscal 1997, the Company reassessed the estimated
amount of valuation allowance required or necessary to reduce deferred tax
assets available in accordance with SFAS No. 109 to an amount the Company,
with consultation from its independent accounts, believed appropriate.
Accordingly, a deferred tax asset of an additional $2.0 million was reflected
in the consolidated balance sheet and a credit to deferred tax benefit of $2.0
million in the consolidated income statement. The amount of net deferred tax
assets available that are estimated to be recoverable was based upon the
Company's assessment of the likelihood of near-term operating income coupled
with the uncertainties with respect to the impact of future competitive and
market conditions. The amount of deferred tax asset available that ultimately
will be realized will depend upon future events which are uncertain.
On October 2, 1996, the Company completed a public offering for 1,850,000
primary shares of the Company's Class A Common Stock at a price of $45.00 per
share. The underwriters also exercised the over allotment option of 277,500
shares at a price of $45.00 per share. Gross proceeds from the offering before
related expenses totaled $95,737,500. The Company anticipates using the
proceeds from the offering for marketing expenses associated with new product
introductions, the licensing or acquisition of formulations, technologies,
products or businesses, research and development, expansion of marketing and
sales capabilities and general corporate purposes.
In November 1996, the Company increased its credit facility with Norwest Bank
Arizona, N.A. from $5 million to $25 million. The credit facility is secured
by principal assets of the Company. The Company is required to comply with
certain covenants and restrictions, including covenants relating to the
Company's financial condition and result of operations. This credit facility
has not been accessed by Medicis.
<PAGE>
Subsequent to December 31, 1996, the Company agreed to acquire the United States
and Canadian dermatology assets of Syntex USA, Inc. from various affiliates of
Syntex and its parent company, F.Hoffmann-La Roche, Ltd. The Company, using
cash reserves, will pay a total of up to $31 million, subject to adjustments,
or less than 2.5 times sales over the past 12 months, for the purchased
products. Consummation of the proposed transaction is subject to the
conditions set forth in the purchase agreements, including the expiration of
the Hart-Scott-Rodino waiting period. The parties intend to consummate the
transaction as soon as possible upon satisfaction of such conditions. The
purchased products include the prescription topical steroid brands LIDEX(R)
and SYNALAR(R). These topical corticosteroids combat inflammatory skin
diseases by reducing swelling and pain, relieving itching, and constricting
blood vessels in the skin. The Company does not currently market any products
in this category of dermatological care.
Part II. Other Information
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 22, 1996, the Company held its 1996 Annual Meeting of
Stockholders (the "Annual Meeting"). The holders of 7,077,640 shares of
Class A Common Stock and 125,322 shares Class B Common Stock and 62,660
shares of Series B Automatically Convertible Preferred Stock were present
in person or represented by proxy at the meeting. At the Annual Meeting
the Company's stockholders approved the following:
1) Election of Directors
The stockholders elected the following persons to serve as directors
of the Company until their successors are duly elected and qualified.
Votes were cast as follows:
Number of
Votes for Which
Number of Proxy Withheld
Votes for Authority
Richard L. Dobson, M.D. 8,949,096 8,364
Joseph Salvani 8,949,096 8,364
2) Amend and restate the Certificate of Incorporation increasing the
number of authorized shares of Class A Common Stock and the number of
authorized shares of Class B Common Stock. Votes were cast as
follows:
Number of Number of Number of Broker
Votes for Votes Against Votes Abstaining Non-Votes
5,459,481 1,794,544 48,988 1,654,447
3) Approve the adoption of the 1996 Stock Option Plan, (the "1996 Plan").
The 1996 Plan provides for the reservation of 1,300,000 shares of Class
A Common Stock for issuance pursuant to incentive stock options or
non-qualified options. Votes were cast as follows:
Number of Number of Number of Broker
Votes for Votes Against Votes Abstaining Non-Votes
4,389,241 2,515,805 59,666 1,992,748
<PAGE>
4) Approve the appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending June 30, 1996. Votes were cast as follows:
Number of Number of Number of Broker
Votes for Votes Against Votes Abstaining Non-Votes
8,823,995 5,548 41,042 86,875
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. 10.72(c) SECOND AMENDMENT TO CREDIT AND SECURITIY AGREEMENT made as
of the 22nd day of November 1996 by and between MEDICIS
PHARMACEUTICAL CORPORATION, a Delaware corporation
("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION,
a national banking association, as successor-in-interest to
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation
("Lender").
No. 10.77 SECURITIES ACCOUNT PLEDGE AND SECURITY AGREEMENT made as of
the 22nd day of November 1996 by and between MEDICIS
PHARMACEUTICAL CORPORATION, a Delaware corporation
("Borrower"), and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION,
a national banking association (Lender").
No. 10.78 ACKNOWLEDGMENT OF CONTROL OF PLEDGED SECURITIES ACCOUNT dated
November 22, 1996 by and among Norwest Bank Arizona and
Medicis Pharmaceutical Corporation and Norwest Bank
Minnesota.
No. 11.1 Computation of Per Share Earnings
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDICIS PHARMACEUTICAL CORPORATION
Date: 02/10/97 By: /s/ Jonah Shacknai
----------- ------------------------------
Jonah Shacknai
Chairman and Chief Executive Officer
Date: 02/10/97 By: /s/ Mark A. Prygocki Sr.
----------- ------------------------------
Mark A. Prygocki, Sr.
Chief Financial Officer
and Assistant Treasurer
<PAGE>
MEDICIS PHARMACEUTICAL CORPORATION
FORM 10-Q
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.72(c) SECOND AMENDMENT TO CREDIT AND SECURITIY AGREEMENT made as of
the 22nd day of November 1996 by and between MEDICIS
PHARMACEUTICAL CORPORATION, a Delaware corporation ("Borrower"),
and NORWEST BANK ARIZONA, NATIONAL ASSOCIATION, a national
banking association, as successor-in-interest to NORWEST
BUSINESS CREDIT, INC., a Minnesota corporation ("Lender").
10.77 SECURITIES ACCOUNT PLEDGE AND SECURITY AGREEMENT made as of the
22nd day of November 1996 by and between MEDICIS PHARMACEUTICAL
CORPORATION, a Delaware corporation ("Borrower"), and NORWEST
BANK ARIZONA, NATIONAL ASSOCIATION, a national banking
association (Lender").
10.78 ACKNOWLEDGMENT OF CONTROL OF PLEDGED SECURITIES ACCOUNT dated
November 22, 1996 by and among Norwest Bank Arizona and Medicis
Pharmaceutical Corporation and Norwest Bank Minnesota
11 Statements re: Computations of Net Income Per Share
27 Financial Data Schedule
<PAGE>
SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT (the "Amendment")
is made as of the 22nd day of November, 1996 by and between MEDICIS
PHARMACEUTICAL CORPORATION, a Delaware corporation ("Borrower"), and NORWEST
BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association, as
successor-in-interest to NORWEST BUSINESS CREDIT, INC., a Minnesota corporation
("Lender").
R E C I T A L S:
WHEREAS, Borrower and Norwest Business Credit, Inc. ("NBCI") are parties
to that certain Credit and Security Agreement dated as of August 3, 1995, as
modified by letter agreements dated March 6, 1996 and April 11, 1996 and First
Amendment to Credit and Security Agreement dated as of May 29, 1996 among
Borrower, NBCI and Lender (collectively, the "Credit Agreement"), pursuant to
which Lender agreed to make available to Borrower, on a revolving basis, a sum
not to exceed $2,000,000 (the "Revolving Loan"), which Revolving Loan is
evidenced by that certain Promissory Note dated August 3, 1995 from Borrower
to NBCI in an amount not to exceed $2,000,000 (the "Revolving Note"), and
committed to advance $3,000,000 (the "Term Credit Facility") to finance capital
expenditures, product development costs, brand purchase contracts, licensing
agreements and other financial needs mutually agreed upon in writing by Borrower
and Lender in their sole and absolute discretion, which Term Credit Facility is
evidenced by that certain Multiple Advance Note dated May 29, 1996 from Borrower
to Lender in an amount not to exceed $3,000,000 (the "Term Note");
WHEREAS, Borrower and Norwest Bank Minnesota, National Association, in
its capacity as investment advisor under the Investment Advisory Agreement
("Account Holder"), are parties to that certain Investment Advisory Agreement
dated as of October 17, 1996 (the "Investment Agreement"), pursuant to which
Account Holder has opened and maintains that certain Reserve Asset Management
Account No. 13275500 (such account and any other accounts established pursuant
to the Investment Agreement are collectively referred to as the "Securities
Account") and holds in the Securities Account all cash and securities initially
deposited plus any additional cash and securities that may be received from time
to time for the Securities Account;
WHEREAS, Borrower has requested that Lender commit to advance an
additional $20,000,000 revolving credit facility (the "Acquisitions Credit
Facility") to finance acquisition of complementary businesses, brand product
lines, brand purchase contracts, licensing agreements, and internal product
research and development costs, and Lender has agreed thereto on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrower and Lender,
intending to be legally bound, agree as follows:
1. INTERPRETATION. Except as otherwise defined herein, all
capitalized terms used herein shall have the meanings ascribed thereto in the
Credit Agreement.
2. RECITALS. The recitals set forth above are true and accurate
in every respect.
<PAGE>
3. OUTSTANDING INDEBTEDNESS. As of November 22, 1996: the
outstanding principal balance of the Revolving Loan is $0.00 and the accrued
and unpaid interest on the Revolving Loan is $0.00; and the outstanding
principal balance of the Term Credit Facility is $0.00 and the accrued and
unpaid interest on the Term Credit Facility is $0.00.
4. NO OFFSETS. Borrower acknowledges with respect to the amounts
owing to Lender that, as of the date of execution of this Amendment, Borrower
has no offset, defense or counterclaim with respect thereto, no claim or defense
in the abatement or reduction thereof, or any other claim against Lender or with
respect to any document forming part of the transaction in respect of which the
Revolving Loan or the Term Credit Facility was made or forming part of any
other transaction under which Borrower is indebted to Lender. Borrower
acknowledges that all interest imposed under the Revolving Note and the Term
Note through the date of execution hereof, and all fees and other charges that
have been collected from or known by Borrower to have been imposed upon Borrower
with respect to the Revolving Loan evidenced by the Revolving Note or the Term
Credit Facility evidenced by the Term Note were and are agreed to, and were
properly computed and collected, and that Lender has fully performed all
obligations that it may have had or now have to Borrower, and Lender has no
obligation to make any additional loan or extension of credit to or for the
benefit of Borrower, except as provided in the Credit Agreement, as amended by
this Amendment.
5. REPRESENTATIONS AND WARRANTIES OF BORROWER. To induce Lender
to enter into this Amendment and the arrangement contemplated by this Amendment,
Borrower represents and warrants to Lender as follows:
(a) This Amendment and all other instruments executed and
delivered to Lender concurrently herewith, were executed in accordance with the
requirements of law and in accordance with any requirements of Borrower's
certificate of incorporation and bylaws and any amendments thereto.
(b) The execution and delivery of this Amendment and any
other instruments executed and delivered to Lender concurrently herewith, and
the full and complete performance of the provisions hereof will not result in
any breach of, or constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any property or assets of Borrower under any
indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument to which Borrower is a party or by which Borrower is bound, except
for the lien in favor of Lender pursuant to the Security Accounts Pledge and
Security Agreement of even date herewith between Borrower and Lender.
(c) The Loan Documents executed by Borrower and this
Amendment are the legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their terms.
(d) Except as previously disclosed to Lender in writing,
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting Borrower or any of its Subsidiaries or
the properties of Borrower or any of its Subsidiaries before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any of
its Subsidiaries, would have a material adverse effect on the financial
condition, properties or operations of the Borrower or any Subsidiaries and
where such claim(s) exceed $20,000, individually, or $50,000 in the aggregate.
(e) Except for the sale of TRIAZ under an Applicable
License, Borrower has not derived ten percent (10%) or more of Borrower's Net
<PAGE>
Sales in any Fiscal Year from any Applicable License as described in Section
6.14 of the Credit Agreement.
(f) Except as disclosed by Borrower to Lender in writing
on or before thirty (30) days after the execution and delivery of this
Amendment, Borrower does not have any new patent applications pending since
May 29, 1996 before the PTO Office; and none of the pending patent applications
as of May 29, 1996 and thereafter has yet been approved by the PTO Office.
(g) There are no oral agreements, understandings or course
of conduct that would modify, amend, rearrange, vary, diminish or impair the
Loan Documents or the obligation of Borrower to pay the indebtedness evidenced
thereby or to perform fully the obligations of Borrower in strict accordance
with the Loan Documents, or which would permit Borrower to void or avoid its
obligations in whole or in part.
(h) All of the respective representations and warranties
made by Borrower in the Loan Documents remain true, complete and correct as of
the date hereof, including, without limitation, the representations and
warranties in Section 5 of the Credit Agreement, except to the extent of any
changes to such representations and warranties previously disclosed in writing
to Lender.
No representation or warranty made by Borrower and contained herein or in the
other Loan Documents, and no certificate, information or report furnished or to
be furnished by Borrower in connection with any of the Loan Documents or any of
the transactions contemplated hereby or thereby, contains or will contain a
misstatement of material fact, or omits or will omit to state a material fact
required to be stated in order to make the statements contained herein or
therein not misleading in the light of the circumstances under which such
statements were made.
6. CONTINUED ENFORCEABILITY OF LOAN DOCUMENTS. Except as modified
herein, all of the terms and provisions of the Loan Documents remain in full
force and effect. In the event of any conflict between the terms and provisions
of this Amendment and the terms and provisions of the Loan Documents, the terms
and provisions of this Amendment shall govern and prevail. Borrower
acknowledges, confirms and ratifies the enforceability of the Credit Agreement,
the Revolving Note, the Term Note and the Loan Documents, as modified pursuant
to this Amendment, and the continuing validity, enforceability and priority of
the liens and security interests granted in the Loan Documents.
7. RELEASE OF CLAIMS.
(a) Borrower hereby releases Lender and its officers,
employees and agents from all claims and demands (known and unknown) it may have
on the date hereof arising out of or in any way relating to the extension or
denial of credit by Lender to Borrower or other matters relating to the
indebtedness, any collateral securing payment and performance of such
indebtedness, or any matter preliminary to the execution and delivery by
Borrower and Lender of this Amendment. The release set forth above shall not
extend to any claim arising after the date hereof to the extent based on acts
or omissions of Lender occurring after such date, except that such release is
specifically intended by the parties to include the transactions leading up to
the execution of this Amendment. This Amendment and the release provisions
contained in this SECTION 7 are contractual, and not a mere recital.
(b) Borrower acknowledges and agrees that Lender is not,
and shall not be, obligated in any way to continue or undertake any loan,
<PAGE>
financing or other credit arrangement with Borrower, including, without
limitation, any renewal of the indebtedness evidenced by the Loan Documents,
except on the terms and subject to the conditions set forth in the Loan
Documents as hereby amended and modified.
(c) Borrower understands and acknowledges that Lender and
Account Holder are separate and distinct corporate entities, as well as
affiliate corporations, and Borrower has knowingly and consciously made the
determination to proceed with the credit arrangements with Lender as provided
in this Credit Agreement and to maintain the investment advisor and custodian
relationship with Account Holder as provided in the Investment Agreement.
Borrower (i) knowingly waives and releases Lender for, from and against any
claim, demand, cause of action, liability, damages and expenses incurred by
Borrower and (ii) covenants and agrees that it will not claim, or attempt to
claim, rights of setoff, off-set, recoupment or the like against Lender, in the
case of both clauses (i) and (ii), arising out of, based upon, relating to, or
otherwise occurring as a result of, any acts or omissions of, or any breach of
contract or tort or any other theory of liability by, Account Holder. This
provision is not intended to affect any rights or remedies of Borrower against
Lender pursuant to the Credit Agreement.
8. CONDITIONS OF CLOSING. Lender's obligation to enter into this
Amendment and the other documents and instruments required hereunder shall be
subject to the satisfaction of all of the following conditions on or before
November 22, 1996 (the "Closing" or the "Closing Date") in a manner, form and
substance satisfactory to Lender, which conditions may be waived by Lender in
writing in its sole and absolute discretion:
(a) On the Closing Date, the representations and warranties
of Borrower set forth in the Loan Documents shall be true and correct in all
material respects when made and at and as of the time of the Closing.
(b) The following shall have been delivered to Lender, each
duly authorized, executed and acknowledged, where applicable:
(i) This Amendment.
(ii) The Acquisitions Revolving Note from Borrower
payable to Lender in the original principal amount not to exceed $20,000,000.
(iii) A Pledge and Security Agreement from Borrower
to Lender with respect to the Securities Account and the financial assets and
securities entitlements held therein, together with an Acknowledgment of Control
of Pledged Securities Account from Borrower and Account Holder.
(iv) A UCC-1 Financing Statement from Borrower in
favor of Lender to be filed in the central filing agency of the State of
Minnesota with respect to the Securities Account and the financial assets and
securities entitlements held therein.
(v) A UCC-1 Financing Statement from Borrower in
favor of Lender to be filed in the central filing agency of the State of
Arizona with respect to the Securities Account and the financial assets and
securities entitlements held therein.
(c) Borrower shall have performed and complied in all
material respects with all agreements and conditions contained in the Loan
Documents to be performed by or complied with by Borrower prior to or at the
Closing, and no Event of Default or Default shall have occurred and be
<PAGE>
continuing or would occur by Borrower entering into this Amendment and each
condition precedent to the effectiveness of each of the Loan Documents shall
have been satisfied.
(d) Lender shall have received such documents as Lender
shall require to establish the proper organization and good standing of
Borrower, the authority of Borrower to execute this Amendment and any other
documents or instruments required hereunder, and evidence that all approvals
and/or consents of, or other action by, any shareholder, governmental agency
or other Person whose approval or consent is necessary or required to enable
Borrower to (a) enter into and perform its obligations under the Loan Documents
and (b) grant to Lender the Security Interests, have been obtained.
(e) All filings of Uniform Commercial Code financing
statements and other filings and actions necessary to perfect and maintain the
Security Interests as first, valid and perfected security interest in the
Collateral shall have been filed or taken (or such filings delivered for filing
immediately following the Closing, to Lender or a third party acceptable to
Lender) and confirmation thereof shall have been received by Lender.
(f) Lender shall have determined to its satisfaction that,
as of the Closing Date, there has been no material adverse change in the
financial condition of Borrower from the financial statements dated as of
September 30, 1996 and other documents submitted by Borrower to Lender prior
to the Closing Date.
(g) Borrower shall have paid to Lender an origination fee
of $40,000, which shall be fully earned and non-refundable upon Lender's
execution and delivery of this Amendment (Lender shall pay its attorneys' fees
associated with negotiating and preparing this Amendment and the related
documents). In the event that all or any portion of the Acquisitions Credit
Facility is refinanced, amortized over a specified term by Lender prior to
November 22, 1998, extended or increased, the pro rata unused portion of the
origination fee will be applied as a credit to the loan fees payable by
Borrower in connection with such refinancing. With respect to a refinancing
of the Acquisitions Credit Facility, for example, if the origination fee (net
of Lender's costs and expenses incurred in connection with this Second
Amendment) is $25,000 and Borrower elects to refinance $10,000,000 of the
Acquisitions Credit Facility on the first year anniversary of the Second
Amendment, $6,250 of the origination fee in connection with the Second Amendment
will be applied as a credit to the loan fees in connection with such
refinancing. With respect to an extension or increase of the Acquisitions
Credit Facility, for example, if the origination fee (net of Lender's costs and
expenses incurred in connection with this Second Amendment) is $25,000 and
Borrower elects to extend or increase the Acquisitions Credit Facility on the
first year anniversary of the Second Amendment, $12,500 of the origination fee
in connection with the Second Amendment will be applied as a credit to the loan
fees in connection with such increase or extension of the Acquisitions Credit
Facility and the loan fee will be based upon the full amount of the Acquisitions
Credit Facility for the entire remaining term of the Acquisitions Credit
Facility.
(h) Lender shall be satisfied that (a) Borrower has good and
indefeasible title to all of the Collateral and (b) Borrower at all times shall
be entitled to the use and quiet enjoyment of all assets necessary and desirable
for the continued ownership and operation of Borrower's business, including,
without limitation, the use of equipment, licenses, fixtures and warehouses.
9. DEFINITIONS. (a) The definitions of "Agreement", "Collateral",
<PAGE>
"Default Period", "Default Rate", "Floating Rate", "Loan", "Loan Documents",
"Note" and "Permitted Investments" in Section 1.1 of the Credit Agreement are
hereby deleted in their entirety and the following inserted therefor:
"Agreement" means this Credit and Security Agreement, as
it may be amended, modified, supplemented, restated or replaced
from time to time.
"Collateral" means all of the Equipment, General
Intangibles, Inventory, Receivables, securities,
non-competition agreements, fixtures, leasehold improvements,
leasehold estates, bonds, insurance policies, licenses owned
by Borrower and all sums on deposit in any collateral account,
the Securities Account and the financial assets and security
entitlements in connection therewith, together with all
substitutions and replacements for and products of any of the
foregoing Collateral and together with proceeds of any and all
of the foregoing Collateral and, in the case of all tangible
Collateral, together with all accessions and together with
(i) all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection
with any such goods, and (ii) all warehouse receipts, bills of
lading and other documents of title now or hereafter covering
such goods.
"Default Period" means the period following the
occurrence of a Default or Event of Default which period shall
continue until and unless the Lender shall thereafter waive
such Default or Event of Default in writing or Borrower shall
cure such Default or Event of Default within the applicable
cure period, if any.
"Default Rate" means at any time the Floating Rate plus
200 basis points, which Default Rate shall change when and as
the Floating Rate changes.
"Floating Rate" means 150 basis points in excess of the
30-day London interbank offered rate for U.S. dollar deposits
(expressed as an annual rate) as of 11:00 a.m. (London time)
on the first Banking Day of each calendar month (rounded up to
the nearest 1/16 of 1%, as quoted on Telerate page 3750 or on
such replacement system as is then customarily used to quote
the London interbank offered rate. If, on the first Banking
Day of any month, there is no quoted London interbank offered
rate for U.S. dollar deposits, the Floating Rate shall be
determined as of the first calendar day thereafter that London
interbank offered rates for U.S. dollar deposits are quoted.
If two or more such rates appear on Telerate page 3750 or
associated pages, the rate shall be the arithmetic mean of
such offered rates (rounded up to the nearest 1/16 of 1%).
"Loan" or "Loans" means the Revolving Credit Facility,
the Term Credit Facility or the Acquisitions Credit Facility
and any other credit facility subsequently made available by
Lender to Borrower, individually, and the Revolving Credit
Facility, the Term Credit Facility and the Acquisitions Credit
Facility and any other credit facility subsequently made
available by Lender to Borrower, collectively.
<PAGE>
"Loan Documents" means this Agreement, the Notes, the
Financing Statements Form UCC-1, the Security Documents and all
other documents previously, concurrently or hereafter executed
or delivered in connection with the Revolving Credit Facility,
the Term Credit Facility, the Acquisitions Credit Facility or
any other Loans from Lender to Borrower.
"Net Income After Taxes" means, for any period, Net
Income for such period less accruals for federal, state and
local income taxes attributable to such Net Income.
"Note" or "Notes" means, individually, the Revolving
Note, the Term Note, the Acquisitions Revolving Note or any
other promissory notes evidencing Loans from Lender to
Borrower, and, collectively, the Revolving Note, the Term Note,
the Acquisitions Revolving Note and any other promissory notes
evidencing Loans from Lender to Borrower.
"Permitted Investments" means investments in direct
obligations of the United States of America or any agency or
instrumentality thereof whose obligations constitute full faith
and credit obligations of the United States of America having a
maturity of one year or less, commercial paper issued by U.S.
corporations rated "A-1" or "A-2" by Standard & Poor's
Corporation or "P-1" or "P-2" by Moody's Investors Service or
certificates of deposit or bankers' acceptances having a
maturity of one year or less issued by members of the Federal
Reserve System having deposits in excess of $100,000,000 (which
certificates of deposit or bankers' acceptances are fully
insured by the Federal Deposit Insurance Corporation), "Money
Market Funds" acquired through an FDIC insured bank and/or a
division or subsidiary thereof, any investments held by Account
Holder pursuant to the Investment Agreement, as it may be
amended pursuant to the Pledge and Security Agreement, any
Permitted Investments held in fiduciary accounts (other than
pursuant to the Investment Agreement), and any investments
complying with the Medicis Pharmaceutical Corporate Investment
Policy (as it may be amended pursuant to the Pledge and
Security Agreement), attached as Exhibit "A" to the
Acknowledgment of Control of Pledged Securities Account of even
date herewith among Borrower, Lender and Account Holder, and
held in fiduciary accounts (other than pursuant to the
Investment Agreement).
and (b) Section 1.1 of the Credit Agreement is hereby amended to add the
following definitions in proper alphabetical order:
"Account Holder" means Norwest Bank Minnesota, National
Association, a national banking association, in its capacity as
investment advisor under the Investment Advisory Agreement, its
permitted successors and assigns, and any other financial
institution holding Securities Accounts on behalf of Borrower
pursuant to the Investment Agreement.
"Acknowledgment of Control of Pledged Securities
Account" means that certain Acknowledgment of Control of
Pledged Securities Account dated November 22, 1996 among
Borrower, Lender and Account Holder, as it may be amended,
modified, supplemented, replaced or restated from time to time.
<PAGE>
"Acquisitions Committed Amount" means a principal amount
of $20,000,000, as reduced from time to time in accordance with
Section 2.5 hereof.
"Acquisitions Credit Facility" means the revolving
credit facility in a principal amount not to exceed the
Acquisitions Committed Amount.
"Acquisitions Revolving Note" means that certain
Acquisitions Revolving Note dated November 22, 1996 from
Borrower to Lender in a principal amount not to exceed
$20,000,000, and any note or notes taken in exchange therefor
and any modifications, renewals or extensions thereof.
"Investment Agreement" means that certain Investment
Advisory Agreement dated as of October 17, 1996 between
Borrower, as principal, and Account Holder, as investment
advisor and custodian, as it may be amended, modified,
supplemented, replaced or restated from time to time.
"Interest Coverage Ratio" means, for the period of
determination, on a consolidated basis, the ratio of earnings
before interest expense and taxes to interest expense, as
determined in accordance with GAAP.
"Pledge and Security Agreement" means that certain
Securities Account Pledge and Security Agreement dated
November 22, 1996 between Borrower and Lender, as it may be
amended, modified, supplemented, replaced or restated from time
to time.
"Securities Account" means that certain Reserve Asset
Management Account No. 13275500 maintained with Account Holder,
and any other accounts established pursuant to the Investment
Agreement.
10. ADVANCES. (a) The preface to Section 2.1 of the Credit
Agreement is hereby deleted in its entirety and the following inserted therefor:
Section 2.1 ADVANCES. The Lender agrees, on the terms
and subject to the conditions herein set forth, to make
Advances to the Borrower from time to time during the period
from the date hereof to and including the Termination Date with
respect to the Revolving Credit Facility and Term Credit
Facility, and November 22, 1998 with respect to the
Acquisitions Credit Facility, or the earlier date of
termination in whole of the Revolving Credit Facility, the Term
Credit Facility and the Acquisitions Credit Facility pursuant
to Sections 2.4(a) or 8.2 hereof, in an aggregate amount at any
time outstanding not to exceed the Borrowing Base, with respect
to the Revolving Credit Facility, the Maximum Amount, with
respect to the Term Credit Facility, and the Acquisitions
Committed Amount, with respect to the Acquisitions Credit
Facility, which Advances shall be secured by the Collateral as
provided in Article 3 hereof. The Revolving Credit Facility
and the Acquisitions Credit Facility shall be revolving credit
facilities and it is contemplated that the Borrower will
request Advances, make prepayments and request additional
Advances thereunder, and the Term Credit Facility shall be a
<PAGE>
term facility and it is contemplated that Borrower will request
Advances for capital expenditures, product development costs,
brand purchase contracts, licensing agreements and other
purposes mutually agreed upon in writing by Borrower and Lender
in their sole and absolute discretion, which Advances will be
repaid in accordance with the terms of this Agreement. The
Borrower agrees to comply with the following procedures in
requesting Advances under this Section 2.1:
(b) Section 2.1(a) of the Credit Agreement is hereby deleted in its entirety and
the following inserted therefor:
(a) The Borrower will not request any Advance under
this Section 2.1 with respect to the Revolving Credit Facility
if, after giving effect to such requested Advance, the sum of
the outstanding and unpaid Advances under this Section 2.1 or
otherwise, with respect to the Revolving Credit Facility, would
exceed the Borrowing Base.
and (c) Section 2.1(b) of the Credit Agreement is hereby deleted in its entirety
and the following inserted therefor:
(b) Each request for an Advance under this
Section 2.1 shall be made to the Lender prior to 11:00 a.m.
(Phoenix time) of the day of the requested Advance by the
Borrower. Each request for an advance may be made in writing
or by telephone, specifying the date of the requested Advance
and the amount thereof, and (i) shall specify whether it is an
Advance under the Revolving Credit Facility, the Term Credit
Facility or the Acquisitions Credit Facility and the purpose of
the Advance, and (ii) shall be made by (A) any officer of the
Borrower; or (B) any person designated as the Borrower's agent
by any officer of the Borrower in a writing delivered to the
Lender; or (C) any person reasonably believed by the Lender to
be an officer of the Borrower or such a designated agent.
11. NOTE. Section 2.2 of the Credit Agreement is hereby deleted in
its entirety and the following inserted therefor:
Section 2.2 NOTES. All Advances made by the Lender
under this Section 2.1 shall be evidenced by and repayable with
interest in accordance with the Note, the Term Note or the
Acquisitions Revolving Note. The principal of the Note shall
be payable as provided herein and on the earlier of the
Termination Date or acceleration by the Lender pursuant to
Section 8.2 hereof, and shall bear interest as provided herein.
The principal of the Term Note shall be payable as provided
herein and shall bear interest as provided herein, and, absent
acceleration by the Lender pursuant to Section 8.2 hereof,
shall be amortized commencing on the Termination Date as
provided herein and shall be due and payable on the Maturity
Date. The principal of the Acquisitions Revolving Note shall
be payable as provided herein and on the earlier of
November 22, 1998 or acceleration by the Lender pursuant to
Section 8.2 hereof, and shall bear interest as provided herein.
12. INTEREST. Section 2.3(a) of the Credit Agreement is hereby
deleted in its entirety and the following inserted therefor:
<PAGE>
(a) Except as otherwise provided in Section 2.13,
clause (b), the principal of the Loans outstanding from time
to time during any month shall bear interest (computed on the
basis of actual days elapsed in a 360-day year) at the Floating
Rate; provided, however, that from the first day of any month
during which any Default or Event of Default occurs or exists
at any time, in the Lender's discretion and without waiving any
of its other rights and remedies, the principal of the Loans
outstanding from time to time shall bear interest at the
Default Rate during the entire Default Period; and PROVIDED,
FURTHER, that in any event no rate change shall be put into
effect which would result in a rate greater than the highest
rate permitted by applicable law. Interest accruing on the
principal balance of the Advances outstanding from time to time
shall be payable on the first day of each succeeding month and
on the Termination Date (with respect to the Revolving Credit
Facility and the Term Credit Facility) or November 22, 1998
(with respect the Acquisitions Credit Facility), or earlier
demand or prepayment in full. The Borrower agrees that the
interest rate contracted for includes the interest rate set
forth herein, plus any other charges or fees set forth herein
and costs and expenses incident to this transaction paid by the
Borrower to the extent the same are deemed interest under
applicable law. In the event, and on each occasion, that
Lender shall have determined that dollar deposits in the
aggregate amount of the Acquisition Credit Facility Advances
are not generally available in the London interbank market, or
that the rates at which such dollar deposits are being offered
will not adequately and fairly reflect the cost to Lender of
making or maintaining the outstanding Acquisitions Credit
Facility Advances, or that reasonable means do not exist for
ascertaining the Floating Rate, Lender shall, as soon as
practicable thereafter, give written or facsimile transmission
notice of such determination to Borrower. In the event of any
such determination, until Lender shall have advised Borrower
that the circumstances giving rise to such notice no longer
exist, the interest rate on any outstanding Acquisitions Credit
Facility Advances shall be the Base Rate, as such Base Rate
changes from time to time, plus 125 basis points. Each
determination by Lender hereunder shall be conclusive absent
manifest error.
13. MANDATORY Prepayment. Section 2.5 of the Credit Agreement is
hereby deleted in its entirety and the following inserted therefor:
Section 2.5 REMARGINING AND MANDATORY PREPAYMENT OF
CREDIT FACILITIES. (a) If, as of the end of any
calendar month, the sum of the Acquisitions Committed Amount,
the Revolving Credit Facility Commitment and the Term Loan
Maximum Amount is greater than eighty percent (80%) of the
"Market Value of the Securities Account" (as defined below),
then, on or before five (5) Banking Days after Borrower's
receipt of written notice thereof, Borrower shall cause the sum
of the Acquisitions Committed Amount, the Revolving Credit
Facility Commitment and the Term Loan Maximum Amount to equal
seventy-five percent (75%) or less of the Market Value of the
Securities Account (based upon the immediately prior month-end
valuation) by (a) notifying Lender in writing of its election
to reduce the Acquisitions Committed Amount and, if the then
<PAGE>
outstanding principal balance of the Acquisitions Credit
Facility is greater than the Acquisitions Committed Amount,
prepaying the Advances to the extent necessary to reduce the
sum of the outstanding principal balance of the Advances with
respect to the Acquisitions Credit Facility to the Acquisitions
Committed Amount or less, and/or (b) depositing additional cash
or financial assets into the Securities Account. To the extent
that Borrower notifies Lender in writing of its election to
reduce the Acquisitions Committed Amount, the Acquisitions
Committed Amount may not be increased without the written
consent of Lender, which consent may be given or withheld in
Lender's sole and absolute discretion. For purposes hereof,
the "Market Value of the Securities Account" means the value
of all of the financial assets in the Securities Account and,
with respect to all non-cash financial assets, the value of
such financial assets marked-to-market as of the close of
business on the last Banking Day of the immediately preceding
month. Any payment received by the Lender under this
Section 2.5(a) or under Section 2.4 may be applied to the
Advances under the Acquisitions Credit Facility, including
interest thereon and any fees, commissions, costs and expenses
due and unpaid hereunder and under the Security Documents, in
such order and in such amounts as the Lender, in its
discretion, may from time to time determine, and, if a Default
or Event of Default has occurred and is continuing, to the
Advances under the Acquisitions Credit Facility, the Term
Credit Facility and/or the Revolving Credit Facility, including
interest thereon and any fees, commissions, costs and expenses
due and unpaid hereunder and under the Security Documents, in
such order and in such amounts as the Lender, in its
discretion, may from time to time determine.
(b) Without notice or demand, if the sum of the
outstanding principal balance of the Advances with respect to
the Revolving Note shall at any time exceed the Borrowing Base,
or, except as provided in Section 2.5(a) above, if the sum of
the outstanding principal balance of the Advances with respect
to the Acquisitions Credit Facility shall at any time exceed
the Acquisitions Committed Amount, Borrower shall within
forty-eight (48) hours (excluding Saturdays, Sundays and
Holidays) thereof prepay the Advances to the extent necessary
to reduce the sum of the outstanding principal balance of the
Advances with respect to the Revolving Note to the Borrowing
Base and/or reduce the sum of the outstanding principal balance
of the Advances with respect to the Acquisitions Credit
Facility to the Acquisitions Committed Amount. Any payment
received by the Lender under this Section 2.5(b) or under
Section 2.4 may be applied to the Advances under the Revolving
Credit Facility or the Advances under the Acquisitions Credit
Facility, as applicable, including interest thereon and any
fees, commissions, costs and expenses due and unpaid hereunder
and under the Security Documents, in such order and in such
amounts as the Lender, in its discretion, may from time to time
determine, and, if a Default or Event of Default has occurred
and is continuing, to the Advances under the Revolving Credit
Facility, the Term Credit Facility and/or the Acquisitions
Credit Facility, including interest thereon and any fees,
commissions, costs and expenses due and unpaid hereunder and
under the Security Documents, in such order and in such amounts
<PAGE>
as the Lender, in its discretion, may from time to time
determine.
14. USE OF PROCEEDS. Section 2.8 of the Credit Agreement is hereby
deleted in its entirety and the following inserted therefor:
Section 2.8 USE OF PROCEEDS. The proceeds of Advances
with respect to the Revolving Credit Facility shall be used by
the Borrower for ordinary working capital purposes. The
proceeds of Advances with respect to the Term Credit Facility
shall be used by the Borrower for capital expenditures, product
development costs, brand purchase contracts, licensing
agreements and other purposes mutually agreed upon in writing
by Borrower and Lender in their sole and absolute discretion.
The proceeds of Advances with respect to the Acquisitions
Credit Facility shall be used by the Borrower for financing
acquisition of complementary businesses, brand product lines,
brand purchase contracts, licensing agreements, and internal
product research and development costs.
15. FEES. Section 2.11 of the Credit Agreement is hereby amended
to add the following:
(d) Borrower hereby agrees to pay to Lender an
origination fee of $40,000, which shall be fully earned and
non-refundable upon Lender's execution and delivery of the
Second Amendment (Lender shall pay its attorneys' fees
associated with negotiating and preparing the Second Amendment
and the related documents). In the event that all or any
portion of the Acquisitions Credit Facility is refinanced,
amortized over a specified term by Lender prior to
November 22, 1998, extended or increased, the pro rata unused
portion of the origination fee will be applied as a credit to
the loan fees payable by Borrower in connection with such
refinancing, extended or increased. With respect to a
refinancing of the Acquisitions Credit Facility, for example,
if the origination fee (net of Lender's costs and expenses
incurred in connection with this Second Amendment) is $25,000
and Borrower elects to refinance $10,000,000 of the
Acquisitions Credit Facility on the first year anniversary of
the Second Amendment, $6,250 of the origination fee in
connection with the Second Amendment will be applied to the
loan fees in connection with such refinancing. With respect
to an extension or increase of the Acquisitions Credit
Facility, for example, if the origination fee (net of Lender's
costs and expenses incurred in connection with this Second
Amendment) is $25,000 and Borrower elects to extend or increase
the Acquisitions Credit Facility on the first year anniversary
of the Second Amendment, $12,500 of the origination fee in
connection with the Second Amendment will be applied to the
loan fees in connection with such increase or extension of the
Acquisitions Credit Facility and the loan fee will be based
upon the full amount of the Acquisitions Credit Facility for
the entire remaining term of the Acquisitions Credit Facility.
16. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. (a) the preface
to Section 4.1 of the Credit Agreement is deleted in its entirety and the
following inserted therefor:
<PAGE>
Section 4.1 CONDITIONS PRECEDENT TO THE INITIAL
ADVANCE. The obligation of the Lender to make the
initial Advance under the Loans shall be subject to the
condition precedent that on or prior to the initial Advance
Lender shall have received all of the following, each in form
and substance satisfactory to Lender:
(b) Section 4.1 of the Credit Agreement is hereby amended to add the following:
(w) A replacement Revolving Note in the same
form as the Revolving Note, except that the interest rate will
be the Floating Rate.
(x) A replacement Term Note in the same form
as the Term Note, except that the interest rate will be the
Floating Rate.
(y) A Second Amendment to the Patent
Collateral Assignment and Security Agreement, in form and
substance reasonably satisfactory to Lender, to include the
Acquisitions Revolving Facility as part of the Obligations
Secured and to include any new patent applications.
(z) A Second Amendment to the Trademark,
Tradename and Service Mark Collateral Assignment and Security
Agreement, in form and substance reasonably satisfactory to
Lender, to include the Acquisitions Revolving Facility as part
of the Obligations Secured and to include any trademarks,
tradenames and service marks.
(aa) An Assignment of Licenses and Trade
Secrets with respect to the TRIAZ license, in form and
substance reasonably satisfactory to Lender, and Borrower
shall use its best efforts to obtain the written consent on
the licensor(s) under such License.
(bb) A certificate of the Secretary or an
Assistant Secretary of the Borrower, certifying as to the
resolutions of the directors and, if required, the shareholders
of the Borrower, authorizing the execution, delivery and
performance of the Second Amendment, the Acquisitions
Revolving Note, the Pledge and Security Agreement and the
Acknowledgment of Control of Pledged Securities Account and all
other documents and instruments incident thereto and to the
transactions contemplated by the Second Amendment, reasonably
satisfactory to Lender and its counsel.
(cc) An opinion of counsel to the Borrower,
addressed to Lender, with respect to the transactions
contemplated by the Second Amendment, in form and substance
reasonably satisfactory to Lender and its counsel.
17. CONDITIONS PRECEDENT TO ALL ADVANCES. (a) Section 4.2 of the
Credit Agreement is hereby amended to add the following:
(c) Borrower has not been required to remargin the
Loans by depositing additional cash or financial assets into
the Securities Account or by reducing the Acquisitions
Committed Amount under the Acquisitions Credit Facility in any
<PAGE>
two (2) consecutive months, pursuant to Section 2.5(a).
18. FINANCIAL CONDITION; NO ADVERSE CHANGE. Section 5.5 of the
Credit Agreement is hereby deleted in its entirety and the following inserted
therefor:
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE.
The Borrower has heretofore furnished to the Lender audited
financial statements of the Borrower for its Fiscal Year ended
June 30, 1996 and unaudited financial statements of the
Borrower for the months ended through September 30, 1996, and
those statements fairly present the financial condition of the
Borrower on the dates thereof and the results of its operations
and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles
applied in a consistent manner. Since the date of the most
recent financial statements of the Borrower, there has been no
material adverse change in the business, properties or
condition (financial or otherwise) of the Borrower.
19. LOCKBOX; COLLATERAL ACCOUNT. Section 6.10(a) of the Credit
Agreement is hereby deleted in its entirety and the following inserted therefor:
(a) At any time that an Advance is outstanding, the
Borrower will irrevocably direct all present and future Account
debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the
Lockbox. All of the Borrower's invoices, account statements
and other written or oral communications directing,
instructing, demanding or requesting payment of any Account
or any other amount constituting Collateral shall conspicuously
direct that all payments be made to the Lockbox and shall
include the Lockbox address. Upon confirmation of good,
collected funds, all payments made to the Lockbox shall be
processed to Borrower's operating account no. 6438801379
maintained with Lender. In Lender's sole and absolute
discretion, all payments received in the Lockbox may be
processed to the Collateral Account.
20. NET INCOME AFTER TAXES. Section 6.12 of the Credit Agreement
is hereby deleted in its entirety and the following inserted therefor:
Section 6.12 NET INCOME AFTER TAXES. Borrower's
Net Income After Taxes, on a consolidated basis, shall be no
less than the following for the following periods:
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
Period Net Income After Taxes
- -------- ----------------------
October 1, 1996 through March 31, 1997 $5,000,000
April 1, 1997 through June 30, 1997 $2,500,000
July 1, 1997 through December 31, 1997 $3,750,000
January 1, 1998 through June 30, 1998 $5,000,000
July 1, 1998 through September 30, 1998 $2,500,000
and each three month period thereafter
during the term of this Agreement
<PAGE>
21. FINANCIAL COVENANTS. Article 6 of the Credit Agreement is
hereby amended to add the following:
Section 6.19 INTEREST COVERAGE RATIO. During the term
of this Agreement, Borrower shall maintain, on a consolidated
basis, measured quarterly as of the last day of each calendar
quarter commencing with the calendar quarter ending
December 31, 1996, an Interest Coverage Ratio of no less
than 3:1.
Section 6.20 ADDITIONAL COLLATERAL. Upon the
consummation of any transaction in which Borrower purchases,
acquires or beneficially owns the majority of the stock or
other securities of any Person (the "Transaction"), Borrower
shall, within three (3) Banking Days after the consummation of
such Transaction, provide written notice to Lender of the
consummation of such Transaction with a reasonably adequate
description of such Transaction. Borrower shall, upon the
request of the Lender, promptly provide such additional
information with respect to the Transaction and promptly
execute and deliver, and cause such Person to execute and
deliver, to Lender appropriate amendments to the Loan
Documents, guaranties, pledge agreements, security agreements,
deeds of trust, mortgages, financing statements and other
documents which shall be in form and substance substantially
similar to documents previously provided by Borrower (if any),
or if not appropriate, in form and substance reasonably
satisfactory to Lender, granting to Lender a first perfected
lien in all of Borrower's interest in the Person and granting
to Lender a first priority lien and security interest in the
assets of such Person (or other collateral reasonably
satisfactory to Lender), as additional Collateral for the
Obligations.
22. INVESTMENTS AND SUBSIDIARIES. Section 7.4 of the Credit
Agreement is hereby deleted in its entirety and the following inserted therefor:
(a) The Borrower will not purchase or hold (except
for the stock warrants and common stock of Dyad Pharmaceutical
Corporation upon exercise thereof, and/or promissory note(s)
in Dyad Pharmaceutical Corporation which rights to certain
instruments are currently held by Borrower) beneficially any
stock or other securities or evidences of indebtedness of, make
or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other
Person, including specifically, but without limitation, any
partnership or joint venture, except for the following:
(i) Permitted Investments;
(ii) advances in the form of progress
payments, prepaid rent or security deposits;
(iii) strategic investments in bona fide third
party Persons and representing not more than ten percent
(10%) of the beneficial interest in said Person, so long
as Borrower provides to Lender a pledge of all of
Borrower's beneficial interest in such Person, subject
to no other liens or encumbrances.
<PAGE>
(iv) Transactions, so long as Borrower complies
with the provisions of Section 6.20 hereof.
(v) loans to employees in an aggregate amount
outstanding at any time not to exceed $25,000; and
(vi) other uses mutually agreed upon in writing
by Borrower and Lender in their sole and absolute
discretion.
(b) The Borrower will not create or permit to exist
any Subsidiary, other than any Subsidiary in existence on the
date hereof and listed in Exhibit B hereto, or created or
existing pursuant to Section 6.20 hereof.
23. CONSOLIDATION AND MERGER; ASSET ACQUISITION. Section 7.7 of the
Credit Agreement is hereby deleted in its entirety and the following inserted
therefor:
Section 7.7. CONSOLIDATION AND MERGER; ASSET
ACQUISITION. The Borrower will not consolidate with or merge
into any Person, or permit any other Person to merge into it
unless Borrower will be the surviving Person in such merger.
24. RIGHTS AND REMEDIES. Section 8.2 of the Credit Agreement is
hereby amended to add the following:
Notwithstanding anything to the contrary contained above, Lender
agrees to first exercise its rights and remedies against the
Securities Collateral before exercising its rights and remedies
against any other Collateral, provided and for so long as
(a) Lender, as determined by Lender in its sole and absolute
discretion, is not stayed or temporarily or permanently
precluded from exercising its remedies with respect to the
Securities Collateral, or otherwise prejudiced with respect to
its rights and remedies against the other Collateral or with
respect to other creditors of Borrower and (b) Lender
determines, in its reasonable discretion, that the Securities
Collateral will be sufficient to fully satisfy all of the
Obligations of Borrower. In the event that Lender does exercise
its rights and remedies against the Securities Collateral and
Lender, in its reasonable discretion, determines that the
proceeds are not, or will not be, sufficient to satisfy all of
the Obligations of Borrower, Lender shall be entitled to
immediately exercise all of its rights and remedies against the
other Collateral.
25. COMPLIANCE CERTIFICATE. Exhibit E to the Credit Agreement is
hereby deleted in its entirety and replaced by Exhibit E attached to the
Second Amendment, which is incorporated in the Agreement by this reference.
26. PATENT APPLICATIONS. On or before thirty (30) days after the
execution and delivery of this Second Amendment, Borrower shall deliver to
Lender a certified list of the additional patent applications filed with the
PTO Office since May 29, 1996 and such list will be incorporated as a part of
Exhibit F to the Credit Agreement and Schedule "A" to the Patent Collateral
Assignment.
27. MISCELLANEOUS.
<PAGE>
(a) ARBITRATION AGREEMENT; WAIVER OF RIGHT TO JURY TRIAL.
The Agreement contains an arbitration provision, governing law provision and
waiver of right to jury trial. In the event of any dispute arising out of or
related to this Amendment, the provisions of Section 9.12 of the Agreement
shall apply.
(b) VOLUNTARY AGREEMENT. Borrower represents and warrants
to Lender that (i) it is, or has had the opportunity to be, represented by
legal counsel of its choice in regard to the transaction provided for by this
Amendment and that such counsel (if engaged) has explained the significance of
the terms, and the meaning and effect of this Amendment; (ii) it is fully aware
and clearly understands all of the terms and provisions contained in this
Amendment; (iii) it has voluntarily, with full knowledge and without coercion
or duress of any kind, entered into this Amendment and the documents executed
in connection with this Amendment; (iv) it is not relying on any
representations, either written or oral, express or implied, made to it by
Lender other than as set forth in this Amendment; and (v) the consideration
received by Borrower to enter into this Amendment and the arrangement
contemplated by this Amendment has been actual and adequate.
(c) ENTIRE AGREEMENT. This Amendment and the Loan Documents
constitute the entire agreement among the parties as to the agreements and
understandings contemplated by this Amendment. All parties to this Amendment
acknowledge that there are no agreements, understandings, warranties or
representations among the parties except as set forth in the Loan Documents
and this Amendment.
(d) COUNTERPART EXECUTION. This Amendment may be executed
in counterparts, each of which shall be deemed an original document, and all of
which combined shall constitute a single document.
(e) WAIVER. Neither this Amendment nor any of the
provisions hereof may be changed, waived, discharged or terminated, except
by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
(f) HEADINGS. Paragraph or other headings contained in
this Amendment are for reference purposes only and are not intended to affect
in any way the meaning or interpretation of this Amendment.
(g) SEVERABILITY. If any clause or provision of this
Amendment is determined to be illegal, invalid, or unenforceable under any
present or future law by the final judgement of a court of competent
jurisdiction, such clause or provision shall be ineffective, but the remainder
of this Amendment will not be affected thereby.
(h) BINDING EFFECT. All of the provisions of this Amendment
shall be binding upon and shall inure to the benefit of Borrower and Lender and
their permitted successors and assigns, including, without limitation, any
successor holder of any Note and any successor mortgagee/beneficiary under any
security document.
(i) TIME OF THE ESSENCE. Time is of the essence of each
and every provision under this Amendment.
(j) AMENDMENT. Except as specifically set forth herein, the
Agreement and the other Loan Documents shall remain in full force and effect.
In the event of a conflict between the terms and provisions of this Amendment
and the terms and provisions of the Agreement, the terms and provisions of this
<PAGE>
Amendment shall govern and control. Nothing contained in this Amendment is
intended to or shall be construed as relieving any person or entity, whether
a party to this Amendment or not, of any of such person's or entity's
obligations to Lender.
IN WITNESS WHEREOF, this Amendment is executed to be effective as of
the date first above written.
BORROWER:
MEDICIS PHARMACEUTICAL CORPORATION,
a Delaware corporation
By: /s/ Mark A. Prygocki, Sr.
------------------------------------
Name: Mark A. Prygocki, Sr.
----------------------------------
Title: Chief Financial Officer
----------------------------------
Execution Date: November 22, 1996
LENDER:
NORWEST BANK ARIZONA, NATIONAL
ASSOCIATION, a national banking
association
By: /s/ Jeffrey R. Wentzel
------------------------------------
Name: Jeffrey R. Wentzel
----------------------------------
Title: Vice President
---------------------------------
Execution Date: November 22,1996
EXHIBIT E
COMPLIANCE CERTIFICATE
In accordance with our Credit and Security Agreement dated as of
August 3, 1995, as amended (the "Credit Agreement"), attached are the financial
statements of Medicis Pharmaceutical Corporation (the "Borrower") as of and for
the month and year-to-date period ended ______________ __, 199_ (the "Current
Financials")
I certify that the Current Financials have been prepared in accordance
with generally accepted accounting principles applied on a basis consistent
with the accounting practices reflected in the financial statements referred to
in Section 5.5 of the Credit Agreement, subject to year-end audit adjustments,
if applicable.
DEFAULTS AND EVENTS OF DEFAULT (check one)
<PAGE>
[ ] I have no knowledge of the occurrence of any Default or Event
of Default under the Credit Agreement which has not previously
been reported to you and remedied.
[ ] Attached is a detailed description of all Defaults and Events
of Default of which I have knowledge and which have not
previously been reported to you and remedied.
For the date and periods covered by the Current Financials, the Borrower
is in compliance with the covenants set forth in Sections 6.12, 6.16, 6.18 and
7.10 of the Credit Agreement, except as indicated below. The calculations made
to determine compliance are as follows:
Covenant Actual Requirement
- -------- ------ -----------
6.12 Net Income After Taxes $ $
-------------- ------------
6.16 Total Liabilities to
Tangible Net Worth -------------- ------------
6.18 Current Ratio
-------------- ------------
6.18 Interest Coverage
Ratio
-------------- ------------
7.10 Capital Expenditures $ Maximum $
-------------- ------------
Date: ______________, 199__
MEDICIS PHARMACEUTICAL CORPORATION,
a Delaware corporation
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
<PAGE>
SECURITIES ACCOUNT PLEDGE AND SECURITY AGREEMENT
THIS SECURITIES ACCOUNT PLEDGE AND SECURITY AGREEMENT (as it may be
amended, supplemented, or otherwise modified from time to time, the "Agreement")
is made as of the 22nd day of November, 1996 by and between MEDICIS
PHARMACEUTICAL CORPORATION, a Delaware corporation ("Borrower"), and NORWEST
BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association (Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender are parties to that certain Credit and
Security Agreement dated as of August 3, 1995, as modified by letter agreements
dated March 6, 1996 and April 11, 1996, First Amendment to Credit and Security
Agreement dated as of May 29, 1996 and Second Amendment to Credit and Security
Agreement dated as of November 22, 1996 (collectively, the "Credit Agreement"),
pursuant to which Lender has advanced and/or committed to advance to Borrower
a maximum aggregate amount not to exceed $25,000,000;
WHEREAS, Borrower and Norwest Bank Minnesota, National Association
("Account Holder") are parties to that certain Investment Advisory Agreement
dated as of October 17, 1996 (the "Investment Agreement"), pursuant to which
Account Holder has opened and maintains that certain Reserve Asset Management
Account No. 13275500 (such account and any other accounts established pursuant
to the Investment Agreement are collectively referred to as the "Securities
Account") and holds in the Securities Account all cash and securities initially
deposited plus any additional cash and securities that may be received from time
to time for the Securities Account;
WHEREAS, in order to secure the obligations of Borrower under the Credit
Agreement, Borrower desires to pledge and grant a security interest in and to
all of Borrower's right, title and interest in and to the Securities Account and
all financial assets now or hereafter held in the Securities Account and all
security entitlements in connection therewith;
NOW, THEREFORE, in consideration of the foregoing premises, the
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Borrower hereby agrees as follows:
I. DEFINITIONS. Except as otherwise defined herein, all
capitalized terms used herein shall have the meanings ascribed thereto in
the Credit Agreement.
2. GRANT OF SECURITY. Borrower hereby pledges, conveys,
assigns, transfers and grants to Lender for its benefit a continuing security
interest in all of Borrower's right, title and interest in and to the Securities
Account and all financial assets in or credited to the Securities Account and
all security entitlements (as defined in the Uniform Commercial Code as adopted
in the States of Arizona or Minnesota, as applicable) now existing or hereafter
arising in connection with or with respect to the Securities Account and all
financial assets in respect of or relating to the Securities Account, including,
without limitation, (i) all amounts, instruments, assets, accounts, general
intangibles and contract rights in respect of or relating to the Securities
Account, whether now owned or existing or hereafter arising or acquired,
(ii) all amounts from time to time invested by the Account Holder out of the
Securities Account, and (iii) all renewals and replacements of the Securities
Account, (iv) all interest accrued and accruing thereon and all investments and
<PAGE>
reinvestments of any amounts from time to time on deposit in the Securities
Account, (v) all accounts, securities, general intangibles, contract rights or
instruments arising out of or with respect to the Securities Account, and
(vi) all proceeds of any of the foregoing (the Securities Account and all rights
and interests described in the foregoing clauses (i) through (vi) being
collectively referred to as the "Securities Collateral") to secure the
Obligations.
3. RIGHT TO DIRECT ACCOUNT HOLDER. Provided that no Default or
Event of Default has occurred and is continuing, Borrower may effect Entitlement
Orders, withdrawals, investment requests or directions to the Account Holder
with respect to the Securities Collateral from time to time, provided that any
such Entitlement Order, withdrawal, investment request or direction shall be
made in strict accordance with the Investment Agreement and the Medicis
Pharmaceutical Corporation Corporate Investment Policy, a copy of which is
attached as EXHIBIT "A" to the Acknowledgment of Control of Pledged Securities
Account of even date herewith among Borrower, Lender and Account Holder (the
"Acknowledgment"), and, provided, further, before and after affecting the
Entitlement Order, withdrawal, investment request or direction of Borrower, the
"Market Value" (as defined below) of the financial assets in the Securities
Account is and will continue to be $33,333,333.00 or more. For purposes hereof,
the Market Value of the financial assets in the Securities Accounts means the
value of all of the financial assets in the Securities Account and, with respect
to all non-cash financial assets, the value of such financial assets marked-to-
market as of the close of business on the last Banking Day of the immediately
previous month. Notwithstanding anything to the contrary in the Acknowledgment,
in the event that Account Holder elects to resign as investment advisor and
custodian under the Investment Agreement, Borrower may select a successor
Account Holder, subject to the reasonable approval of Lender (and provided that
such successor Account Holder enters into an investment management or custodial
agreement and an acknowledgment of control of pledged securities account
agreement in substantially the form of the Acknowledgment), and Lender will
notify Account Holder of such election and authorize Account Holder to pay over
or deliver to such successor Account Holder any documents, instruments,
certificates and securities with respect to the Securities Account.
4. SECURED OBLIGATIONS. This Agreement secures, and the Securities
Collateral is collateral security for, the Obligations, including, without
limitation, the prompt payment in full when due, whether at maturity, by
optional or mandatory prepayment, upon acceleration, pursuant to a permitted
demand, upon commencement of bankruptcy or insolvency proceedings, or otherwise
(including, without limitation, the payment of amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code), of all Obligations of Borrower.
5. BORROWER REMAINS LIABLE. Notwithstanding anything to the
contrary contained herein, (a) Borrower shall remain liable under the Investment
Agreement between Borrower and Account Holder pertaining to the establishment
and maintenance of the Securities Account to the extent set forth therein to
perform its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Lender of any of its
rights hereunder shall not release Borrower from any of its duties or
obligations under the Investment Agreement, and (c) Lender shall not have any
obligation or liability under the Investment Agreement by reason of this
Agreement, nor shall Lender be obligated to perform any of the obligations or
duties of Borrower thereunder, to make any payment, to make any inquiry as to
the nature or sufficiency of any payment received by Borrower or the sufficiency
of any performance by any party under the Investment Agreement, or take any
action to collect or enforce any claim for payment assigned hereunder.
<PAGE>
6. EVENT OF DEFAULT. Upon the occurrence and during the
continuation of a Default or an Event of Default, Lender shall have the right
at any time to instruct Account Holder to (i) cease honoring all demands,
request for trading, withdrawal, remittance or other requests and instructions
by Borrower, whether such are made before or after Lender's instructions, unless
consented to in writing by Lender, (ii) hold solely for the account of Lender
the Securities Collateral held by Account Holder. In addition thereto, upon the
occurrence and during the continuation of an Event of Default, the Securities
Accounts shall be remitted directly to Lender at such time and in such manner
as Lender shall instruct Account Holder in writing, and Lender shall have the
sole control over the Securities Account and the sole right to exercise and
enforce all rights and remedies with thereto, in a manner not inconsistent with
the terms of the Loan Documents.
7. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Borrower set forth in the Credit Agreement are hereby restated
and apply fully to this Agreement. In addition, Borrower represents and
warrants that:
(a) Borrower is the sole legal and beneficial owner of the
Securities Collateral free and clear of any lien, security interest, option or
other charge or encumbrance; this Agreement creates a valid first lien on and
valid first priority security interest in the Securities Collateral, securing
the payment and performance of the Obligations; and, upon notice of the security
interest created hereby to Account Holder, all actions necessary to perfect and
protect such security interest have been duly made and taken.
(b) No consent, authorization, approval or other action by,
and no notice to or filing with, any governmental authority, regulatory body or
any other Person, is required on the part of Borrower or, to Borrower's
knowledge, on the part of Lender either for (i) the grant by Borrower of the
security interest in the Securities Collateral pursuant to this Agreement or
the execution, delivery or performance of this Agreement by Borrower, or
(ii) the perfection of Lender's security interest in the Securities Collateral,
except notice to the Account Holder and filing of financing statements in the
central filing offices in the States of Minnesota and Arizona, or (iii) the
exercise or enforcement by Lender of the rights provided for in this Agreement
or the remedies in respect of the Securities Collateral pursuant to this
Agreement. Borrower has delivered to Lender a true and complete copy of the
Investment Agreement and there are no amendments, restatements and/or other
modifications to the Investment Agreement. No act, omission or event has
occurred that with the passage of time and/or the giving of notice would
constitute a default by Borrower of its obligations under the Investment
Agreement.
8. FURTHER ASSURANCES. Borrower agrees that at any time and from
time to time, at its expense, it will promptly execute and deliver all further
instruments and documents and take all further action that may be necessary or
that Lender may reasonably request, in order to confirm, create, perfect and
continue the perfection and protect the priority of, any security interest
granted or purported to be granted hereby or to enable Lender to exercise and
enforce its rights and remedies hereunder with respect to any Securities
Collateral. Without limiting the generality of the foregoing, at the request
of Lender, Borrower shall execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as
may be necessary or desirable, or as Lender may reasonably request, in order
to perfect and preserve the security interests granted or purported to be
granted hereby. Borrower agrees to reasonably assist Lender in connection with
any action or transaction contemplated by this Agreement or by Articles 8 or 9
<PAGE>
of the Uniform Commercial Code as adopted in the States of Arizona or
Minnesota, as applicable.
9. COVENANTS OF BORROWER. Until the Obligations have been paid
and performed in full by Borrower and Lender has no further obligations to make
Advances under the Credit Agreement, Borrower shall:
(a) not use or permit any Securities Collateral to be used
in violation of (i) any provision of this Agreement, (ii) the Credit Agreement
or any other document executed in connection with the transactions contemplated
hereby or thereby, or (iii) any applicable law, statute, regulation or
ordinance;
(b) if any funds in the Securities Account are represented
by an instrument, certificate or other document which must be in the possession
of Lender (and not held by Account Holder as bailee for Lender) for Lender to
have a perfected first priority security interest in such instrument,
certificate or other document, deliver or cause the Account Holder to deliver
same immediately to Lender (any such instruments, certificates or other
documents shall be returned to Borrower in accordance with the terms of
SECTION 19 hereof);
(c) notify Lender in writing not less than five (5) days
prior to any change in the registration of the Securities Account or any change
in the name or address of the Account Holder;
(d) not create or permit to exist any lien upon or with
respect to any of the Securities Collateral to secure debt of any Person,
except Lender;
(e) not open, create or permit to exist any Securities
Account unless three (3) Banking Days' prior written notice thereof has been
given to Lender and all of the actions required by SECTION 8 hereof have been
taken with respect to such Securities Account and the depository has executed
an Acknowledgment of Control of Pledged Securities Account in a form approved
by Lender;
(f) not sell, transfer, convey, assign, or further encumber,
either voluntarily or involuntarily, all or any portion or contents of the
Securities Collateral, except in strict accordance with the Investment
Agreement;
(g) with respect to the Securities Collateral, not amend
or permit the amendment of any provision of the Investment Agreement, or amend
or permit the amendment of the Medicis Pharmaceutical Corporation Corporate
Investment Policy attached to the Investment Agreement (except that Borrower
may change the mix of financial assets described in such investment policy so
long as the types of financial assets described in such investment policy do
not change), without Lender's prior written consent;
(h) defend title to the Securities Collateral (or replace
such Securities Collateral with equivalent financial assets complying with the
requirements of the Investment Agreement and the Medicis Pharmaceutical
Corporation Corporate Investment Policy attached to the Investment Agreement),
and defend title to the security interest of Lender therein, against any and
all claims and demands of third parties. Borrower shall indemnify and save
Lender harmless from all losses, costs, damages, liabilities or expenses,
including, without limitation, attorneys' fees, that Lender may sustain or
incur by reason of defending or protecting Lender's security interest in and
<PAGE>
to the Securities Collateral or the priority thereof; and
(i) Upon the occurrence of an Event of Default and during
the continuance thereof, if requested by Account Holder, acknowledge in writing
within three (3) days after such request, Borrower's consent to any and all
orders of Lender relating to the financial assets in the Securities Accounts,
including without limitation, all Entitlement Orders, as defined in Minn. Stat.
section 336.8-106.D.2.
10. PAYMENT OF TAXES, INSURANCE AND CLAIMS. Borrower shall pay
(i) all taxes, assessments and other governmental charges imposed upon any of
the Securities Collateral prior to delinquency thereof before any interest or
penalty accrues thereon, (ii) all annual insurance premiums and taxes with
respect to the Securities, and (iii) all lawful claims for labor, services,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any of the Securities Collateral, provided that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and so long as the Securities Collateral and the Lender's lien
thereon is not in any manner impaired by any enforcement remedy available to
the claimant during the period of such contest. Borrower shall immediately
notify Lender in writing of any claim referred to in clause (iii) above that
could, if determined adversely to Borrower, have a material adverse effect upon
Borrower or the Securities Collateral.
11. LENDER APPOINTED ATTORNEY-IN-FACT. Borrower hereby irrevocably
appoints Lender Borrower's attorney-in-fact and hereby agrees to execute and
file such additional documents as may be deemed necessary by Lender, in its
sole discretion, to effect such appointment, with full authority in the place
and stead of Borrower and in the name of Borrower or otherwise, from time to
time following the occurrence and during the continuance of an Event of
Default, with the right and power (but not the duty) in Lender's sole
discretion to take any action and to execute any instrument that Lender may
deem necessary or advisable to accomplish the purposes of this Agreement, to
the extent not inconsistent with the terms of the Loan Documents, including,
without limitation:
(a) to execute on behalf of Borrower as debtor, and to
file, financing statements or other documents necessary or desirable in Lender's
sole discretion to perfect, or to maintain the perfection of, Lender's security
interest in the Securities Collateral;
(b) to file a carbon, photographic or other reproduction of
this Agreement as a financing statement in such offices as Lender in its sole
discretion deems necessary or desirable to perfect, or to maintain the
perfection of, Lender's first priority security interest in the Securities
Collateral;
(c) to file any claims or take any action or institute any
proceedings that Lender may deem necessary or desirable for the collection of
the Securities Collateral or to enforce compliance with the terms and
conditions of any agreement with respect to the Securities Collateral;
(d) to sell, transfer, assign, pledge or make any agreement
with respect to the Securities Collateral as fully and completely as though
Lender were the absolute owner thereof for all purposes; and
(e) to do all acts and things that Lender deems necessary
or appropriate to protect, preserve or realize upon the Securities Collateral
<PAGE>
and Lender's first priority security interest therein.
12. LENDER MAY PERFORM. If Borrower fails to perform, or cause
performance of, any material covenant or agreement contained in this Agreement,
Lender may perform, or cause performance of (but shall not be obligated to so
perform or cause performance of), such covenant or agreement, and the
reasonable expenses of Lender incurred in connection therewith shall be
payable by Borrower under SECTION 16 thereof.
13. LENDER'S DUTIES; REASONABLE CARE.
(a) The rights and powers conferred on Lender hereunder are
solely to protect Lender's interest in the Securities Collateral and shall not
impose any duty upon it to exercise any such rights or powers.
(b) Lender shall be deemed to have exercised reasonable care
in the custody and preservation of the Securities Collateral in its possession
if the Securities Collateral are accorded treatment substantially equal to that
which Lender accords its own property, it being understood that Lender shall
have no responsibility for taking any necessary steps to preserve its rights
against any parties with respect to the Securities Collateral.
(c) Notwithstanding anything to the contrary contained
herein, Borrower acknowledges and agrees that upon the occurrence of an Event
of Default (after any notice of such Event of Default and the lapse of such
time to cure such Event of Default, in either case if required under the Loan
Documents) and Lender's election to accelerate the Obligations of Borrower,
Lender may take sole custody and control of the Securities Account, the
financial assets and the security entitlements and Lender may hold or sell or
otherwise liquidate any such financial assets, at such time and in such manner
as Lender shall determine in its sole and absolute unfettered discretion,
subject to Section 8.2 of the Credit Agreement. Borrower recognizes that at
the time of an Event of Default by Borrower, the Market Value of the financial
assets in the Securities Account may be more or less than the value of the
financial assets if they were held to maturity or held for any other period of
time depending upon factors in the financial market for such financial assets
at such time and Borrower agrees that Lender may hold or liquidate such
financial assets at a time when the Market Value of the financial assets is
less than the Market Value of the financial assets as of date of such Event of
Default or any subsequent date prior to liquidation. So long as any such sale
of financial assets is made through a recognized market for such financial
assets, Borrower agrees that any such sale shall be deemed to have been made
in a commercially reasonable manner. Lender shall not be under an obligation
to delay a sale or expedite a sale of any of the financial assets for any
period of time after an Event of Default (including any notice of such Event
of Default and the lapse of such time to cure such Event of Default, in either
case if required under the Loan Documents) and Lender's election to accelerate
the Obligations of Borrower, even if Borrower would agree to do so.
14. REMEDIES UPON DEFAULT; DECISIONS RELATING TO EXERCISE OF
REMEDIES. Subject to this SECTION 13, upon the occurrence and during the
continuation of an Event of Default, Lender may (i) exercise in respect of the
Securities Collateral, in addition to other rights and remedies provided for
herein or otherwise available at law or in equity, all the rights and remedies
hereunder, successively or concurrently, and such action shall not operate to
estop or prevent Lender from pursuing any other or further remedy which it may
have, and any repossession or retaking or sale of the Securities Collateral
pursuant to the terms hereof shall not operate to release Borrower until full
and final payment of any deficiency. Borrower shall reimburse Lender upon
<PAGE>
demand for, or Lender may apply any proceeds of the Securities Account to, the
reasonable costs and expenses (including, without limitation, attorneys' fees,
transfer taxes and any other charges) incurred by Lender in connection with any
disposition or retention of any Securities Collateral hereunder to satisfy the
Obligations of Borrower.
15. APPLICATION OF PROCEEDS. Following the occurrence of an Event
of Default and during the continuance thereof, any cash held by Lender as
Securities Collateral and all cash proceeds received by Lender in respect of any
sale of, liquidation of, collection from, or other realization upon, all or any
part of the Securities Collateral, shall be applied to pay for the reasonable
costs and expenses of Lender incurred in connection with the enforcement of this
Agreement; to pay amounts due Lender as provided in the Credit Agreement; and to
pay any additional amounts of any kind whatsoever Borrower owes Lender pursuant
to this Agreement or the Loan Documents; all in such order and such amount as
Lender shall determine in its sole and absolute discretion. Any proceeds
remaining after all such payments have been made shall be returned to Borrower
or interpleaded with a court of competent jurisdiction.
16. INDEMNITY AND EXPENSES.
(a) Borrower agrees to protect, indemnify and hold harmless
the Indemnitees from any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever growing out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement), in the manner
and on the terms set forth in the Credit Agreement. This SECTION 15(a) shall
in no event limit, expand or otherwise modify the indemnification provided in
the Credit Agreement.
(b) In addition to, but without duplication of, any
provisions in the Credit Agreement, Borrower will, within three (3) Banking
Days after demand, pay to Lender the amount of any and all expenses, including,
without limitation, the fees and expenses of counsel to Lender, with respect to
(i) the preparation of any amendment, modification or waiver hereof in
connection with a Default by Borrower or requested by Borrower, (ii) the custody
or preservation of, or the sale of, collection from, or other realization upon,
any of the Securities Collateral, (iii) the exercise or enforcement of any of
the rights of Lender hereunder, (iv) the failure of Borrower to perform or
observe any of the provisions hereof, (v) any refinancing or restructuring of
the credit arrangements provided under the Credit Agreement in the nature of a
"work-out" or in any insolvency or bankruptcy proceeding, or (vi) any action
taken by Lender hereunder.
17. AMENDMENTS. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by Borrower herefrom, shall in any event
be effective unless the same shall be in writing and signed by the party to be
bound, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
18. ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing and sent or delivered to Borrower
or Lender, as the case may be, in the manner set forth in the Credit Agreement
to the address set forth in the Credit Agreement.
19. CONTINUING SECURITY INTEREST; TRANSFER OF OBLIGATIONS. This
Agreement creates a continuing security interest in the Securities Collateral
and shall (i) remain in full force and effect until payment and performance in
full of the Obligations and until Lender has no further obligations to make
<PAGE>
Advances under the Credit Agreement, (ii) be binding upon Borrower, its
successors and assigns, and (iii) inure, together with the rights and remedies
of Lender, to the benefit of Lender and its successors, transferees,
participants and assigns. Upon the payment and performance in full of the
Obligations and at such time as Lender has no further obligations to make
Advances under the Credit Agreement, this Agreement shall terminate
automatically, and Borrower shall be entitled to the return, at Borrower's
expense, and without any warranty by or recourse to Lender, of such of the
Securities Collateral as shall not have been sold or otherwise applied
pursuant to the terms hereof or of the Credit Agreement; provided, however,
that this Agreement shall continue to be effective or be reinstated, as the
case may be, if, pursuant to applicable law, at any time, or from time to time,
payment and performance of the Obligations, or any part thereof, is rescinded
or reduced in amount, or must otherwise be restored or returned by Lender,
whether as a "voidable preference", "fraudulent conveyance" or otherwise, all
as though such payment or performance had not been made, and Borrower shall
thereupon deliver to Lender all Securities Collateral and such payments
returned by Lender to Borrower.
20. LIMITATION OF LIABILITY. No claim may be made by Borrower or
any other Person against Lender or employees, attorneys or agents of Lender for
any special, indirect, consequential or punitive damages in respect of any claim
for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement, or any act,
omission, or event occurring in connection therewith, and Borrower hereby
waives, releases and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in their
favor.
21. SEVERABILITY. The provisions of this Agreement are intended to
be severable. If for any reason any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
22. NO WAIVER OF REMEDIES. No failure on the part of Lender 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 or in the Credit Agreement.
23. HEADINGS. Section and other headings in this Agreement are
for convenience of reference only and shall not affect the construction of this
Agreement or otherwise be given any substantive meaning.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and al of which together
shall constitute one and the same Agreement.
25. Arbitration; Waiver of Jury Trial. EXCEPT FOR "CORE
PROCEEDINGS" UNDER THE UNITED STATES BANKRUPTCY CODE, THE PARTIES AGREE TO
SUBMIT TO BINDING ARBITRATION ALL CLAIMS, DISPUTES AND CONTROVERSIES BETWEEN
THEM, WHETHER IN TORT, CONTRACT OR OTHERWISE (AND THEIR RESPECTIVE EMPLOYEES,
OFFICERS, DIRECTORS, ATTORNEYS, AND OTHER AGENTS) ARISING OUT OF OR RELATING TO
IN ANY WAY THIS AGREEMENT. ANY ARBITRATION PROCEEDING WILL (A) PROCEED IN
PHOENIX, ARIZONA; (B) BE GOVERNED BY THE FEDERAL ARBITRATION ACT (TITLE 9 OF THE
<PAGE>
UNITED STATES CODE); AND (C) BE CONDUCTED IN ACCORDANCE WITH THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THIS
ARBITRATION REQUIREMENT DOES NOT LIMIT THE RIGHT OF ANY PARTY TO (I) FORECLOSE
AGAINST THE SECURITIES COLLATERAL OR SUE FOR AND OBTAIN A DEFICIENCY JUDGMENT
AFTER FORECLOSURE; (II) EXERCISE SELF-HELP REMEDIES RELATING TO THE SECURITIES
COLLATERAL OR PROCEEDS OF THE SECURITIES COLLATERAL SUCH AS SETOFF OR
REPOSSESSION; OR (III) OBTAIN PROVISIONAL ANCILLARY REMEDIES SUCH AS REPLEVIN,
INJUNCTIVE RELIEF, ATTACHMENT OR THE APPOINTMENT OF A RECEIVER, BEFORE, DURING
OR AFTER THE PENDENCY OR ANY ARBITRATION PROCEEDING. THIS EXCLUSION DOES NOT
CONSTITUTE A WAIVER OF THE RIGHT OR OBLIGATION OF ANY PARTY TO SUBMIT ANY
DISPUTE TO ARBITRATION, INCLUDING THOSE DISPUTES ARISING FROM THE EXERCISE OF
THE ACTIONS DETAILED IN CLAUSES (I), (II) AND (III) ABOVE. ANY ARBITRATION
PROCEEDING WILL BE BEFORE A SINGLE ARBITRATOR. THE PARTIES SHALL USE REASONABLE
EFFORTS TO AGREE UPON A SINGLE ARBITRATOR WITHIN TEN (10) DAYS AFTER WRITTEN
NOTICE FROM ONE PARTY TO THE OTHER REQUESTING ARBITRATION. IF THE PARTIES ARE
UNABLE TO AGREE UPON AN ARBITRATOR WITHIN SUCH TEN (10) DAY PERIOD, AT ANY TIME
THEREAFTER EITHER PARTY MAY REQUIRE THAT THE ARBITRATOR BE SELECTED ACCORDING
TO THE COMMERCIAL ARBITRATION RULES OF THE AAA. THE ARBITRATOR WILL BE A
NEUTRAL ATTORNEY WHO PRACTICES IN THE AREA OF COMMERCIAL OR BUSINESS LAW. THE
ARBITRATOR WILL DETERMINE WHETHER OR NOT AN ISSUE IS ARBITRABLE AND WILL GIVE
EFFECT TO THE STATUTES OF LIMITATION IN DETERMINING ANY CLAIM. JUDGMENT UPON
THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. IN ANY ARBITRATION PROCEEDING, THE ARBITRATOR WILL DECIDE (BY
DOCUMENTS ONLY OR WITH A HEARING AT THE ARBITRATOR'S DISCRETION) ANY PRE-
HEARING MOTIONS WHICH ARE SIMILAR TO MOTIONS TO DISMISS FOR FAILURE TO STATE A
CLAIM OR MOTIONS FOR SUMMARY ADJUDICATION. IN ANY ARBITRATION PROCEEDING,
DISCOVERY WILL BE PERMITTED AND WILL BE GOVERNED BY THE ARIZONA RULES OF CIVIL
PROCEDURE. ALL DISCOVERY MUST BE COMPLETED NO LATER THAN 20 DAYS BEFORE THE
HEARING DATE AND WITHIN 180 DAYS OF THE COMMENCEMENT OF ARBITRATION PROCEEDINGS.
ANY REQUESTS FOR AN EXTENSION OF THE DISCOVERY PERIODS, OR ANY DISCOVERY
DISPUTES, WILL BE SUBJECT TO FINAL DETERMINATION BY THE ARBITRATOR UPON A
SHOWING THAT THE REQUEST FOR DISCOVERY IS ESSENTIAL FOR THE PARTY'S
PRESENTATION AND THAT NO ALTERNATIVE MEANS FOR OBTAINING INFORMATION IS
AVAILABLE. THE ARBITRATOR SHALL AWARD COSTS AND EXPENSES OF THE ARBITRATION
PROCEEDING IN ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT. EXCEPT AS
OTHERWISE PROVIDED HEREIN AND IN THE IMMEDIATELY FOLLOWING SENTENCE, THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ARIZONA, WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES. THE
PARTIES HERETO ACKNOWLEDGE THAT THE PERFECTION AND EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREIN IN THE SECURITIES
COLLATERAL WILL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA. IN THE
EVENT THAT LENDER EXERCISES ITS RIGHTS TO FORECLOSE AGAINST THE SECURITIES
COLLATERAL OR OBTAIN PROVISIONAL ANCILLARY REMEDIES SUCH AS REPLEVIN,
INJUNCTIVE RELIEF, ATTACHMENT OR THE APPOINTMENT OF A RECEIVER, THE PARTIES
AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED IN
A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
----------------- ---------------
Initial Initial
26. RELATIONSHIP BETWEEN LENDER AND ACCOUNT HOLDER. Borrower
understands and acknowledges that Lender and Account Holder are separate and
distinct corporate entities, as well as affiliate corporations, and Borrower
has knowingly and consciously made the determination to proceed with the credit
arrangements with Lender as provided in this Credit Agreement and to maintain
the investment advisor and custodian relationship with Account Holder as
provided in the Investment Agreement. Borrower (i) knowingly waives and
releases Lender for, from and against any claim, demand, cause of action,
liability, damages and expenses incurred by Borrower and (ii) covenants and
<PAGE>
agrees that it will not claim, or attempt to claim, rights of setoff, off-set,
recoupment or the like against Lender, in the case of both clauses (i) and
(ii), arising out of, based upon, relating to, or otherwise occurring as a
result of, any acts or omissions of, or any breach of contract or tort or any
other theory of liability by, Account Holder. This provision is not intended
to affect any rights or remedies of Borrower against Lender pursuant to the
Credit Agreement.
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to
be executed as of the day and year first above written.
BORROWER:
MEDICIS PHARMACEUTICAL CORPORATION,
a Delaware corporation
- -------------------------------
Witness
By: /s/ Mark A. Prygocki, Sr.
-------------------------------
Name: Mark A. Prygocki, Sr.
-----------------------------
Title: Chief Financial Officer
-----------------------------
LENDER:
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION,
a national banking association
By: /s/ Jeffrey R. Wentzel
--------------------------------
Name: Jeffrey R. Wentzel
-----------------------------
Title: Vice President
-----------------------------
<PAGE>
ACKNOWLEDGEMENT OF CONTROL OF PLEDGED
SECURITIES ACCOUNT
THIS ACKNOWLEDGEMENT OF CONTROL OF PLEDGED SECURITIES ACCOUNT (the
"Agreement") is made as of this 22nd day of November, 1996 by and among NORWEST
BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association ("Lender"),
MEDICIS PHARMACEUTICAL CORPORATION, a Delaware corporation ("Borrower"), and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
("Account Holder").
R E C I T A L S:
WHEREAS, Borrower and Lender, as successor-in-interest to Norwest
Business Credit, Inc. ("NBCI"), are parties to that certain Credit and Security
Agreement dated as of August 3, 1995, as modified by letter agreements dated
March 6, 1996 and April 11, 1996, First Amendment to Credit and Security
Agreement dated May 29, 1996 and Second Amendment to Credit and Security
Agreement dated November 22, 1996 (collectively, the "Credit Agreement"),
pursuant to which Lender has committed to advance, in the aggregate, $25,000,000
to Borrower upon the terms and conditions in the Credit Agreement;
WHEREAS, Borrower and Account Holder are parties to that certain
Investment Advisory Agreement dated as of October 17, 1996 (the "Investment
Agreement"), pursuant to which Account Holder has opened and maintains that
certain Reserve Asset Management Account No. 13275500 (such account and any
other accounts established pursuant to the Investment Agreement are
collectively referred to as the "Securities Account") and holds in the
Securities Account all cash and securities initially deposited plus any
additional cash and securities that may be received from time to time for the
Securities Account, subject to Borrower's right to effect Entitlement Orders,
withdrawals, investment requests or directions to the Account Holder with
respect to the Securities Collateral from time to time;
WHEREAS, pursuant to the terms and conditions of the Investment
Agreement, Account Holder acts as the investment advisor to Borrower, manages
and directs the investment of the assets in accordance with the investment
objectives and guidelines of Borrower and acts as the custodian for the assets
of the Securities Account and such other investments as Borrower shall direct;
WHEREAS, Borrower and Lender have executed and delivered that certain
Securities Account Pledge and Security Agreement of even date herewith (the
"Pledge Agreement"), pursuant to which Borrower has pledged and granted to
Lender a security interest in and to all of Borrower's right, title and
interest in and to the Securities Account and all financial assets now or
hereafter held in the Securities Account and all security entitlements in
connection therewith;
WHEREAS, it is a condition precedent to the effectiveness of the Second
Amendment that Borrower, Lender and Account Holder execute and deliver this
Agreement in order to perfect Lender's first lien security interest in the
Securities Account and all of the financial assets now or hereafter held in the
Securities Account and all security entitlements in connection therewith,
subject to the terms, conditions and provisions of the Pledge Agreement;
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the premises and the mutual
<PAGE>
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
1. DESCRIPTION OF INVESTMENTS. Borrower acknowledges, agrees and
represents to Lender that the assets held and to be held in the Securities
Account and all of Borrower's right, title and interest in, to and under any
of the foregoing constitute "financial assets" as defined in the Uniform
Commercial Code in force in the State of Minnesota (hereinafter referred to as
the "UCC"). Account Holder, on its part, also acknowledges and agrees that the
assets held and to be held in the Securities Account and all of Borrower's
right, title and interest in, to and under any of the foregoing constitute
"financial assets" as defined in the UCC, as agreed between Borrower and Lender.
Account Holder further acknowledges receipt of notice of Lender's security
interest in the Securities Account and in all financial assets contained therein
and in all security entitlements with respect thereto, and to the extent, if
any, that any consent of Account Holder is required under the Investment
Agreement, Account Holder hereby consents to the grant of such security interest
and to the collateral assignment by Borrower of its rights under the Investment
Agreement.
2. ACCOUNT HOLDER'S RESPONSIBILITIES.
(a) Account Holder agrees with Lender and Borrower that
Account Holder shall comply with all orders relating to all financial assets in
the Securities Account of any sort ("Entitlement Orders") given to it by Lender
from and after the effective date of this Agreement, whether or not Borrower
consents or agrees thereto, for the sole and specific purpose of giving Lender
"control" of the Securities Account and all financial assets in or credited to
the Securities Account and all security entitlements (as defined in the UCC)now
existing or hereafter arising in connection with or with respect to the
Securities Account and all financial assets thereto within the meaning of Minn.
Stat. Section 336.8-106.D.2, and perfecting Lender's security interest in the
Securities Account and its contents within the meaning of Minn. Stat. Section
336.9-122.D with respect to the Securities Account and financial assets therein.
Without intending to limit the generality of the preceding sentence, if Lender
determines, in its sole and absolute discretion in accordance with the terms of
the Loan Documents, that a Default or Event of Default has occurred under the
Credit Agreement, Lender may, at any time thereafter, notify Account Holder in
writing and may instruct Account Holder in writing and upon actual receipt by
Account Holder (addressed as set forth in SECTION 7 of this Agreement), Account
Holder shall refuse any Entitlement Order or any other withdrawal, investment
request or direction of Borrower with respect to the Securities Account and the
financial assets therein. Account Holder shall thereafter exercise sole
dominion and control on behalf of Lender with respect to the Account, in a
manner not inconsistent with the terms of the Loan Documents. Further, upon
the written direction of Lender (after written notification of a Default or
Event of Default has been received by Account Holder from Lender), Account
Holder shall pay over to Lender all funds, both principal and interest, held or
on deposit in the Securities Account and shall deliver to Lender any documents,
instruments, certificates, securities and other investments with respect to the
Securities Account. Account Holder shall not consult with Borrower regarding
any action taken pursuant to the provisions of the immediately preceding
sentence, but shall provide notice to Borrower of any securities transactions
in accordance with its customary practices.
(b) Account Holder agrees with Lender that Account Holder
shall not agree to comply with any Entitlement Orders relating to the
Securities Account or any financial asset therein or any security entitlement
<PAGE>
with respect thereto by any party other than Lender or Borrower, and shall not
otherwise permit any other party to obtain "control" of the Account within the
meaning of Minn. Stat. Section 336.8-106.D.2.
(c) Account Holder agrees that it shall not purchase any
financial assets on margin and shall not, without the prior written consent of
Lender, make or cause to be made or consent to any amendment or modification to
the Investment Agreement or to the Medicis Pharmaceutical Corporation Corporate
Investment Policy, a copy of which is attached hereto as EXHIBIT "A" and
incorporated herein by this reference.
(d) Notwithstanding anything to the contrary contained
herein, Account Holder shall refuse any Entitlement Order or any other
withdrawal, investment request or direction of Borrower with respect to the
Securities Account and the financial assets therein, if, before or after
affecting the Entitlement Order, withdrawal, investment request or direction
of Borrower, the "Market Value" (as defined below) of the financial assets in
the Securities Account is or would be less than $33,333,333.00. For purposes
hereof, the Market Value of the financial assets in the Securities Accounts
means the value of all of the financial assets in the Securities Account and,
with respect to all non-cash financial assets, the value of such financial
assets marked-to-market as of the close of business on the last Business Day
of the immediately previous month.
(e) Account Holder shall have no duty or responsibility to
Lender or Borrower except those specifically set forth in this Agreement, the
Investment Agreement and applicable laws. To the extent not inconsistent with
this Agreement, the Securities Account shall be governed by the Investment
Agreement; provided, however, that notwithstanding any provision of the
Investment Agreement, Account Holder expressly agrees that it shall not delegate
or assign its duties and obligations under the Investment Agreement without the
prior written consent of Borrower and Lender. Account Holder represents that
it has delivered to Lender and to Borrower all documents and agreements
applicable to the Securities Account. In addition to the foregoing, Account
Holder shall use its best efforts to promptly notify Lender if any additional
attempt to obtain "control" of the Securities Account or any financial assets
therein or any security entitlements with respect thereto is made of which
Account Holder becomes aware, or if a lien or other claim is made or threatened
against the Securities Account or any portion thereof.
(f) Borrower understands and acknowledges that Lender and
Account Holder are separate and distinct corporate entities, as well as
affiliate corporations, and Borrower has knowingly and consciously made the
determination to proceed with the credit arrangements with Lender as provided
in this Credit Agreement and to maintain the investment advisor and custodian
relationship with Account Holder as provided in the Investment Agreement.
Borrower (i) knowingly waives and releases Account Holder for, from and against
any claim, demand, cause of action, liability, damages and expenses incurred by
Borrower and (ii) covenants and agrees that it will not claim, or attempt to
claim, rights of setoff, off-set, recoupment or the like against Lender, in the
case of both clauses (i) and (ii), arising out of, based upon, relating to, or
otherwise occurring as a result of, any acts or omissions of, or any breach of
contract or tort or any other theory of liability by, Lender. This provision
is not intended to affect any rights or remedies of Borrower against Account
Holder pursuant to the Investment Agreement.
3. BORROWER'S CONSENT. Borrower agrees that Lender has the right,
in its sole and absolute discretion (subject to and in accordance with the terms
of the Loan Documents), to determine that a Default or an Event of Default has
<PAGE>
occurred and to instruct Account Holder to take the actions set forth in
SECTION 1 above. Borrower waives any claims or causes of action Borrower may
have against Account Holder for acting according to instructions from the Lender
pursuant to SECTION 1 above, and further agrees to hold Account Holder harmless
for, from and against such actions in accordance with Section 8 of the
Investment Agreement.
4. ACCOUNT HOLDER'S RIGHT TO RESIGN. Account Holder reserves the
right to resign hereunder by not less than sixty days' prior written notice to
Borrower and Lender. At or before ten (10) days prior to the effective date of
such resignation, Account Holder shall pay over or deliver to Lender all funds
or other property in the Securities Account and any related documents,
instruments, certificates and securities to be held as collateral security for
the Obligations of Borrower pursuant to the terms of the Credit Agreement;
provided, however, if prior to the time such funds or other property and any
related documents, instruments, certificates and securities are paid over or
delivered to Lender, Lender requests in writing that such funds be paid over or
delivered to another party, and that any documents, instruments, certificates
and securities with respect to the Securities Account also be released to such
party, (i) Account Holder shall forthwith pay over or deliver to such party all
such funds or other property, and deliver to such party all such documents,
instruments, certificates and securities, (ii) this Agreement shall terminate,
and (iii) Account Holder shall not have any further liability under this
Agreement, except any rights of Lender or Borrower against Account Holder
arising prior to the time of such transfer.
5. HOLD HARMLESS. The indemnification provisions in Section 9 of
the Investment Agreement shall apply to this Agreement and the undertakings of
Account Holder hereunder, and any actions of Account Holder taken hereunder, to
the same extent and force as provided in the Investment Agreement.
6. NOTICES. All notices, consents, demands, requests, approvals
and other communications which are required or may be given hereunder shall be
in writing and shall be deemed to have been duly given if delivered by hand or
mailed certified first class mail, postage prepaid, or sent by overnight courier
service, addressed as follows, and shall be deemed received on the earliest of
actual receipt, three (3) business days after deposit in the United States mail
or one (1) business day after deposit with an overnight courier service:
(i) If to Lender:
Norwest Bank Arizona, National Association
64 East Broadway
Tempe, Arizona 85282
Attn: Mr. Jeffrey R. Wentzel, Vice President
Telecopier: (602) 644-8392
with a copy to:
Jay S. Kramer
Fennemore Craig
Two North Central Avenue
Suite 2200
Phoenix, AZ 85004-2390
(ii) If to Borrower:
Medicis Pharmaceutical Corporation
4343 East Camelback Road
<PAGE>
Suite 250
Phoenix, AZ 85018-2700
Attention: Mr. Mark A. Prygocki, Sr.
with a copy to:
Frank M. Placenti, Esq.
Brown & Bain
2901 North Central Avenue
P.O. Box 400
Phoenix, AZ 85001-0400
(iii) If to Account Holder:
Norwest Bank Minnesota, N.A.
Norwest Investment Management
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-2059
Attention: Mr. Todd Dalaska
and
Norwest Bank Minnesota, N.A.
Corporate Custody Services
M.S. #0069
Sixth and Marquette
Minneapolis, MN 55479-0069
Attn: Ms. Marni Johnson
Any party may change their address for notices hereunder by sending notice of
such change of address in the manner provided above.
7. REFERENCE TO THE CREDIT AGREEMENT. The Credit Agreement is
referred to herein solely for convenience of reference, and nothing contained
herein should be construed as modifying the Credit Agreement or otherwise
altering Lender's rights or diminishing Borrower's liabilities under the Credit
Agreement.
8. ACCOUNT HOLDER'S REPRESENTATIONS AND AGREEMENTS.
(a) Account Holder hereby intentionally waives and
relinquishes all security interests, liens, banker's lien, rights of set-off,
offset or recoupment with respect to the Securities Account or the financial
assets therein or the security entitlements with respect thereto, for
obligations of Borrower the Account Holder may now or hereafter have, including,
without limitation, any rights or claims to indemnity or similar rights or
claims under the Investment Agreement, and any claims or rights Account Holder
may have as a securities intermediary (as defined in the UCC) under applicable
law. Account Holder acknowledges that the funds and financial assets held in
the Securities Account and all related documents, instruments, certificates and
securities are held in trust and are reserved for the benefit of the Lender,
except as provided in the Credit Agreement. Nothing contained herein shall be
construed to mean that Account Holder is waiving any rights or claims against
Borrower (except the right to attach the Securities Account, the financial
assets and the security entitlements) for any obligations or liabilities of
Borrower under the Investment Agreement or at law, including, without
limitation, any rights or claims to indemnity or similar rights or claims under
the Investment Agreement, and any claims or rights Account Holder may have as a
<PAGE>
securities intermediary (as defined in the UCC) under applicable law.
(b) Account Holder has marked and will continually mark its
books and records to indicate the security interest of Lender in the Securities
Account and the present right of Lender to control the Securities Account and
the financial assets therein and the security entitlements with respect thereto;
(c) Account Holder agrees to use its best efforts to notify
Lender in the event it receives notice of any lien or claim against or
assignment or transfer of any of the Securities Account, or of any attempt to
obtain "control" of the Securities Account by any other party whatsoever;
(d) Account Holder represents to Lender that it is a bank
that in the ordinary course of its business maintains securities accounts for
others and that it is acting in that capacity here; and
(e) Account Holder represents to the Lender that Borrower
is the only person (other than Lender) identified on Account Holder's records
as having any rights or property interest to or under the Investment Agreement,
and that Account Holder has not received any notice of any lien or claim
against, or assignment or transfer of, any of the Securities Account, or of any
attempt to obtain "control" of the Securities Account by any party.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
Borrower and Account Holder and their respective successors and assigns and
shall inure to the benefit of Lender and its successors, transferees and
assigns.
10. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota, without regard
to its conflict of laws rules.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
12. TERMINATION. Upon the payment and performance in full of the
Obligations and at such time as Lender has no further obligations to make
Advances under the Credit Agreement, this Agreement shall terminate
automatically; provided, however, that this Agreement shall continue to be
effective or be reinstated, as the case may be, if, pursuant to applicable law,
at any time, or from time to time, payment and performance of the Obligations,
or any part thereof, is rescinded or reduced in amount, or must otherwise be
restored or returned by Lender, whether as a "voidable preference", "fraudulent
conveyance" or otherwise, all as though such payment or performance had not been
made, and Borrower shall thereupon deliver to Lender all Securities Collateral
and such payments returned by Lender to Borrower. Upon the written request of
Account Holder or Borrower, Lender shall execute such documents or instruments
as Account Holder deems necessary to confirm the termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Acknowledgment of
Control of Pledged Securities Account as of the day and year first above
written.
BORROWER:
MEDICIS PHARMACEUTICAL CORPORATION, a
Delaware corporation
<PAGE>
By: /s/ Mark A. Prygocki, Sr.
-------------------------------------
Name: Mark A. Prygocki, Sr.
----------------------------------
Title: Chief Financial Officer
---------------------------------
ACCOUNT HOLDER:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
a national banking association
By: /s/ Todd H. Dalaska
-------------------------------------
Name: Todd H. Dalaska
----------------------------------
Title: Vice President
----------------------------------
LENDER:
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION,
a national banking association
By: /s/ Jeffrey R. Wentzel
-------------------------------------
Name: Jeffrey R. Wentzel
-----------------------------------
Title: Vice President
----------------------------------
<PAGE>
EXHIBIT "A"
MEDICIS PHARMACEUTICAL CORPORATION
CORPORATE INVESTMENT POLICY
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 9,211 6,687 8,133 6,687
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 729 289 697 168
TOTAL 9,940 6,976 8,830 6,855
Net income $3,251 $1,404 $6,855 $2,050
Per share amount $ 0.33 $ 0.20 $ 0.78 $ 0.30
FULLY DILUTED
Average shares outstanding 9,211 6,687 8,133 6,687
Net effect of dilutive stock options -
based on the treasury stock method
using the quarter-end market price,
if higher than the average market price 729 421 703 421
TOTAL 9,940 7,108 8,836 7,108
Net income $3,251 $1,404 $6,855 $2,050
Per share amount $ 0.33 $ 0.20 $ 0.78 $ 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996, AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31,
1996, AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 65,081,224
<SECURITIES> 39,272,465
<RECEIVABLES> 5,477,481
<ALLOWANCES> 680,000
<INVENTORY> 1,421,084
<CURRENT-ASSETS> 116,356,518
<PP&E> 539,951
<DEPRECIATION> 149,850
<TOTAL-ASSETS> 124,623,467
<CURRENT-LIABILITIES> 5,799,915
<BONDS> 0
0
0
<COMMON> 130,865
<OTHER-SE> 118,445,404
<TOTAL-LIABILITY-AND-EQUITY> 124,623,467
<SALES> 15,776,031
<TOTAL-REVENUES> 15,776,031
<CGS> 4,207,473
<TOTAL-COSTS> 7,674,410
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,418,432)
<INCOME-PRETAX> 5,312,580
<INCOME-TAX> (1,542,602)
<INCOME-CONTINUING> 6,855,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,855,182
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
