<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ICN PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 2834 33-0628076
(State of Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
3300 HYLAND AVENUE, COSTA MESA, CALIFORNIA 92626, (714) 545-0100
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------------
DAVID C. WATT, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY
ICN PHARMACEUTICALS, INC.
3300 HYLAND AVENUE
COSTA MESA, CALIFORNIA 92626 (714) 545-0100
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants' Agent For Service)
------------------------
WITH A COPY TO:
RONALD R. PAPA, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
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8 3/4% Series B Senior Notes
Due 2008..................... $200,000,000 100% $200,000,000 $59,000
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1998
OFFER TO EXCHANGE
ALL OUTSTANDING
8 3/4% SENIOR NOTES DUE 2008
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
8 3/4% SERIES B SENIOR NOTES DUE 2008
OF
ICN PHARMACEUTICALS, INC.
------------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 1998, UNLESS EXTENDED
------------------------
ICN Pharmaceuticals, Inc., a Delaware corporation ("ICN" or the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of 8 3/4% Series B Senior Notes Due 2008 of ICN
(the "New Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement (as
defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of the outstanding 8 3/4% Senior Notes Due 2008 of ICN (the
"Old Notes"), of which $200.0 million principal amount is outstanding. The New
Notes and the Old Notes are collectively referred to herein as the "Notes."
ICN will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be , 1998, unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the business day prior to the
Expiration Date, unless previously accepted for payment. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions which
may be waived by ICN and to the terms and provisions of the Registration Rights
Agreement (as defined herein). See "The Exchange Offer." Old Notes may be
tendered only in denominations of $1,000 and integral multiples thereof. ICN has
agreed to pay the expenses of the Exchange Offer.
The New Notes will be obligations of ICN entitled to the benefits of the
Indenture (as defined herein) relating to the Old Notes. The Notes will rank
pari passu in right of payment with all unsecured senior indebtedness and senior
to all subordinated indebtedness of the Company. The Notes will be effectively
subordinated to all secured indebtedness of the Company to the extent of the
assets securing such indebtedness and will also be effectively subordinated to
all indebtedness and other obligations of the Company's subsidiaries. The
indenture permits the Company and its subsidiaries to incur additional
indebtedness, subject to certain limitations. The form and terms of the New
Notes are identical in all material respects to the form and terms of the Old
Notes except that the New Notes have been registered under the Securities Act.
Following the completion of the Exchange Offer, none of the Notes will be
entitled to the benefits of the provisions of the Registration Rights Agreement
relating to contingent increases in the interest rates provided for pursuant
thereto. See "The Exchange Offer."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
Interest on each New Note will accrue from the last Interest Payment Date
(as defined herein) on which interest was paid on the Old Note tendered in
exchange therefor or, if no interest has been paid on such tendered Old Note,
from August 20, 1998. Holders of Old Notes whose Old Notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from the last Interest Payment Date
or August 20, 1998 (as the case may be) to the date of the issuance of the New
Notes. Interest on the New Notes is payable semi-annually on May 15 and November
15 of each year, accruing from the last Interest Payment Date or August 20, 1998
(as the case may be) at a rate of 8 3/4% per annum.
The Notes will mature on November 15, 2008, unless previously redeemed. The
Company may redeem up to $70.0 million of the aggregate principal amount of the
Notes in cash at its option at any time prior to November 15, 2001 at 108.75% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of redemption, with the net proceeds of one or more Public Equity Offerings
(as defined). Upon a Change of Control (as defined), the Company will be
required to offer to repurchase the Notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued interest thereon to the date of
repurchase.
The Notes will be general unsecured obligations of the Company. The Notes
will rank pari passu in right of payment with all unsecured senior indebtedness
of the Company, including its 9 1/4% Senior Notes due 2005, and senior to all
subordinated indebtedness of the Company. The Notes will be effectively
subordinated to all secured indebtedness of the Company to the extent of the
assets securing such indebtedness and will also be effectively subordinated to
all indebtedness and other obligations of the Company's subsidiaries. As of June
30, 1998, the Company had $11.5 million of secured indebtedness outstanding and
its subsidiaries had aggregate indebtedness and other obligations of $55.3
million outstanding. The indenture governing the Notes will permit the Company
and its subsidiaries to incur additional indebtedness, subject to certain
limitations.
Old Notes initially purchased by Qualified Institutional Buyers (as defined
in Rule 144A under the Securities Act) were initially represented by a single,
global Note in registered form, registered in the name of a nominee of The
Depository Trust Company ("DTC"), as depositary. The New Notes exchanged for Old
Notes represented by the global Note will be represented by a single, global New
Note in registered form, registered in the name of the nominee of DTC, unless
the beneficial holders thereof request otherwise. The global New Note will be
exchangeable, upon 10 days' prior written notice, for New Notes in registered
form, in denominations of $1,000 and integral multiples thereof. See
"Description of the New Notes -- Book-Entry Delivery and Form."
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "Commission") set forth in several
no-action letters to third parties, and subject to the immediately following
sentence, ICN believes that the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by holders thereof
without further compliance with the registration and prospectus delivery
provisions of the Securities Act. However, any purchaser of Notes who is an
"affiliate" as defined under Rule 405 of the Securities Act of ICN or who
intends to participate in the Exchange Offer for the purpose of distributing the
New Notes (i) will not be able to rely on the interpretation by the staff of the
Commission set forth in the above referenced no-action letters, (ii) will not be
able to tender Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the New Notes, unless such sale or
transfer is made pursuant to an exemption from such requirements.
Each holder of the Old Notes who wishes to exchange Old Notes for New Notes
in the Exchange Offer will be required to make certain representations,
including that (i) any New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of such holder's business, (ii) such
holder has no arrangements with any person to participate in the distribution of
such New Notes and (iii) such holder is not an "affiliate," as defined under
Rule 405 of the Securities Act, of ICN or, if such holder is an affiliate, that
such holder will comply with the
2
<PAGE> 4
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the holder is not a broker-dealer, it will be required to
represent that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the holder is a broker-dealer (a "Participating
Broker-Dealer") that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making activities or other
trading activities, it will be required to acknowledge that it has no
arrangements with any person to participate in the distribution of the New Notes
and that it will deliver a prospectus in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus, such holder
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to New Notes (other than a resale of an unsold allotment from the original sale
of the Old Notes) with this Prospectus. Under the Registration Rights Agreement,
ICN is required to allow Participating Broker-Dealers and other persons, if any,
subject to similar prospectus delivery requirements to use this Prospectus in
connection with the resale of such New Notes. A broker-dealer that purchased Old
Notes from ICN may not participate in the Exchange Offer.
ICN will not receive any proceeds from this offering, and no underwriter is
being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL ICN ACCEPT SURRENDERS FOR
EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
OR BLUE SKY LAWS OF SUCH JURISDICTION.
The New Notes will be new securities for which there currently is no
market. Although Schroder & Co., Inc. and Warburg Dillon Read LLC have informed
ICN that they currently intend to make a market in the New Notes, they are not
obligated to do so, and any such market making may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the New Notes. ICN does not intend to apply for
listing of the New Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
3
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
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Available Information....................................... i
Incorporation of Certain Documents by Reference............. ii
Summary..................................................... 1
Risk Factors................................................ 12
Use of Proceeds............................................. 21
Capitalization.............................................. 22
Selected Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
The Exchange Offer.......................................... 39
Business.................................................... 47
Management.................................................. 61
Description of the New Notes................................ 65
Book Entry; Delivery and Form............................... 86
Certain U.S. Federal Income Tax Consequences................ 88
Plan of Distribution........................................ 90
Legal Matters............................................... 90
Independent Public Accountants.............................. 90
Index to Financial Statements............................... F-1
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AVAILABLE INFORMATION
ICN is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission via EDGAR.
Such reports, proxy statements and other information filed by ICN may be
inspected and copied at the public reference facilities of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following regional offices: Seven World Trade Center, 13th Floor, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and copies of such material can be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports,
proxy statements and other information also may be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Materials filed electronically with the Commission may also be accessed through
the Commission's home page on the World Wide Web at http://www.sec.gov.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed via EDGAR by ICN with the Commission under the
Securities Act. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules thereto
for further information with respect to ICN and the securities offered hereby.
Statements contained herein concerning the provisions of any documents filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
are not necessarily complete, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.
i
<PAGE> 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act, are incorporated in this Prospectus by reference as of
their respective dates: (i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, dated March 31, 1998, (ii) Quarterly Reports on Form 10-Q for
the three months ended March 31, 1998, dated May 15, 1998 and for the three
months ended June 30, 1998, dated August 14, 1998 and (iii) the description of
the Common Stock and associated Preferred Stock Purchase Rights contained in the
Registration Statement on Form 8-A, dated November 10, 1994. All reports and
other documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Notes shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such reports and other documents. Any statement contained herein or in a
report or document incorporated or deemed to be incorporated herein by reference
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed report
or document that is or is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The making of a modifying or superseding statement shall not be deemed an
admission for any purposes that the modified or superseded statement, when made,
constituted a misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made.
No person has been authorized to give any information or make any
representations other than those contained or incorporated by reference in this
Prospectus and the accompanying letter of transmittal and, if given or made,
such information or representations must not be relied upon as having been
authorized by ICN or the exchange agent. Neither the delivery of this Prospectus
or the accompanying letter of transmittal, or both together, nor any sale made
hereunder shall under any circumstances create an implication that there has
been no change in the affairs of ICN since the date hereof. Neither this
Prospectus nor the accompanying letter of transmittal, or both together,
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the request of such person, a copy of any or
all of the documents incorporated herein by reference (other than exhibits
hereto, unless such exhibits are specifically incorporated by reference into
such documents). Written requests for such copies should be directed to
Corporate Secretary, ICN Pharmaceuticals, Inc., 3300 Hyland Avenue, Costa Mesa,
California 92626. Telephone inquiries may be directed to Corporate Secretary, at
(714) 545-0100.
ii
<PAGE> 7
SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere in this Prospectus. Except as the
context otherwise requires, as used in this Prospectus, all references to ICN or
the Company include its subsidiaries.
THE COMPANY
ICN is a multinational pharmaceutical company that develops, manufactures,
distributes and sells pharmaceutical, research and diagnostic products. In 1997,
the Company had revenues of $752.2 million and earnings before interest, taxes,
depreciation and amortization ("EBITDA") of $154.1 million. Based on the closing
price of the Company's common stock on the New York Stock Exchange on September
11, 1998, the Company has an equity market capitalization of approximately $1.1
billion.
ICN distributes and sells a broad range of prescription (or "ethical") and
over-the-counter ("OTC") pharmaceutical and nutritional products in over 90
countries. These pharmaceutical products treat viral and bacterial infections,
diseases of the skin, neuromuscular disorders, cancer, cardiovascular disease,
diabetes and psychiatric disorders.
The Company pursues a strategy of international expansion which includes:
(i) the consolidation of the Company's leadership position in Eastern Europe,
including Russia; (ii) the acquisition of high margin products that complement
existing product lines and can be introduced into additional markets to meet the
specific needs of those markets; and (iii) the creation of a pipeline of new
products through internal research and development, as well as strategic
partnerships and licensing arrangements. The Company intends to continue its
strategy of seeking acquisitions and other growth opportunities in North America
and Western Europe, as well as in Eastern Europe (including Russia) and other
emerging markets, such as China and Latin America.
The Company currently operates 11 pharmaceutical companies throughout
Eastern Europe (including Russia) and, as measured by sales, the Company
believes it is currently the largest pharmaceutical company in Eastern Europe
(including Russia), a region with an estimated population of 425.1 million
people with a collective GNP of $838.3 billion. The current rate of per capita
spending on pharmaceuticals in Eastern Europe is only 13% of such rate in
Western Europe. The Company believes it has also established itself as the
largest pharmaceutical company, as measured by sales, in Russia, a market that
is expected to grow significantly over the next decade.
ICN believes it is uniquely positioned as being both large enough to have
an effective international distribution network not enjoyed by smaller
pharmaceutical companies and small enough to permit lower sales thresholds that
will achieve profitability that cannot be realized under the production and
marketing constraints of larger pharmaceutical companies. The Company has
increased sales and profitability in part by acquiring high margin
pharmaceutical products that complement its existing product lines. For example,
in 1997, the Company purchased from F. Hoffmann-La Roche Ltd. ("Roche")
worldwide rights to 11 products (the "Roche Transaction"). Sales of these
products since the initial acquisition (effective July 1, 1997) contributed
$37.9 million to the Company's 1997 second-half revenues. See
"Business -- Background."
The Company's research and development activities are based upon the
expertise accumulated in over 35 years of nucleic acids research focusing on the
internal generation of novel molecules. The research and development function
works closely with corporate marketing on a local, regional and worldwide basis.
Consequently, the Company has entered into a number of licensing arrangements
with other larger pharmaceutical companies, as well as strategic partnerships to
develop its proprietary products.
Among the Company's products is the broad spectrum antiviral agent
ribavirin, which it markets in the United States, Canada and most of Europe
under the Virazole(R) trademark. In 1995, the Company entered into an Exclusive
License and Supply Agreement, as amended in July 1998 (the
1
<PAGE> 8
"License Agreement"), and a Stock Purchase Agreement with a subsidiary of
Schering-Plough Corporation (together with such subsidiary, "Schering-Plough")
whereby Schering-Plough licensed all oral forms of ribavirin for the treatment
of chronic hepatitis C in combination with Schering-Plough's alpha interferon
(the "Combination Therapy"). The License Agreement provided the Company an
initial non-refundable payment by Schering-Plough of $23.0 million and future
royalty payments to the Company from sales of ribavirin by Schering-Plough,
including certain minimum royalty rates. As part of the initial License
Agreement, the Company retained the right to co-market ribavirin capsules in the
European Union under its trademark Virazole(R). Schering-Plough currently has
exclusive marketing rights for oral forms of ribavirin for hepatitis C worldwide
and is responsible for all clinical development and regulatory activities. In
addition, Schering-Plough agreed to purchase up to $42.0 million in common stock
of the Company upon achieving certain regulatory milestones.
On June 3, 1998, Schering-Plough received approval from the United States
Food and Drug Administration ("FDA") to market the Combination Therapy under the
brand name Rebetron(TM) for the treatment of chronic hepatitis C in patients
with compensated liver disease who have relapsed following alpha interferon
therapy. On June 8, 1998, Schering-Plough began selling the Combination Therapy
in the United States. On June 9, 1998, Schering-Plough submitted a Marketing
Authorization Application (an "MAA") for the Combination Therapy to the European
Medicines Evaluation Agency (the "EMEA") for the treatment of relapsed chronic
hepatitis C patients. On June 16, 1998, Schering-Plough filed a supplemental New
Drug Application ("NDA") with the FDA for the Combination Therapy for the
treatment of chronic hepatitis C in patients with compensated liver disease
previously untreated with alpha interferon therapy (referred to as
treatment-naive patients).
On July 16, 1998, the Company sold to Schering-Plough its rights to
co-market oral ribavirin for the treatment of hepatitis C in the European Union.
Under the amended License Agreement, the Company will receive increased royalty
rates worldwide as well as a one-time payment of $16.5 million, which includes
reimbursement for certain expenses incurred by the Company in preparation for
the launch of ribavirin capsules in the European Union.
The Company believes that the approval of the Combination Therapy for the
treatment of chronic hepatitis C will be important to the Company because of the
potential size of the chronic hepatitis C market in the United States, Western
Europe, Japan and other markets. According to the Centers for Disease Control
and Prevention ("CDCP"), approximately four million Americans are chronically
infected with the hepatitis C virus. Of these, 20%-50% are expected to develop
liver cirrhosis, of which 20%-30% are expected to go on to develop liver cancer
or liver failure requiring liver transplant. An equal or greater degree of
disease prevalence is projected in Western Europe and Japan.
Besides the use of ribavirin in the Combination Therapy, the Company
markets ribavirin under its own trademark Virazole(R) for commercial sale in
over 40 countries for one or more of a variety of viral infections, including
respiratory syncytial virus ("RSV"). In the United States and Europe,
Virazole(R) is approved for use in hospitalized infants and children with severe
lower respiratory infections due to RSV. See "Risk Factors -- No Assurance of
Successful Development and Commercialization of Future Products" and
"-- Government Regulation."
In addition to its pharmaceutical operations, the Company also develops,
manufactures and sells, through its wholly-owned subsidiary, ICN Biomedicals,
Inc., a broad range of research products and related services, immunodiagnostic
reagents and radiation monitoring services. The Company markets these products
internationally to major scientific, academic, health care and governmental
institutions through catalog and direct mail marketing programs. ICN
Biomedicals, Inc. accounted for approximately 9% of the Company's total 1997
revenues.
2
<PAGE> 9
RECENT DEVELOPMENTS
ICN Yugoslavia
ICN Yugoslavia, a 75% owned subsidiary, represents a material part of the
Company's business. Approximately 30% and 24% of the Company's net revenues for
1997 and the six months ended June 30, 1998, respectively, were from ICN
Yugoslavia. At the time of the devaluation in April 1998, the Company's net
monetary asset position in Yugoslavia was approximately $38.0 million, resulting
in a foreign translation loss of $17.0 million recognized in the second quarter
of 1998. Recovery from the effects of the devaluation will depend on the
approval of new price increases by the Yugoslavian government. The Company,
along with others in the Yugoslavian pharmaceutical industry, applied to the
government for price increases, which were denied. The Company will continue to
seek price increases in the future.
On June 8, 1998, in response to continued violence by Yugoslavian
government forces against the Albanian population in the province of Kosovo, the
United States government imposed a ban on new American investments in Yugoslavia
and a freeze on that country's assets in the United States. In July 1998, the
worsening liquidity problem in Yugoslavia caused an agency of the Yugoslavian
government to default on certain notes receivable due ICN. In the second quarter
ended June 30, 1998, the Company has recorded a non-cash charge against earnings
(the "Yugoslavian Reserve") of $173.4 million ($130 million after minority
interest) to provide for ICN Yugoslavia's anticipated losses on certain notes
receivable, accounts receivable from government sponsored agencies and the
impairment of certain of its related investments. See "Risk Factors -- Risk of
Operations in Yugoslavia."
Russia
In August 1998, the Russian Central Bank announced that it was no longer
able to support the ruble at its then-current exchange rate of approximately 6.3
rubles to $1, and that it would allow the ruble to fall as far as 9.5 rubles to
$1. Subsequently, the ruble fell sharply and the Russian Central Bank was unable
to support the ruble, even at the previously announced level. In September 1998,
there have been large fluctuations in exchange rates for the ruble and the value
of the ruble has continued to decline in relation to the dollar, at times
exceeding 20 rubles to $1, a decline of more than 68% from the ruble's
mid-August 1998 level. As of June 30, 1998 (the most recent information
available), the Company had a net monetary asset position in Russia of
approximately $59.0 million which is subject to loss as a result of the decline
in the value of the ruble. Due to the extremely large fluctuation in the ruble
exchange rate, the ultimate amount of the foreign exchange loss the Company will
incur cannot presently be determined and such loss may have a material adverse
effect on the Company's financial position and results of operations. The
Company's management continues to work to reduce its net monetary exposure,
including the strategic acquisition of distributors in various regions within
Russia, the suspension of credit sales, and increased accounts receivable
collection efforts including, in some cases, discounts for early payment from
customers. However, there can be no assurance that such efforts will be
successful. See "Risk Factors -- Risk of Operations in Russia, Eastern Europe
and China."
Acquisitions
On June 15, 1998, the Company acquired Vyzkumny Ustav Antibiotik a
Biotransformacii ("VUAB"), a manufacturing and research facility located in a
suburb of Prague in the Czech Republic. VUAB's two main product lines are
finished forms of human drugs, including injectable antibiotics and infusion
solutions, and pharmaceutical raw materials, including ephedrine, a powdered or
crystalline alkaloid used in the treatment of allergies and asthma, and
nystatin, an antibiotic used in the treatment of fungal infections. The Company
believes that VUAB currently accounts for 10% and 8%, respectively, of the world
market for ephedrine and nystatin. Exports of these products accounted for more
than 50% of VUAB's total 1997 sales volume of $16.5 million.
3
<PAGE> 10
On April 1, 1998, Eli Lilly and Company ("Lilly") and the Company entered
into an agreement in which the Company acquired the rights to manufacture,
market and sell several Lilly pharmaceutical products in Russia and the other
members of the Commonwealth of Independent States ("CIS") under its own brand
names. Lilly will also continue to market these products under its own brand
names.
On March 18, 1998, the Company acquired the global rights to a portfolio of
32 dermatology products from Laboratorio Pablo Cassara ("Cassara"), an
Argentine-based pharmaceutical manufacturer, for $22.5 million in cash. These
products had annual sales in Argentina of $9.0 million in 1997. The Company
markets these products through its subsidiary, ICN Argentina.
On February 24, 1998, the Company acquired from SmithKline Beecham plc
("SKB") the Asian, Australian and African rights to 39 prescription and
over-the-counter pharmaceutical products. These products had annual sales of
approximately $32 million in 1997. The Company received the product rights in
exchange for $45.5 million, of which $22.5 million was paid in cash and the
balance in preferred stock convertible into 615,750 shares of the Company's
common stock at a price of $37.37 per share. See "Business."
------------------------
The Company's principal executive offices are located at 3300 Hyland
Avenue, Costa Mesa, California and its telephone number is (714) 545-0100.
4
<PAGE> 11
OFFERING OF THE OLD NOTES
On August 20, 1998, ICN completed the private sale to Schroder & Co., Inc.
and Warburg Dillon Read LLC (the "Initial Purchasers") of $200.0 million
principal amount of the Old Notes with net proceeds to ICN of approximately
$190.1 million. The Initial Purchasers resold the Old Notes to a limited number
of qualified institutional buyers at an initial price to investors of 98.326% of
the principal amount thereof (the "Offering"). The Offering was a private
placement transaction exempt from the registration requirements of the
Securities Act pursuant to Rule 144A and Section 4 thereof.
THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $200.0 million
aggregate principal amount of Old Notes for up to an equal aggregate principal
amount of New Notes. The New Notes will be obligations of ICN entitled to the
benefits of the Indenture (as defined herein) relating to the Old Notes. The
form and terms of the New Notes are identical in all material respects to the
form and terms of the Old Notes except that the New Notes have been registered
under the Securities Act. Following the completion of the Exchange Offer, none
of the Notes will be entitled to the benefits of the provisions of the
Registration Rights Agreement relating to contingent increases in the interest
rates provided for pursuant thereto. See "Description of the New Notes."
THE EXCHANGE OFFER............ $1,000 principal amount of New Notes will be
issued in exchange for each $1,000 principal
amount of Old Notes validly tendered pursuant
to the Exchange Offer. As of the date hereof,
$200.0 million in aggregate principal amount of
Old Notes are outstanding. ICN will issue the
New Notes to tendering holders of Old Notes on
or promptly after the Expiration Date.
RESALE........................ ICN believes that the New Notes issued pursuant
to the Exchange Offer generally will be freely
transferable by the holders thereof without
registration or any prospectus delivery
requirement under the Securities Act, except
that any of its "affiliates" or "dealers," as
such terms are defined under the Securities
Act, that exchange Old Notes held for their own
account (a "Restricted Holder") may be required
to deliver copies of this Prospectus in
connection with any resale of the New Notes
issued in exchange for such Old Notes (the
"Prospectus Delivery Requirement"). A broker-
dealer will be required to acknowledge that it
has no arrangements with any person to
participate in the distribution of the New
Notes and that it will deliver a prospectus in
connection with the sale of such New Notes. A
broker-dealer that purchased Old Notes from ICN
may not participate in the Exchange Offer. See
"The Exchange Offer -- General" and "Plan of
Distribution."
EXPIRATION DATE............... 5:00 p.m., New York City time, on
, 1998, unless the Exchange
Offer is extended, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
See "The Exchange Offer -- Expiration Date;
Extensions; Amendments."
ACCRUED INTEREST ON THE NEW
NOTES AND THE OLD NOTES..... Interest on each New Note will accrue from the
last Interest Payment Date on which interest
was paid on the Old Note tendered in exchange
therefor or, if no interest has been paid on
such tendered Old Note, from August 20, 1998.
Holders of
5
<PAGE> 12
Old Notes whose Old Notes are accepted for
exchange will be deemed to have waived the
right to receive any payment in respect of
interest on such Old Notes accrued from the
last Interest Payment Date or August 20, 1998
(as the case may be) to the date of the
issuance of the New Notes. Consequently,
holders who exchange their Old Notes for New
Notes will receive the same interest payment on
the same Interest Payment Date that they would
have received had they not accepted the
Exchange Offer. See "The Exchange
Offer -- Interest on the New Notes."
TERMINATION OF THE EXCHANGE
OFFER......................... ICN may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due
to any legal or governmental action, any new
law, statute, rule or regulation or any
interpretation of the staff of the Commission
of any existing law, statute, rule or
regulation. Holders of Old Notes will have
certain rights against ICN under the
Registration Rights Agreement if ICN fails to
consummate the Exchange Offer. See "The
Exchange Offer -- Termination." No federal or
state regulatory requirements must be complied
with or approvals obtained in connection with
the Exchange Offer, other than applicable
requirements under federal and state securities
laws.
PROCEDURES FOR TENDERING OLD
NOTES....................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes to be
exchanged and any other required documentation,
to United States Trust Company of New York, as
Exchange Agent, at the address set forth herein
and therein or effect a tender of Old Notes
pursuant to the procedures for book-entry
transfer as provided for herein. See "The
Exchange Offer -- Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL HOLDERS............ Any beneficial holder whose Old Notes are
registered in the name of his broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender in the Exchange Offer
should contact such registered holder promptly
and instruct such registered holder to tender
on his behalf. If such beneficial holder wishes
to tender on his own behalf, such beneficial
holder must, prior to completing and executing
the Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such
holder's name or obtain a properly completed
bond power from the registered holder. The
transfer of record ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who
6
<PAGE> 13
cannot deliver their Old Notes (or who cannot
complete the procedure for book-entry transfer
on a timely basis) and a properly completed
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date may
tender their Old Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS............. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on
the business day prior to the Expiration Date,
unless previously accepted for exchange. See
"The Exchange Offer -- Withdrawal of Tenders."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES....... Subject to certain conditions (as summarized
above in "Termination of the Exchange Offer"
and described more fully in "The Exchange
Offer -- Termination"), ICN will accept for
exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant
to the Exchange Offer will be delivered
promptly following the Expiration Date. See
"The Exchange Offer -- General."
CERTAIN TAX CONSEQUENCES...... The exchange pursuant to the Exchange Offer
will generally not be a taxable event for
federal income tax purposes. See "Certain U.S.
Federal Income Tax Consequences."
EXCHANGE AGENT................ The United States Trust Company of New York,
the Trustee under the Indenture, is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. The mailing
address of the Exchange Agent is: United States
Trust Company of New York, P.O. Box 843, Cooper
Station, New York, NY 10276, Attention:
Corporate Trust Services; and deliveries by
overnight courier should be addressed to United
States Trust Company of New York, 770 Broadway,
13th floor, New York, NY 10003, Attention:
Corporate Trust Services. For information with
respect to the Exchange Offer, the telephone
number for the Exchange Agent is (800) 548-6565
and the facsimile number for the Exchange Agent
is (212) 780-0592.
USE OF PROCEEDS............... There will be no cash proceeds payable to ICN
from the issuance of the New Notes pursuant to
the Exchange Offer. The Company intends to use
the net proceeds from the sale of the Old Notes
for the cash portion of the purchase price of
acquisitions of businesses and products that
the Company is currently reviewing and
negotiating in Western Europe and North
America, which the Company expect to complete
in the second half of 1998. However, the
Company has no firm commitment or other
agreement, arrangement or understanding with
respect to any such acquisition. The remainder
of the net proceeds will be used for general
corporate purposes, including other potential
acquisitions of businesses, minority interests
and capital expenditures.
7
<PAGE> 14
THE NEW NOTES
NOTES OFFERED................. $200.0 million aggregate principal amount of
8 3/4% Senior Notes due 2008.
MATURITY...................... November 15, 2008.
INTEREST PAYMENT DATES........ May 15 and November 15 of each year, commencing
November 15, 1998.
RANKING....................... The Notes will be general unsecured obligations
of the Company. The Notes will rank pari passu
in right of payment with all unsecured senior
indebtedness of the Company, including its
9 1/4% Senior Notes due 2005, and senior to all
subordinated indebtedness of the Company. The
Notes will be effectively subordinated to all
secured indebtedness of the Company to the
extent of the assets securing such indebtedness
and will also be effectively subordinated to
indebtedness and other obligations of the
Company's subsidiaries. As of June 30, 1998,
the Company had $11.5 million of secured
indebtedness outstanding and its subsidiaries
had aggregate indebtedness and other
obligations of $55.3 million outstanding. The
Indenture governing the Notes will permit the
Company and its subsidiaries to incur
additional indebtedness, subject to certain
limitations. See "Risk Factors -- Ranking of
the Notes; Subsidiary Operations" and
"Description of the New Notes."
OPTIONAL REDEMPTION........... The Company may redeem up to $70.0 million of
the aggregate principal amount of the Notes in
cash at its option at any time prior to
November 15, 2001 at 108.75% of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption,
with the net proceeds of one or more Public
Equity Offerings (as defined).
See "-- Description of the New
Notes -- Optional Redemption."
CHANGE OF CONTROL............. Upon a Change of Control, the Company will be
required to offer to repurchase the Notes at a
purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase.
See "Description of the New Notes -- Change of
Control."
CERTAIN COVENANTS............. The Indenture contains certain covenants with
respect to the Company and its Restricted
Subsidiaries (as defined), which will restrict,
among other things, (a) the incurrence of
additional indebtedness, (b) the payment of
dividends and other restricted payments, (c)
the creation of certain liens, (d) the sale of
assets, (e) certain payment restrictions
affecting Restricted Subsidiaries, (f)
transactions with affiliates and (g) the
issuance of capital stock by Restricted
Subsidiaries. The Indenture also restricts the
Company's ability to consolidate or merge with
or into, or to transfer all or substantially
all of its assets to, another person. See
"Description of the New Notes -- Certain
Covenants."
REGISTRATION RIGHTS........... Pursuant to a Registration Rights Agreement
(the "Registration Rights Agreement") to be
entered into between the
8
<PAGE> 15
Company and the Initial Purchasers, the Company
agreed to file by the 30th day following the
date of closing of the Offering (the "Issue
Date") a registration statement (the "Exchange
Offer Registration Statement") with respect to
an offer to exchange the Notes for a new issue
of debt securities of the Company registered
under the Securities Act with terms (other than
restrictions on transfer as set forth in
"Notice to Investors") substantially identical
to those of the Notes and to use its best
efforts to cause the Exchange Offer
Registration Statement to become effective by
the 150th day following the Issue Date and,
upon becoming effective, to commence the
Exchange Offer and cause the same to remain
open for acceptance for not less than 20
business days after the date of commencement.
Subject to certain exceptions, if the Exchange
Offer is not consummated within 180 days after
the Issue Date or, under certain circumstances,
if the Initial Purchasers so request, the
Company will file and use its best efforts to
cause to be declared effective a shelf
registration statement (the "Shelf Registration
Statement") with respect to resales of the
Notes from time to time and will use its best
efforts to keep such registration statement
effective until two years after the Issue Date.
Subject to certain exceptions, if the Exchange
Offer Registration Statement or the Shelf
Registration Statement is not filed or declared
effective or ceases to be effective or the
Exchange Offer is not consummated within the
applicable time periods related thereto (each,
a "Registration Default"), the interest rate
borne by the Notes shall be increased by 0.50%
per annum for the 90-day period following such
Registration Default. Such interest rate will
increase by an additional 0.25% per annum at
the beginning of each subsequent 90-day period,
up to a maximum aggregate increase of 1.0% per
annum. From and after the date that all
Registration Defaults have been cured, the
Notes will bear interest at the rate set forth
on the cover page of this Prospectus.
TRADING....................... The Old Notes have been designated for trading
in the Private Offerings, Resales and Tradings
through Automated Linkages ("PORTAL") Market.
The New Notes will not be eligible for trading
on PORTAL.
RISK FACTORS.................. Potential investors in the Notes should
carefully consider the matters set forth under
the caption "Risk Factors" prior to making an
investment decision with respect to the Notes.
9
<PAGE> 16
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth summary selected historical and other data
of the Company on a consolidated basis for each of the years in the five year
period ended December 31, 1997 and the six month periods ended June 30, 1998 and
1997. The summary selected historical financial data for each of the years in
the five year period ended December 31, 1997 were derived from the audited
consolidated financial statements of the Company. The summary selected
historical financial data as of June 30, 1998 and for the six month periods
ended June 30, 1998 and 1997 were derived from the unaudited consolidated
condensed financial statements of the Company included elsewhere in this
Prospectus. In the opinion of management, such unaudited consolidated financial
statements include all adjustments, consisting of only normal recurring items
and, with respect to ICN Yugoslavia, the Yugoslavian Reserve, necessary for a
fair presentation of the financial condition and results of operations of the
Company for such periods. Operating results for the six months ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
full year. The information contained in this table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's historical consolidated financial statements,
including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- --------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS -
CONSOLIDATED:
Product sales...................... $403,957 $ 366,851 $507,905 $614,080 $752,202 $319,197 $453,687
Royalties.......................... -- -- -- -- -- -- 20,052
-------- --------- -------- -------- -------- -------- --------
Total revenues..................... 403,957 366,851 507,905 614,080 752,202 319,197 473,739
Gross profit -- product sales...... 192,034 183,905 301,856 322,273 400,224 168,436 246,074
Income (loss) from
operations(1)(2)................. 39,502 (165,172) 93,166 114,113 125,298 48,334 (58,647)
Interest expense................... 23,750 9,317 22,889 15,780 22,849 7,382 11,808
Net income (loss)(1)(2)............ 21,510 (183,581) 67,337 86,928 113,924 43,580 (63,550)
OTHER DATA -- CONSOLIDATED:
Depreciation and amortization...... $ 8,513 $ 9,248 $ 13,814 $ 17,936 $ 28,753 $ 10,765 $ 22,664
EBITDA(3).......................... 48,015 65,076 106,980 132,049 154,051 59,099 129,663
Cash flows provided by (used in):
Operating activities............. 18,207 42,557 79,326 (25,548) 9,315 12,736 (29,465)
Investing activities............. (25,794) (11,390) (47,025) (41,962) (100,096) (20,374) (86,405)
Financing activities............. (15,702) (2,919) (50,518) 82,680 262,675 10,615 (1,871)
Actual Ratios
EBITDA to fixed charges(4)....... 2.0x 7.0x 4.3x 6.8x 5.4x 6.0x 8.4x
Net debt to EBITDA(5)............ 0.4x 2.7x 1.3x 1.2x 0.9x 1.4x 1.0x
Pro Forma Ratios(6)
EBITDA to fixed charges(4)................................................... 3.3x 3.1x 5.3x
Net debt to EBITDA(5).............................................................................. 1.0x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ JUNE 30,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $127,259 $137,802 $190,802 $306,764 $ 585,606 $ 404,903
Total assets........................ 302,017 441,473 518,298 778,651 1,491,745 1,427,631
Total debt.......................... 35,206 215,005 166,269 195,681 348,206 342,034
Stockholders' equity................ 155,879 88,908 162,172 315,350 796,328 776,989
</TABLE>
- ---------------
NOTES TO SUMMARY SELECTED FINANCIAL DATA:
(1) As discussed in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the merger of ICN and its predecessor companies
in 1994 resulted in $221 million being ascribed to purchased research and
development for which no alternative use existed
10
<PAGE> 17
and was written-off immediately. This write-off was a one-time, non-cash
charge. Net income, excluding this one-time, non-cash write-off, was $37.4
million in 1994.
(2) In July 1998, the Company announced that a worsening liquidity problem in
Yugoslavia caused an agency of the government to default on certain notes
receivable due to ICN. In the second quarter ended June 30, 1998, the
Company has recorded a non-cash charge against earnings of $173.4 million
($130.0 million after minority interests) to provide for ICN Yugoslavia's
anticipated losses on certain notes receivable, accounts receivable from
government sponsored agencies and the impairment of certain of its related
investments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- ICN Yugoslavia."
(3) EBITDA represents the sum of income (loss) from operations plus depreciation
and amortization and excludes the write-off of purchased research and
development of $221.0 million in 1994 (see Note 1) and the Yugoslavian
Reserve (see Note 2). The Company believes that EBITDA provides additional
information for determining its ability to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not a
measure of financial performance under GAAP and should not be considered as
an alternative either to net income as an indicator of the Company's
operating performance, or to cash flows as a measure of the Company's
liquidity.
(4) Fixed charges consist of interest expense and capitalized interest.
(5) For purposes of the computation, net debt is equal to total debt less
unrestricted cash and cash equivalents and marketable securities. EBITDA for
all interim periods presented has been annualized.
(6) The pro forma ratios reflect the Offering at an assumed annual effective
interest rate of 9.40% (coupon rate of 8.75%) or $18,495, $9,248 and $9,248
for the year ended December 31, 1997 and for the six months ended June 30,
1997 and 1998, respectively, inclusive of amortization of the debt discount
of $3,348 and estimated deferred loan issuance costs of $6,600.
11
<PAGE> 18
RISK FACTORS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The following factors, among
others, could cause actual results to differ materially from those contained in
forward-looking statements made in this Prospectus, including, without
limitation, in "Risk Factors," "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." When used in this
Prospectus and the documents incorporated by reference herein, the words
"estimate," "project," "anticipate," "expect," "intend," "believe," "plan" and
similar expressions are intended to identify forward-looking statements. In
addition, prospective investors should consider carefully the following factors
in connection with any investment decision made with respect to the Notes
offered hereby.
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered Old Notes not exchanged for New Notes pursuant to the Exchange
Offer remain subject to the existing restrictions upon transfer of such Old
Notes. Additionally, holders of any Old Notes not tendered in the Exchange Offer
prior to the Expiration Date will not be entitled to require ICN to file the
Shelf Registration Statement and the stated interest rate on such Old Notes will
remain at its initial level of 8 3/4%.
INDEBTEDNESS AND OTHER OBLIGATIONS OF THE COMPANY
As of June 30, 1998, after giving effect to the Offering, the Company would
have had outstanding total debt of $538.7 million. Subject to the restrictions
in the indenture (the "1997 Indenture") governing the Company's 9 1/4% Senior
Notes due 2005 (the "9 1/4% Senior Notes") and the Indenture, the Company may
incur additional indebtedness from time to time to finance working capital
needs, acquisitions, capital expenditures or other purposes. See
"Capitalization." There can be no assurance that financing will continue to be
available on terms acceptable to the Company or at all. In the absence of such
financing, the Company's ability to respond to changing business and economic
conditions, to fund scheduled investments and capital expenditures, to make
future acquisitions or developments and to absorb negative operating results may
be adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The Indenture and the 1997 Indenture contain, and other debt instruments of
the Company may in the future contain, a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter into investments or
acquisitions, engage in mergers or consolidations, make capital expenditures or
engage in certain transactions with subsidiaries and affiliates, and otherwise
restrict certain corporate activities.
The Company's ability to comply with the covenants contained in the
Indenture and other debt instruments of the Company may be affected by events
beyond its control, including prevailing economic, financial and industry
conditions. The breach of any of such covenants or restrictions could result in
a default under the Indenture and/or such other debt instruments, which would
permit the holders of the Notes or such other lenders, as the case may be, to
declare all amounts borrowed thereunder to be due and payable, together with
accrued and unpaid interest, and any commitments of the other lenders to make
further extensions of credit under such other debt instruments could be
terminated. If the Company were unable to repay its indebtedness to its secured
lenders, such lenders could proceed against the collateral securing such
indebtedness.
RANKING OF THE NOTES; SUBSIDIARY OPERATIONS
The Notes are general unsecured obligations of the Company. The Notes rank
pari passu in right of payment of principal, premium, if any, and interest on,
and any other amounts owing in respect of, the Notes with other unsecured senior
indebtedness of the Company, including the 9 1/4%
12
<PAGE> 19
Senior Notes, and will be effectively subordinated to all secured indebtedness
of the Company to the extent of the assets securing such indebtedness. As of
June 30, 1998, the Company had approximately $11.5 million of secured
indebtedness collateralized by certain properties of the Company. Additionally,
the Indenture governing the Notes permits the Company to incur Senior Bank Debt
(as defined)of up to $50.0 million (or, if greater, 80% of certain receivables
plus 60% of inventory) which may be collateralized by inventories, receivables
and other assets of the Company. In the event of the bankruptcy, liquidation,
dissolution, reorganization or other winding up of the Company, the assets of
the Company which collateralize secured indebtedness will be available to pay
obligations on the Notes only after the respective secured indebtedness of the
Company has been paid in full. See "Description of the New Notes."
Some of the Company's United States operations and all of its foreign
operations are conducted through subsidiaries. Such subsidiaries have not
guaranteed or otherwise become obligated with respect to the Notes. The Notes
will be therefore effectively subordinated to all indebtedness and other
obligations of such subsidiaries with respect to the assets of such
subsidiaries. As of June 30, 1998, the Company's subsidiaries had aggregate
indebtedness and other obligations of approximately $55.3 million. Claims of
creditors of the Company's subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims of
the Company and the holders of the Company's indebtedness, including the Notes.
DEPENDENCE ON FOREIGN OPERATIONS
Approximately 78% and 74% of the Company's revenues for 1997 and the six
months ended June 30, 1998, respectively, were generated from operations outside
the United States. The Company operates both directly and through distributors
in North America, Latin America (principally Mexico), Western Europe and Eastern
Europe and through distributors elsewhere in the world. Foreign operations are
subject to certain risks inherent in conducting business abroad, including
possible nationalization or expropriation, price and exchange controls,
limitations on foreign participation in local enterprises, health care
regulations and other restrictive governmental actions. Changes in the relative
values of currencies take place from time to time and may materially affect the
Company's results of operations. Their effects on the Company's future
operations are not predictable. The Company does not currently have a hedging
program to protect against foreign currency exposure and, in certain of the
countries in which the Company operates, no effective hedging program is
available.
RISK OF OPERATIONS IN YUGOSLAVIA
ICN Yugoslavia, a 75% owned subsidiary, represents a material part of the
Company's business. Approximately 30% and 24% of the Company's revenues for 1997
and the six months ended June 30, 1998, respectively, were from ICN Yugoslavia.
In addition, approximately 48% of the Company's operating income for 1997 was
from ICN Yugoslavia. For the six months ended June 30, 1998, the Company had a
loss from operations at ICN Yugoslavia of $135.9 million. ICN Yugoslavia
operates in a business environment that is subject to significant economic
volatility and political instability. The economic conditions in Yugoslavia
include continuing liquidity problems, inflationary pressures, unemployment, a
weakened banking system and a high trade deficit. Between May 1992 and December
1995, ICN Yugoslavia operated under United Nations' sanctions that severely
limited its ability to import raw materials and prohibited all exports. While
most of these sanctions were subsequently suspended, in June 1998, the European
Union and the United States imposed additional economic sanctions on Yugoslavia
in response to the continued violence by government forces against the Albanian
population in the province of Kosovo. On June 8, 1998, the United States
announced a ban on new American investments in Yugoslavia and a freeze on the
assets of that country in the United States. The future of the economic and
political environment of Yugoslavia is uncertain and could deteriorate,
resulting in a material adverse impact on the Company's financial position and
results of operations.
13
<PAGE> 20
During 1992 and 1993, the rate of inflation in Yugoslavia was over one
billion percent per year. Inflation was dramatically reduced in January 1994
when the government enacted a stabilization program designed to strengthen its
currency. This program reduced the annualized inflation rate to 5% by the end of
1994, increased the availability of hard currency, stabilized the exchange rate
of the dinar and improved the overall economy in Yugoslavia. Beginning in 1995,
the effectiveness of the stabilization program began to wane, resulting in a
decline in the availability of hard currency and an acceleration of inflation to
an annual rate of 90% by the end of 1995. In November 1995, the dinar was
devalued from a rate of 1.4 dinars per $1 to a rate of 4.7 dinars per $1.
Throughout 1997, the level of inflation in Yugoslavia was relatively stable,
with a Yugoslavian government-reported inflation rate of 60%.
ICN Yugoslavia is subject to price controls by the Yugoslavian government.
The size and frequency of government-approved price increases are influenced by
local inflation, devaluations, the cost of imported raw materials and demand for
ICN Yugoslavia products. During 1996 and 1997, ICN Yugoslavia received no price
increases due to relatively low levels of inflation. On April 1, 1998, the
Yugoslavian government devalued the dinar from a rate of 6.0 dinars per $1 to
10.92 dinars per $1. At the time of the devaluation, the Company's net monetary
asset position in Yugoslavia was $38.0 million, resulting in a foreign
translation loss of $17.0 million recognized in the second quarter of 1998.
Recovery from the effects of the devaluation will depend on the approval of new
price increases by the Yugoslavian government. The Company, along with others in
the Yugoslavian pharmaceutical industry, has applied to the government for price
increases, which were denied. The Company will continue to seek price increases
in the future. However, the Company is unable to predict the size and timing of
future price increases that may be allowed by the Yugoslavian government, if
any, and the resultant impact on future earnings.
As inflation rises, the size and frequency of price increases are expected
to increase. Price increases obtained by ICN Yugoslavia are based on economic
events preceding such an increase and not on expectations of ongoing inflation.
This lag in permitted price increases creates downward pressure on the gross
margins that ICN Yugoslavia receives on its products. When necessary, ICN
Yugoslavia will limit sales of products that have poor margins until an
acceptable price increase is received. The inability to obtain adequate price
increases in the future could have an adverse impact on the Company as a result
of declining gross profit margins or declining sales in an effort to maintain
existing gross margin levels.
In an effort by the Central Bank of Yugoslavia to control inflation through
tight monetary controls, Yugoslavia is now experiencing severe liquidity
problems. This has resulted in longer collection periods for ICN Yugoslavia's
receivables. Most of ICN Yugoslavia's customers are slow to pay due to delays of
health care payments by the government. This has also resulted in ICN Yugoslavia
being unable to make timely payments on its payables.
ICN Yugoslavia began 1997 with a net monetary asset exposure of $134.0
million. During 1997, the Company reduced its monetary exposure by converting
dinar-denominated accounts receivable into notes receivable payable in dinars,
but fixed in U.S. dollar amounts. The first agreement was made early in the
first quarter of 1997 with $50.0 million of accounts receivable converted into a
one-year note bearing interest at LIBOR plus 1%. Approximately $47 million from
the first note was refinanced in early 1998, with full payment including
interest at LIBOR plus 1% scheduled for 1998. A second agreement was arranged at
the end of the first quarter of 1997 whereby the Yugoslavian government agreed
to purchase $50.0 million of products from ICN Yugoslavia. The sales under this
agreement were recorded as notes receivable bearing interest at LIBOR plus 1% on
the outstanding balance and which have special payment guarantees fixed in U.S.
dollar amounts. The second agreement also allowed the Company to offset certain
payroll tax obligations against outstanding accounts receivable balances.
Subsequent to these two agreements, the Company negotiated an arrangement with
the government of Yugoslavia under which ICN Yugoslavia would commit to continue
to provide products, in U.S. dollar denominated sales, in an amount up to $50.0
million per calendar quarter for one year, and the government would pay a
minimum of $9.5 million per month
14
<PAGE> 21
towards outstanding accounts receivables. However, at no point in time could the
amount due to ICN Yugoslavia from the Yugoslavian government exceed $200.0
million, including both accounts and notes receivable. Receivables that arise
from this agreement are interest bearing with interest at LIBOR plus 1%.
As of June 30, 1998, the Company had notes receivable, including accrued
interest, of approximately $176 million due from the Yugoslavian government. The
Yugoslavian government has defaulted on approximately $39 million of its notes
payable to the Company and has notified the Company that it can no longer honor
the terms of the existing credit agreements. In the second quarter ended June
30, 1998, the Company recorded a non-cash charge against earnings of $173.4
million ($130.0 million after minority interests) to provide for ICN
Yugoslavia's anticipated losses on certain notes receivable, accounts receivable
from government sponsored agencies and impairment of certain of its related
investments. The Yugoslavian government is seeking concessions from the Company
and the Company is currently working to renegotiate the credit terms. Pending
resolution of these negotiations, ICN Yugoslavia has suspended all direct credit
sales to the Yugoslavian government and government-funded customers and the
government has stopped making payments on any of the amounts currently owed to
ICN Yugoslavia.
With 80% of ICN Yugoslavia's sales in 1997 arising from government or
government-funded customers, ICN Yugoslavia is financially dependent on the
Yugoslavian government. During 1997, other than the Yugoslavian government or
government-funded customers, no other customer represented more than 10% of
total sales or accounts receivable. To the extent ICN Yugoslavia is unable to
come to terms with the government, with respect to payment on the notes
receivable, ICN Yugoslavia's future sales and operating results will be
adversely impacted. Yugoslavia has not recovered the international status it
held before sanctions were imposed and management believes that economic reform
and privatization is necessary before the economy will improve dramatically. The
Yugoslavian government is still negotiating to regain membership in the
International Monetary Fund and World Bank. The 1997 Presidential and
parliamentary elections in Yugoslavia have not, in management's view, resulted
in political change that would provide a foundation for significant economic
reform.
RISK OF OPERATIONS IN RUSSIA, EASTERN EUROPE AND CHINA
The Company has invested a total of approximately $30 million for majority
interests in five pharmaceutical companies and two distribution companies
located in Russia. The Company has previously announced plans to invest $300.0
million in Russia over the next five years, of which only $20.0 million is
subject to firm commitments as part of the original acquisition agreements. The
additional potential investments will be primarily funded by cash flow generated
by operations in Russia and subject to review on a project by project basis.
Such review will consider the current economic conditions in existence at the
time as well as customary financial review.
The Russian economy is increasingly volatile. In response to worsening
liquidity and declining currency reserves, the Russian government has continued
to seek international financial assistance. The Russian Central Bank has used
recent financial assistance from the International Monetary Fund, along with its
existing monetary reserves, in an effort to support the value of the ruble.
However, in August 1998, the Central Bank announced that it was no longer able
to support the ruble at its then-current exchange rate of approximately 6.3
rubles to $1, and that it would allow the ruble to fall as far as 9.5 rubles to
$1. Subsequently, the ruble fell sharply and the Russian Central Bank was unable
to support the ruble, even at the previously announced level. In September 1998,
there have been large fluctuations in exchange rates for the ruble and the value
of the ruble has continued to decline in relation to the dollar, at times
exceeding 20 rubles to $1, a decline of more than 68% from the ruble's
mid-August 1998 level.
As of June 30, 1998 (the most recent information available), the Company
had a net monetary asset position in Russia of approximately $59.0 million which
is subject to loss as a result of the
15
<PAGE> 22
decline in the value of the ruble.Due to the extremely large fluctuation in the
ruble exchange rate, the ultimate amount of the foreign exchange loss the
Company will incur cannot presently be determined and such loss may have a
material adverse effect on the Company's financial position and results of
operations.
In June 1998, the Company acquired VUAB, a manufacturing and research
facility located in a suburb of Prague in the Czech Republic, for $18.6 million.
In October 1997, the Company invested approximately $42.7 million, and 48,000
shares of Common Stock valued at $1.7 million for an 80% interest in Polfa
Rzeszow, S.A. ("Rzeszow"), a pharmaceutical company located in Poland, and has
committed to invest an additional $11.3 million by the end of 1999, which will
give the Company a 90% interest in Rzeszow. In January 1997, ICN China, Inc.
("ICN China"), a wholly-owned subsidiary of the Company, commenced operations of
a pharmaceutical company under a joint venture with Jiangsu Provincial Wuxi
Pharmaceutical Corporation, a Chinese state-owned pharmaceutical corporation.
Under the agreement, ICN China agreed to invest an aggregate of $24.0 million in
cash over three years, primarily for the construction of a new pharmaceutical
production plant and the purchase of related machinery and equipment. Although
the Company believes that investment in Russia, Eastern Europe, China and other
emerging markets offers access to growing world markets, the economic and
political conditions in such countries are uncertain. Foreign operations are
subject to certain risks inherent in conducting business abroad, including
possible nationalization or expropriation, price and exchange controls,
devaluation of currencies, limitations on foreign participation in local
enterprises, health care regulations and other restrictive governmental actions.
See "-- Dependence on Foreign Operations."
NO ASSURANCE OF SUCCESSFUL DEVELOPMENT AND COMMERCIALIZATION OF FUTURE PRODUCTS
The Company's future growth will depend, in large part, upon its ability to
develop or obtain and commercialize new products and new formulations of or
indications for current products. The Company is engaged in an active research
and development program involving compounds owned by the Company or licensed
from others which the Company may, in the future, desire to develop
commercially. Although the Company has received certain regulatory approvals
with respect to oral ribavirin for treatment of chronic hepatitis C in
combination with Schering-Plough Corporation's (together with all of its
subsidiaries, "Schering-Plough") alpha interferon (the "Combination Therapy"),
there can be no assurance that the Company will be able to develop or acquire
new products, obtain regulatory approvals to use such products for proposed or
new clinical indications in a timely manner, manufacture its potential products
in commercial volumes or gain market acceptance for such products. It may be
desirable that the Company enter into other licensing arrangements, similar to
its arrangement with Schering-Plough regarding ribavirin, with other
pharmaceutical companies in order to market effectively any new products or new
indications for existing products. There can be no assurance that the Company
will be successful in entering into such licensing arrangements on terms
favorable to the Company or at all. See "-- Limited Patent Protection";
"-- Government Regulation"; "Business"; "Business -- Marketing and Customers";
"Business -- Government Regulation"; and "Business -- Research and Development."
LIMITED PATENT PROTECTION
The Company may be dependent on the protection afforded by its patents
relating to ribavirin and no assurance can be given as to the breadth or degree
of protection which these patents will afford the Company. The Company has
patent rights in the United States expiring in July 1999 relating to the use of
ribavirin to treat specified viral diseases. Also, the Drug Price Competition
and Patent Term Restoration Act of 1984 (the "Waxman-Hatch Act") provides for
the award of exclusivity for a period of three years from the date of approval
of New Drugs Applications ("NDA") containing significant new clinical studies
for products whose patent protection would otherwise expire. A request for such
an award has been made subsequent to the approval of the Combination
16
<PAGE> 23
Therapy for the treatment of relapsed patients. The United States Food and Drug
Administration (the "FDA") Modernization Act of 1997 provides for the award of
six months of additional exclusivity following the submission to the FDA of data
from appropriate studies in pediatric patients. Studies that qualify under this
provision are planned. However, there can be no assurance that such development
will be successful, that such approval will be obtained or that such additional
award of exclusivity will be granted. The Company has patents in certain foreign
countries, including Japan, covering the antiviral use of ribavirin, for which
coverage and expiration varies and which patents expire at various times through
June 2005. The Company has no, or limited, patent rights relating to the
antiviral use of ribavirin in certain foreign countries where ribavirin is
currently, or in the future may be, approved for commercial sale, including
countries in the European Union. However, the Combination Therapy was granted a
favorable review classification through the Concertation Procedure adopted by
the EMEA ("Concertation Procedure") process for regulatory approval within the
European Union. As a result, if approval is obtained to market the Combination
Therapy, the data submitted to obtain such approval cannot be referenced in
support of another's application to register a competing product for the
approved indications for a period of no less than six and not more than ten
years. Any such application must be on the basis of independently generated data
of substantially equal quality, thus providing a significant barrier to entry
for any generic substitutes of the Combination Therapy in the European Union.
There can be no assurance that the loss of the Company's patent rights with
respect to ribavirin upon expiration of the Company's patent rights in the
United States, Europe and elsewhere will not result in competition from other
drug manufacturers or will not otherwise have a significant adverse effect upon
the business and operations of the Company.
Marketing approvals in certain foreign countries provide an additional
level of protection for products approved for sale in such countries. As a
general policy, the Company expects to seek patents, where available, on
inventions concerning novel drugs, techniques, processes or other products which
it may develop or acquire in the future. However, there can be no assurance that
any patents applied for will be granted, or that, if granted, they will have
commercial value or as to the breadth or the degree of protection which these
patents, if issued, will afford the Company. The Company intends to rely
substantially on its unpatented proprietary know-how, but there can be no
assurance that others will not develop substantially equivalent proprietary
information or otherwise obtain access to the Company's know-how. Patents for
pharmaceutical compounds are not available in certain countries in which the
Company markets its products. See "Business -- Licenses, Patents and Trademarks
(Proprietary Rights)."
UNCERTAIN IMPACT OF ACQUISITION PLANS
The Company intends aggressively to continue its strategy of targeted
expansion through the acquisition of compatible businesses and product lines and
the formation of strategic alliances, joint ventures and other business
combinations. Although the Company expects to use a portion of the proceeds of
the Offering to finance several acquisitions and investments, there can be no
assurance that the Company will successfully complete or finance any future
acquisition. Should the Company complete any material acquisition, the Company's
success or failure in integrating the operations of the acquired company may
have a material impact on the future growth or success of the Company.
LEGAL PROCEEDINGS
ICN, two directors and an officer (including the Chairman and Chief
Executive Officer of the Company) were defendants in a consolidated class action
lawsuit alleging, among other things, violations of federal securities laws (the
"Class Action"). Plaintiffs alleged that ICN made misrepresentations of material
facts and omitted to state material facts in 1994 and 1995 concerning the
Company's NDA for the use of ribavirin for monotherapy treatment of chronic
hepatitis C (the "1994 Hepatitis C NDA"). In July 1997, the Company and the
plaintiffs in the Class Action agreed to settle the litigation for the sum of
$15.0 million. The settlement was confirmed by the district court, the
17
<PAGE> 24
settlement amount was paid, and an order and judgment dismissing the Class
Action with prejudice was entered by the district court on February 24, 1998.
Pursuant to an Order Directing Private Investigation and Designating
Officers to Take Testimony, entitled In the Matter of ICN Pharmaceuticals, Inc.,
(P-177) (the "Order"), a private investigation is being conducted by the United
States Securities and Exchange Commission (the "Commission") with respect to
certain matters pertaining to the status and disposition of the 1994 Hepatitis C
NDA. As set forth in the Order, the investigation concerns whether, during the
period from June 1994 through February 1995, the Company, persons or entities
associated with it and others, in the offer and sale or in connection with the
purchase and sale of ICN securities, engaged in possible violations of Section
17(a) of the Securities Act of 1933 (the "Securities Act") and Section 10(b) of
the Securities and Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
thereunder, by having possibly: (i) made false or misleading statements or
omitted material facts with respect to the status and disposition of the 1994
Hepatitis C NDA; (ii) purchased or sold Common Stock while in possession of
material, non-public information concerning the status and disposition of the
1994 Hepatitis C NDA; or (iii) conveyed material, non-public information
concerning the status and disposition of the 1994 Hepatitis C NDA, to other
persons who may have purchased or sold Common Stock. The Company has cooperated
and continues to cooperate with the Commission in its investigation. On January
13, 1998, ICN received a letter from the Commission's Philadelphia District
Office (the "District Office") stating the District Office's intention to
recommend to the Commission that it authorize the institution of a civil action
against the Company, Milan Panic, Chairman and Chief Executive Officer of the
Company, and a former senior executive of the Company. As set forth in the
letter, the District Office seeks the authority to commence a civil action to
enjoin the Company from future violations of Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder and to impose a civil penalty of up to $500,000 on
ICN. In regard to Mr. Panic, the District Office seeks the authority to commence
a civil action: (i) to enjoin Mr. Panic from future violations of Section 17(a)
of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5
thereunder; (ii) for disgorgement of approximately $390,000; (iii) for
prejudgment interest; (iv) for a civil penalty pursuant to Section 21A of the
Exchange Act that cannot exceed three times any amount disgorged; and (v) for an
order barring Mr. Panic from serving as an officer or director of a public
company pursuant to Section 21 of the Exchange Act. On January 30, 1998, the
Company filed submissions with the Commission urging that it reject the District
Office's request. On August 27, 1998, the Company's counsel was informed by the
District Office that (i) the District Office had withdrawn its request for
authorization to commence an enforcement action against Mr. Panic with respect
to allegations of illegal insider trading and the remedies of disgorgement,
interest, and monetary penalties attendant thereto; and (ii) the Commission had
granted the District Office's request for authorization to commence an
enforcement action against the Company and Mr. Panic alleging false or
misleading statements or omissions with respect to the status and disposition of
the 1994 Hepatitis C NDA, including the remedies of injunctive relief and a
civil penalty not to exceed $500,000 against the Company, and injunctive relief
and a director and officer bar against Mr. Panic.
The Company has received subpoenas (the "Subpoenas") from a Grand Jury in
the United States District Court, Central District of California requesting the
production of documents covering a broad range of matters over various time
periods. In March 1998, the Company was advised that the office of the United
States Attorney for the Central District of California is considering the
Company, Mr. Panic and a former officer of the Company targets of the
investigation. The Company was also advised that two senior executive officers
of the Company, a former officer of the Company and a current employee of the
Company are considered subjects of the investigation. The United States
Attorney's office has advised counsel for the Company that the areas of its
investigation include disclosures made and not made concerning the 1994
Hepatitis C NDA to the public and other third parties; stock sales for the
benefit of Mr. Panic following receipt on November 28, 1994 of a letter from the
FDA informing the Company that the 1994 Hepatitis C NDA had been found not
approvable; possible violations of the economic embargo imposed by the United
18
<PAGE> 25
States upon the Federal Republic of Yugoslavia, based upon alleged sales by the
Company and Mr. Panic of stock belonging to ICN employees; and, with respect to
Mr. Panic, personal disposition of assets of entities associated with
Yugoslavia, including possible misstatements and/or omissions in federal tax
filings. The Company has and continues to cooperate in the Grand Jury
investigation. A number of current and former employees of the Company have been
interviewed by the government in connection with the investigation. Recently,
the United States Attorney's office issued subpoenas requiring various current
and former officers and employees of the Company to testify before the Grand
Jury. Certain current and former employees testified before the Grand Jury
beginning in July 1998.
The ultimate outcome of the Commission and Grand Jury investigations cannot
be predicted and any unfavorable outcome could have a material adverse effect on
the Company. See "Business -- Litigation, Government Investigations and Other
Matters."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success will depend to a
significant extent upon the efforts and abilities of its key members of
management, including Milan Panic, its Chairman and Chief Executive Officer. The
loss of their services could have a material adverse effect on the Company. The
Company cannot predict what effect, if any, the Commission and the Grand Jury
investigations of the Company and/or Mr. Panic may have on Mr. Panic's ability
to continue to devote services on a full time basis to the Company. See
"-- Legal Proceedings." In addition, Mr. Panic, who served as Prime Minister of
Yugoslavia from July 1992 to March 1993, remains active in Yugoslavian politics
and may again serve in a governmental office in Yugoslavia in the future.
POTENTIAL PRODUCT LIABILITY EXPOSURE AND LACK OF INSURANCE
The Company could be exposed to possible claims for personal injury
resulting from allegedly defective products. Even if a drug were approved for
commercial use by an appropriate governmental agency, there can be no assurance
that users will not claim that effects other than those intended may result from
the Company's products. The Company generally self-insures against potential
product liability exposure with respect to its marketed products, including
ribavirin. While to date no material adverse claim for personal injury resulting
from allegedly defective products, including ribavirin, has been successfully
maintained against the Company, a substantial claim, if successful, could have a
material adverse effect on the Company. See "Business -- Litigation, Government
Investigations and Other Matters."
GOVERNMENT REGULATION
FDA approval must be obtained in the United States and approval must be
obtained from comparable agencies in other countries prior to marketing or
manufacturing new pharmaceutical products for use by humans in such
jurisdictions. Obtaining FDA approval for new products and manufacturing
processes can take a number of years and involves the expenditure of substantial
resources. Numerous requirements must be satisfied, including preliminary
testing programs on animals and subsequent clinical testing programs on humans,
to establish product safety and efficacy. No assurance can be given that
authorization of the commercial sale of any new drugs or compounds by the
Company for any application, or of existing drugs or compounds for new
applications, will be secured in the United States or any other country, or
that, if such authorization is secured, those drugs or compounds will be
commercially successful.
The FDA in the United States and other regulatory agencies in other
countries also periodically inspect manufacturing facilities. Failure to comply
with applicable regulatory requirements can result in, among other things,
sanctions, fines, delays or suspensions of approvals, seizures or recalls of
products, operating restrictions and criminal prosecutions. Furthermore, changes
in existing regula-
19
<PAGE> 26
tions or adoption of new regulations could prevent or delay the Company from
obtaining future regulatory approvals. See "Business -- Licenses, Patents and
Trademarks (Proprietary Rights)."
The Company is subject to price control restrictions on its pharmaceutical
products in the majority of countries in which it operates. To date, the Company
has been affected by pricing adjustments in Spain and by the lag in allowed
price increases in Yugoslavia and Mexico, which has created lower sales in U.S.
dollars and reductions in gross profit. Future sales and gross profit could be
materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation.
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors, many of whom have substantially greater capital resources and
marketing capabilities and larger research and development staffs and facilities
than the Company, are actively engaged in marketing products similar to those of
the Company and in developing new products similar to those proposed to be
developed and sold by the Company. The Company believes that many of its
competitors spend significantly more on research and development related
activities than the Company spends. Others may succeed in developing products
that are more effective than those marketed or proposed for development by the
Company. Progress by other researchers in areas similar to those being explored
by the Company may result in further competitive challenges. The Company may
also face increased competition from manufacturers of generic pharmaceutical
products when certain of the patents covering certain of its currently marketed
products expire. See "-- Limited Patent Protection" and
"Business -- Competition."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Notes will be new securities for which there is currently no public
market. The Company does not intend to list the Notes on any national securities
exchange or to seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System. The Initial Purchasers have
advised the Company that they currently intend to make a market in the Notes but
that they are not obligated to do so and, if such market making is commenced, it
may be discontinued at any time. Although the Notes are expected to be
designated for trading in the PORTAL Market, there can be no assurance as to the
development of any market or the liquidity of any market that may develop for
the Notes. Because the Notes are being sold pursuant to an exemption from
registration under the Securities Act and applicable state securities laws, they
may not be publicly offered, sold or otherwise transferred in any jurisdiction
where such registration may be required unless they are registered or are sold
in a transaction exempt from registration in such jurisdiction. Accordingly, no
assurance can be made as to the development or liquidity of any market for the
Notes. If an active public market does not develop, the market, price and
liquidity of the Notes may be adversely affected. If any of the Notes are traded
after their initial issuance, they may trade at a discount from their initial
offering price, depending on prevailing interest rates, the market for similar
securities and other factors, including general economic conditions and the
financial condition and performance of the Company. Prospective investors in the
Notes should be aware that they may be required to bear the financial risks of
such investment for an indefinite period of time. See "Description of the New
Notes" and "Book Entry; Delivery and Form."
20
<PAGE> 27
USE OF PROCEEDS
ICN will not receive any cash proceeds from the issuance of the New Notes
offered hereby. In consideration for issuing the New Notes as contemplated in
this Prospectus, ICN will receive in exchange Old Notes in like principal
amount, the terms of which are identical in all material respects to the New
Notes. The Old Notes surrendered in exchange for the New Notes will be retired
and cancelled and cannot be reissued. Accordingly, issuance of the New Notes
will not result in any increase in the indebtedness of ICN.
The Company intends to use the net proceeds from the sale of the Old Notes
for the cash portion of the purchase price of acquisitions of businesses and
products that the Company is currently reviewing and negotiating in Western
Europe and North America, which the Company expects to complete in the second
half of 1998. However, the Company has no firm commitment or other agreement,
arrangement or understanding with respect to any such acquisition. The remainder
of the net proceeds will be used for general corporate purposes, including other
potential acquisitions of businesses, minority interests and capital
expenditures. The Company continually reviews acquisitions of complementary
businesses and expects to pursue other acquisitions even if those currently
under review are not completed.
Pending the uses outlined above, funds will be placed into short-term
investments such as governmental obligations, bank certificates of deposit,
banker's acceptances, repurchase agreements, short-term debt obligations, money
market funds and interest-bearing accounts.
21
<PAGE> 28
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1998 and as adjusted for the sale of the Old Notes on August 20, 1998 and
the exchange into the New Notes offered hereby. This table should be read in
conjunction with the Company's historical consolidated financial statements and
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total debt:
The Notes(1).............................................. $ -- $ 196,652
9 1/4% Senior Notes....................................... 275,000 275,000
Other debt................................................ 67,034 67,034
---------- ----------
Total debt............................................. $ 342,034 $ 538,686
========== ==========
Minority interest........................................... $ 104,620 $ 104,620
Stockholders' equity:
Preferred stock, $.01 par value; 10,000 shares authorized;
1 share Series D issued and outstanding ($22,988
liquidation preference)................................ 1 1
Common stock, $.01 par value; 100,000 shares authorized;
73,167 shares outstanding.............................. 731 731
Additional capital........................................ 826,435 826,435
Retained earnings (deficit)............................... (2,165) (2,165)
Accumulated other comprehensive income.................... (48,013) (48,013)
---------- ----------
Total stockholders' equity............................. 776,989 776,989
---------- ----------
Total capitalization................................... $1,223,643 $1,420,295
========== ==========
</TABLE>
- ---------------
(1) Represents the $200 million aggregate principal amount of Senior Notes less
the debt discount of approximately $3,348.
22
<PAGE> 29
SELECTED FINANCIAL DATA
The following table sets forth selected historical and other data of the
Company on a consolidated basis and selected historical operating data of ICN
Yugoslavia for each of the years in the five-year period ended December 31, 1997
and the six-month periods ended June 30, 1998 and 1997. The Company's selected
historical financial data for each of the years in the five-year period ended
December 31, 1997 were derived from the audited consolidated financial
statements of the Company. The Company's selected financial data as of June 30,
1998 and for the six-month periods ended June 30, 1998 and 1997 were derived
from the unaudited consolidated condensed financial statements of the Company
included elsewhere in this Prospectus. In the opinion of management, such
unaudited consolidated condensed financial statements include all adjustments,
consisting of only normal recurring items and, with respect to ICN Yugoslavia,
the Yugoslavian Reserve, necessary for a fair presentation of the financial
condition and results of operations of the Company for such periods. Operating
results for the six months ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the full year. The information contained in
this table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
historical consolidated financial statements, including the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
-------- --------- -------- -------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS -- CONSOLIDATED:
Product sales............................. $403,957 $ 366,851 $507,905 $614,080 $ 752,202 $ 319,197 $ 453,687
Royalties................................. -- -- -- -- -- -- 20,052
-------- --------- -------- -------- ---------- ---------- ---------
Total revenues............................ 403,957 366,851 507,905 614,080 752,202 319,197 473,739
Cost of product sales..................... 211,923 182,946 206,049 291,807 351,978 150,761 207,613
Selling, general and administrative
expenses................................ 134,895 112,919 191,459 192,441 256,234 111,182 147,626
Royalties to affiliates, net.............. 6,121 7,468 -- -- -- -- --
Research and development costs............ 11,516 7,690 17,231 15,719 18,692 8,920 11,501
Write-off of purchased research and
development(1).......................... -- 221,000 -- -- -- -- --
Provision at ICN Yugoslavia(2)............ -- -- -- -- -- -- 165,646
-------- --------- -------- -------- ---------- ---------- ---------
Income (loss) from operations(1)(2)....... 39,502 (165,172) 93,166 114,113 125,298 48,334 (58,647)
Translation and exchange (gain) loss,
net..................................... (3,282) 191 (9,484) 2,282 12,790 5,710 24,724
Interest income........................... (8,033) (4,728) (6,488) (3,001) (15,912) (3,463) (7,223)
Interest expense.......................... 23,750 9,317 22,889 15,780 22,849 7,382 11,808
-------- --------- -------- -------- ---------- ---------- ---------
Income (loss) before provision (benefit)
for income taxes and minority
interest................................ 27,067 (169,952) 86,249 99,052 105,571 38,705 (87,956)
Provision (benefit) for income taxes...... 5,368 10,360 2,997 (6,815) (27,736) (11,790) 9,987
Minority interest......................... 189 3,269 15,915 18,939 19,383 6,915 (34,393)
-------- --------- -------- -------- ---------- ---------- ---------
Net income (loss)(1)(2)................... $ 21,510 $(183,581) $ 67,337 $ 86,928 $ 113,924 $ 43,580 $ (63,550)
======== ========= ======== ======== ========== ========== =========
Per share information:
Net income (loss) -- basic.............. $ 0.66 $ (5.29) $ 1.51 $ 1.75 $ 1.93 $ 0.76 $ (0.88)
======== ========= ======== ======== ========== ========== =========
Net income (loss) -- diluted............ $ 0.65 $ (5.29) $ 1.44 $ 1.51 $ 1.69 $ 0.66 $ (0.88)
======== ========= ======== ======== ========== ========== =========
OTHER DATA -- CONSOLIDATED:
Gross profit -- product sales............. $192,034 $ 183,905 $301,856 $322,273 $ 400,224 $ 168,436 $ 246,074
Depreciation and amortization............. 8,513 9,248 13,814 17,936 28,753 10,765 22,664
Capital expenditures...................... 8,431 20,205 49,685 26,216 100,397 10,861 46,983
EBITDA(3)................................. 48,015 65,076 106,980 132,049 154,051 59,099 129,663
Cash flows provided by (used in):
Operating activities.................... 18,207 42,557 79,326 (25,548) 9,315 12,736 (29,465)
Investing activities.................... (25,794) (11,390) (47,025) (41,962) (100,096) (20,374) (86,405)
Financing activities.................... (15,702) (2,919) (50,518) 82,680 262,675 10,615 (1,871)
Actual Ratios
EBITDA to fixed charges(4).............. 2.0x 7.0x 4.3x 6.8x 5.4x 6.0x 8.4x
Earnings to fixed charges(4)(5)(6)...... 2.1x 6.5x 4.4x 5.9x 4.5x 4.7x --
Net debt to EBITDA(7)................... 0.4x 2.7x 1.3x 1.2x 0.9x 1.4x 1.0x
Pro Forma Ratios(8)
EBITDA to fixed charges(4).......................................................... 3.3x 3.1x 5.3x
Earnings to fixed charges(4)(5)(6).................................................. 2.7x 2.4x --
Net debt to EBITDA(7)......................................................................................... 1.0x
OPERATING DATA -- ICN YUGOSLAVIA:
Net sales................................. $239,832 $ 172,124 $234,661 $267,166 $ 225,530 $ 98,108 $ 114,728
Gross profit.............................. 83,643 50,423 117,913 109,185 108,320 47,613 47,900
Income from operations(2)................. 483 15,505 46,296 70,616 60,235 32,582 (135,872)
Interest expense.......................... 16,774 933 3,610 1,478 107 -- --
Depreciation and amortization............. 2,969 2,716 4,396 4,185 4,046 1,287 3,458
EBITDA(3)................................. 3,452 18,221 50,692 74,801 64,281 33,869 33,232
</TABLE>
23
<PAGE> 30
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
-------- --------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $127,259 $ 137,802 $190,802 $306,764 $ 585,606 $ 404,903
Total assets.............................. 302,017 441,473 518,298 778,651 1,491,745 1,427,631
Total debt................................ 35,206 215,005 166,269 195,681 348,206 342,034
Stockholders' equity...................... 155,879 88,908 162,172 315,350 796,328 776,989
</TABLE>
- ---------------
NOTES TO SELECTED FINANCIAL DATA:
(1) As discussed in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the merger of ICN and its predecessor companies
in 1994 resulted in $221 million being ascribed to purchased research and
development for which no alternative use existed and was written-off
immediately. This write-off was a one-time, non-cash charge and is not
related to the Company's ongoing research and development activities for
ribavirin. Net income, excluding this one-time, non-cash write-off, was
$37.4 million in 1994.
(2) In July 1998, the Company announced that a worsening liquidity problem in
Yugoslavia caused an agency of the government to default on certain notes
receivable due to ICN. In the second quarter ended June 30, 1998, the
Company has recorded a non-cash charge against earnings of $173.4 million
($130.0 million after minority interests) to provide for ICN Yugoslavia's
anticipated losses on certain notes receivable, accounts receivable from
government sponsored agencies and the impairment of certain of its related
investments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- ICN Yugoslavia."
(3) EBITDA represents the sum of income (loss) from operations plus depreciation
and amortization and excludes the write-off of purchased research and
development of $221.0 million in 1994 (see Note 1) and the Yugoslavian
Reserve (see Note 2). The Company believes that EBITDA provides additional
information for determining its ability to meet its future debt service,
capital expenditure and working capital requirements. EBITDA is not a
measure of financial performance under GAAP and should not be considered as
an alternative either to net income as an indicator of the Company's
operating performance, or to cash flows as a measure of the Company's
liquidity.
(4) Fixed charges consist of interest expense and capitalized interest.
(5) For purposes of determining the ratio of earnings to fixed charges, earnings
consists of income before minority interests, provision (benefit) for income
taxes, write-off of purchased research and development and fixed charges.
(6) For the six months ended June 30, 1998, the Company had a deficiency of
earnings compared to its fixed charges of $91.5 million and on a pro forma
basis the Company had a deficiency of earnings compared to its fixed charges
of $100.7 million. Excluding the effect of the Yugoslavian Reserve, the
Company's ratio of earnings to fixed charges was 5.8x and its pro forma
ratio of earnings to fixed charges was 3.6x.
(7) For purposes of the computation, net debt is equal to total debt, less
unrestricted cash and cash equivalents and marketable securities. EBITDA for
all interim periods presented has been annualized.
(8) The pro forma ratios reflect the Offering as if it had occurred on January
1, 1997 at an annual effective interest rate of 9.40% (coupon rate of 8.75%)
or $18,495, $9,248 and $9,248 for the year ended December 31, 1997 and for
the six months ended June 30, 1997 and 1998, respectively, inclusive of
amortization of the debt discount of $3,348 and estimated deferred loan
issuance costs of $6,600. In addition, pro forma earnings per share for the
year ended December 31, 1997 and for the six months ended June 30, 1997 and
1998 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1997 1997 1998
------------ ----- ------
<S> <C> <C> <C>
Pro forma per share information:
Net income (loss) -- Basic................................ $1.72 $0.64 $(0.96)
===== ===== ======
Net income (loss) -- Diluted.............................. $1.52 $0.56 $(0.96)
===== ===== ======
</TABLE>
The computation of the Company's historical earnings per share amounts for
the year ended December 31, 1997 and for the six months ended June 30, 1997
and 1998 are set forth in the notes to the Company's consolidated financial
statements included in this prospectus. Pro forma earnings per share have
been computed by reducing net income available to common stockholders by the
pro forma amounts of interest expense, net of taxes, of $12,207 for the year
ended December 31, 1997 and $6,104 for the six months ended June 30, 1997
and 1998.
24
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
On November 1, 1994, the stockholders of ICN Pharmaceuticals, Inc. ("ICN"),
SPI Pharmaceuticals, Inc. ("SPI"), ICN Biomedicals, Inc. ("Biomedicals") and
Viratek, Inc. ("Viratek") (collectively, the "Predecessor Companies") approved
the merger of the Predecessor Companies (the "Merger"). On November 10, 1994,
SPI, ICN and Viratek merged into ICN Merger Corp. and Biomedicals merged into
ICN Subsidiary Corp., a wholly-owned subsidiary of ICN Merger Corp. In
conjunction with the Merger, ICN Merger Corp. was renamed ICN Pharmaceuticals,
Inc. For accounting purposes, SPI was the acquiring company and, as a result,
the Company has reported the historical financial data of SPI in its financial
results for periods prior to the Merger. Subsequent to the Merger, the results
of the newly merged company include the combined operations of all Predecessor
Companies.
As part of the Merger, the Company issued approximately 9,715,200 common
shares valued on November 10, 1994 at $13.83 per share, which was the publicly
traded price for SPI's common shares at that date. Accordingly, the purchase
price, including direct acquisition costs of $3.7 million, has been allocated to
the estimated fair value of the net assets, including amounts ascribed to
purchased research and development costs for which no alternative use existed of
$221.0 million or $6.37 per share, which was written-off to operations
immediately following the consummation of the Merger. Net income, excluding this
one-time, non-cash write-off, was $37.4 million or $1.08 per share in 1994.
The Merger resulted in the acquisition of a biomedical business with
pre-merger annual sales of approximately $58 million, direct access to Viratek's
research and development resources including its scientific expertise,
substantial tax net operating loss carry forwards and the elimination of royalty
payments to Viratek on the sales of ribavirin.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Certain financial information for the Company is set forth below.
This discussion should be read in conjunction with the consolidated
condensed financial statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues (in thousands)
Pharmaceutical
North America................................... $ 50,224 $ 25,811 $ 93,658 $ 48,087
Latin America................................... 19,877 13,650 36,833 26,455
Western Europe.................................. 8,031 9,043 16,171 17,805
Eastern Europe.................................. 109,386 89,685 257,360 181,965
Asia, Africa, Australia......................... 10,469 3,739 17,269 7,832
-------- -------- -------- --------
Total Pharmaceutical.................... 197,987 141,928 421,291 282,144
Biomedical........................................ 15,904 18,301 32,396 37,053
-------- -------- -------- --------
Product sales................................... 213,891 160,229 453,687 319,197
Royalties......................................... 19,052 -- 20,052 --
-------- -------- -------- --------
Total revenues.......................... $232,943 $160,229 $473,739 $319,197
======== ======== ======== ========
Cost of product sales............................. $ 99,644 $ 75,957 $207,613 $150,761
Gross profit margin............................... 53.4% 52.6% 54.2% 52.8%
</TABLE>
25
<PAGE> 32
Product sales. The growth in pharmaceutical net sales of $56.1 million
(39%) and $139.1 million (49%) for the three months and six months ended June
30, 1998, respectively, compared to the same periods of 1997 principally
resulted from the acquisition of the rights to certain products from F.
Hoffmann-La Roche Ltd. ("Roche"), SmithKline Beecham plc ("SKB"), and
Laboratorio Pablo Cassara ("Cassara"), the purchase of three pharmaceutical
companies in Eastern Europe, each subsequent to June 30, 1997, and growth in the
Company's Latin America base business. Revenues for the six months ended June
30, 1998 also reflect substantial growth in the Company's Eastern European base
business.
Pharmaceutical net sales in Eastern Europe were $109.4 million and $257.4
million for the three and six months ended June 30, 1998, compared to $89.7
million and $182.0 million for the same periods in 1997. For the quarter, the
increase reflects additional sales of $22.1 million resulting from the Company's
acquisition of Rzeszow in Poland and Marbiopharm and AO Tomsk Chemical
Pharmaceutical Plant ("AO Tomsk") in Russia, each subsequent to the quarter
ended June 30, 1997. The Company also achieved overall sales growth of
approximately 10% in its Russian base business, which provided additional sales
of $2.9 million in the 1998 second quarter. Sales in Russia were affected by
certain distributors' efforts to reduce inventories by delaying new orders in
response to price increases instituted by the Company in the beginning of the
second quarter. The growth in Russia was partially offset by a net $5.5 million
decrease in sales at ICN Yugoslavia. The net decrease consists of a $17.5
million decrease in domestic sales, due to the effects of the April 1998
devaluation of the dinar and reduced sales to the Yugoslavian government, and an
$11.9 million increase in export sales, principally to customers in Russia. See
"ICN Yugoslavia". For the six months ended June 30, 1998, the $75.4 million
(41%) increase in product sales includes additional sales of $48.7 million
resulting from the aforementioned acquisitions, along with 15% growth in the
Company's Eastern European base business. The Company achieved a $16.6 million
(17%) increase in net sales in Yugoslavia, principally due to increased volume
in the first quarter of 1998, prior to the devaluation. In Russia, sales
increased by $11.5 million (21%), excluding growth from the 1997 acquisitions,
due to increased volume and, to a lesser extent, to price increases.
Pharmaceutical net sales in North America were $50.2 million and $93.7
million for the three and six months ended June 30, 1998, compared to $25.8
million and $48.1 million for the same periods in 1997. The $24.4 million (95%)
increase in net sales for the quarter is primarily the result of the Company's
acquisition of the rights to certain products from Roche in the third and fourth
quarters of 1997, which generated sales of $32.9 million in the second quarter
of 1998. This was partially offset by lower sales of certain dermatological
products. For the six months ended June 30, 1998, the $45.6 million (95%)
increase in net sales is primarily the result of the acquisition of the rights
to the Roche products, which generated sales of $58.5 million. Increased sales
of the acquired products were partially offset by lower sales of certain
dermatological products.
Pharmaceutical net sales in Latin America were $19.9 million and $36.8
million for the three and six months ended June 30, 1998, compared to $13.7
million and $26.5 million for the same periods in 1997. For the quarter and six
months ended June 30, 1998, the increase in net sales of $6.2 million (46%) and
$10.4 million (39%), respectively, is primarily due to price increases and
higher unit volume, partially offset by unfavorable currency exchange
fluctuations. The increase also reflects second quarter 1998 sales of $2.3
million generated by the dermatological products which the Company acquired from
Cassara in April 1998. Excluding the effect of the acquired products, product
sales for Latin America for the six months ended June 30, 1998 increased 31%
over the same period of 1997.
Pharmaceutical net sales in Western Europe were $8.0 million and $16.2
million for the three and six months ended June 30, 1998, compared to $9.0
million and $17.8 million for the same periods in 1997. The decrease in net
sales for the quarter and six months ended June 30, 1998 of $1.0 million (11%)
and $1.6 million (9%) is primarily due to unfavorable currency exchange
fluctuations and to lower unit volumes in Spain, partially offset by increased
unit volumes in Holland.
26
<PAGE> 33
Pharmaceutical net sales in Asia, Africa and Australia were $10.5 million
and $17.3 million for the three and six months ended June 30, 1998, compared to
$3.7 million and $7.8 million for the same periods in 1997. The increase for the
quarter and six months ended June 30, 1998 of $6.7 million (180%) and $9.4
million (120%) is primarily due to the 1998 acquisition of the rights to 39
prescription and over-the-counter pharmaceutical products from SKB, which
generated sales of $7.4 million and $10.5 million for the three and six months
ended June 30, 1998, respectively, partially offset by lower sales volume in
other products.
Biomedical segment net sales for the three and six months ended June 30,
1998 were $15.9 million and $32.4 million compared to $18.3 million and $37.1
million for the same periods of 1997. The decrease for the three months and six
months ended June 30, 1998 of $2.4 million (13%) and $4.7 million (13%) is
primarily due to lower unit sales volume in certain diagnostics product lines.
The decrease for the six month period is also affected by the 1997 net sales
amounts including dosimetry product shipments made to fulfill higher than normal
order backlog which existed at the beginning of the 1997 first quarter.
Royalties. Royalties represent amounts earned under the License Agreement
with Schering-Plough. Under the License Agreement, Schering-Plough licensed all
oral forms of ribavirin for the treatment of chronic hepatitis C (HCV) in
combination with Schering-Plough's alpha interferon. The License Agreement
provided the Company an initial non-refundable payment of $23.0 million and
future royalty payments to the Company from sales of ribavirin by
Schering-Plough, including certain minimum royalty rates. As part of the initial
License Agreement, the Company retained the right to co-market ribavirin
capsules in the European Union (EU) under its trademark Virazole(R). Schering-
Plough is responsible for all clinical development and regulatory activities.
On June 3, 1998, Schering-Plough received approval from the FDA to market
Rebetron(TM) Combination Therapy, containing Rebetol(TM) (ribavirin) Capsules
and Intron(R)A (interferon alfa-2b, recombinant) Injection, for the treatment of
HCV in patients with compensated liver disease who have relapsed following alpha
interferon therapy. On June 8, 1998, Schering-Plough began selling the
Combination Therapy in the United States. On June 9, 1998, Schering-Plough
submitted a MAA for the Combination Therapy to the EMEA for the treatment of
relapsed HCV patients. On June 16, 1998, Schering-Plough filed a supplemental
NDA with the FDA for the Combination Therapy for the treatment of HCV in
patients with compensated liver disease previously untreated with alpha
interferon therapy.
On July 16, 1998, the Company sold to Schering-Plough its rights to
co-market oral ribavirin for the treatment of HCV in the EU, in exchange for
increased royalty rates on sales of ribavirin not only in the EU but worldwide.
The Company also received a one-time payment of $16.5 million for past royalties
and reimbursement of expenses incurred by the Company in preparation for the
launch of ribavirin capsules in the EU. Royalty revenues for the quarter and six
months ended June 30, 1998 also include amounts earned for commercial sales made
by Schering-Plough subsequent to the receipt of FDA approval and royalties on
other sales outside the United States.
Gross Profit. Gross profit as a percentage of product sales increased to
53.4% for the three months ended June 30, 1998, compared to 52.6% for the same
period in 1997. For the six months ended June 30, 1998, gross profit as a
percentage of product sales increased to 54.2% compared to 52.8% for 1997. The
increase is primarily attributable to sales of the products acquired from Roche
and Cassara, which generally yield relatively high gross profit margins, and
improved gross profit margins in the Company's Russian base business (exclusive
of the 1997 acquisitions), where the Company achieved an average gross profit
margin of 46% for the three months and six months ended June 30, 1998, compared
to 39% and 40% in the corresponding periods of 1997. Alkaloida Chemical Company
Ltd. ("Alkaloida") also achieved an improved gross profit margin of 48% and 47%
for the three and six months ended June 30, 1998, compared to 33% and 34% in the
first quarter of 1997. These improvements were partially offset by lower margins
at ICN Yugoslavia resulting from the April 1998 devaluation of the dinar.
Subsequent to the devaluation, gross profit
27
<PAGE> 34
margins at ICN Yugoslavia suffered as sales are translated at higher exchange
rates and no significant price increases were received. Gross profit margins at
ICN Yugoslavia were further impacted as inventories manufactured prior to the
devaluation are charged to cost of sales at the higher historical exchange rate.
Gross profit margins for ICN Yugoslavia are likely to continue to be adversely
affected by, among other factors, the lack of price increases -- see "ICN
Yugoslavia."
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $72.5 million (31% of revenues) and $147.6 million
(31% of revenues) for the three and six months ended June 30, 1998, compared to
$65.7 million (41% of revenues) and $111.2 million (35% of revenues) for the
same periods in 1997. The Company's acquisition of three pharmaceutical
companies in Eastern Europe and the acquisition of product rights from Roche and
SKB (all subsequent to June 30, 1997) generated additional expenses of $13.6
million and $25.8 million for the three months and six months ended June 30,
1998, of which approximately $3.3 million and $6.1 million, represents increased
amortization of goodwill and purchased intangibles. In addition, the ongoing
development of the sales, marketing, and administrative functions at the
Company's Eastern European headquarters in Moscow, Russia resulted in additional
expenses of $4.8 million and $9.2 million for the three months and six months
ended June 30, 1998. The 1997 periods also include a $12.0 million charge
related to the settlement of litigation. Other increases in selling, general and
administrative costs reflect increased expenditures, primarily in the Company's
Eastern European operations and at its United States corporate offices, to
support the Company's recent acquisitions and increased sales volume in the base
business.
Research and Development. Research and development expenditures were $6.0
million and $11.5 million for the three and six months ended June 30, 1998,
compared to $4.6 million and $8.9 million for the same periods in 1997. The
increase reflects the Company's continued investment in the development of new
products, primarily at its facilities in the United States and Eastern Europe.
Translation and Exchange Gains and Losses, Net. Foreign exchange losses,
net, were $19.3 million and $24.7 million for the three months and six months
ended June 30, 1998, compared to $1.7 million and $5.7 million for the same
period in 1997. In the second quarter of 1998, ICN Yugoslavia recorded
translation losses of $17.1 million, representing the effect of the April 1998
devaluation of the dinar on ICN Yugoslavia's net monetary assets of
approximately $38.0 million. Translation losses for the second quarter of 1998
also include losses of $2.3 million related to the Company's operations in
Russia and Hungary and other transaction-related gains. Translation losses for
the second quarter of 1997 included losses of $2.0 million related to ICN
Yugoslavia's net monetary asset position, partially offset by gains of $316,000
related to the Company's foreign-denominated debt.
For the six months ended June 30, 1998, translation losses included losses
of $21.1 million related to ICN Yugoslavia (including the effects of the
devaluation) and $3.2 million related to the Company's Russian operations,
partially offset by gains of $145,000 related to the Company's
foreign-denominated debt. Translation losses for the six months ended June 30,
1997 included losses of $6.6 million related to ICN Yugoslavia's net monetary
asset position, partially offset by gains of $1.7 million related to the
Company's foreign-denominated debt.
Interest Income and Expense. Interest expense during the three months ended
June 30, 1998 increased $1.8 million compared to the same period in 1997,
primarily due to interest expense on the Company's $275.0 million 9 1/4% Senior
Notes issued in August 1997. Interest on the 9 1/4% Senior Notes was partially
offset by interest savings resulting from the conversion of certain long-term
debt to common stock and increased capitalization of interest costs related to
plant construction at ICN Yugoslavia. Interest income decreased to $2.3 million
in 1998 from $2.9 million in 1997 due to the Company not recognizing interest
income on notes receivable from the Yugoslavian government, partially offset by
increased earnings on the investment of a significant portion of the proceeds of
the 9 1/4% Senior Notes.
28
<PAGE> 35
For the six months ended June 30, 1998, interest expense increased $4.4
million compared to the same period in 1997, primarily due to interest expense
on the Company's 9 1/4% Senior Notes, issued in August 1997. Interest on the
9 1/4% Senior Notes was partially offset by interest savings resulting from the
conversion of certain long-term debt to common stock and increased
capitalization of interest costs related to plant construction at ICN
Yugoslavia. Interest income for the six months ended June 30, 1998 increased to
$7.2 million in 1998 from $3.5 million in the comparable 1997 period due to
increased earnings on the investment of a significant portion of the proceeds of
the 9 1/4% Senior Notes.
Income Taxes. The Company's provision for income taxes for the three and
six months ended June 30, 1998 was $6.6 million and $10.0 million compared to a
benefit of $11.6 million and $11.8 million for the same periods of 1997. Income
taxes for the 1997 periods includes a deferred tax benefit of $21.0 million
resulting from the Company's recognition of a deferred tax asset for net
operating losses and tax benefits expected to be realized in the future. The
Company's provision for income taxes for the 1998 periods also reflects
additional income resulting from the acquisition of Rzeszow in Poland and the
Company's acquisition of Marbiopharm and AO Tomsk in Russia, each subsequent to
June 30, 1997. Additionally, pretax profits in North America and Latin America
increased in the 1998 periods compared to 1997, resulting in an increased
provision for income taxes.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 and Year
Ended December 31, 1996 Compared to Year Ended December 31, 1995
Certain financial information for the two business segments is set forth
below. This discussion should be read in conjunction with the consolidated
financial statements of the Company included elsewhere in this document. For
additional financial information by business segment, see Note 13 of Notes to
Consolidated Financial Statements for the year ended December 31, 1997 included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Sales (in thousands)
Pharmaceutical
North America...................................... $142,239 $106,442 $109,505
Latin America...................................... 59,371 47,359 41,984
Western Europe..................................... 32,022 35,826 37,226
Eastern Europe..................................... 433,268 355,415 254,961
Asia/Australia/Africa.............................. 14,387 4,711 2,890
-------- -------- --------
Total Pharmaceutical............................... $681,287 $549,753 $446,566
Biomedical............................................ 70,915 64,327 61,339
-------- -------- --------
Total Company...................................... $752,202 $614,080 $507,905
======== ======== ========
</TABLE>
Net Sales. Pharmaceutical net sales in North America for the year ended
December 31, 1997 were $142.2 million compared to $106.4 million for the same
period in 1996. The increase of $35.8 million or 34% is primarily the result of
the Company's purchase of the rights to eleven products from Roche. Effective
July 1, 1997, the Company acquired the worldwide rights (except India) to seven
products: Alloferin(R), Ancotil(R), Glutril(R), Limbitrol(R), Mestinon(R),
Prostigmin(R) and Protamin(R) and the worldwide rights (outside of the United
States and India) to Efudex(R) and Librium(R). Effective October 1, 1997, the
Company obtained the worldwide rights to Levo-Dromoran(R) and Tensilon(R) and
the United States rights to Efudex(R) and Librium(R). Sales of the acquired
products totaled $37.9 million for 1997. The increase in North American net
sales related to the acquired product rights was partially offset by a $10.3
million decrease in unit sales of ribavirin. Ribavirin is used in aerosol form
to treat infants hospitalized with severe respiratory infection caused by
respiratory syncytial virus ("RSV") and is the only antiviral therapeutic for
this infection. RSV is a seasonal illness which
29
<PAGE> 36
occurs primarily in late fall through early spring. Sales of ribavirin for 1997
were adversely impacted by increased wholesale inventory levels that developed
in 1996, along with continued health care industry trends toward cost
containment.
Pharmaceutical net sales in North America for the year ended December 31,
1996 were $106.4 million compared to $109.5 million for the same period in 1995.
The decrease of $3.1 million or 3% reflects a decrease in unit sales of
ribavirin in the amount of $22.4 million, partially offset by an increase in
unit sales primarily in the dermatological, medicinal and neuromuscular disease
product lines. Early in the 1995/1996 season, the number of hospital admissions
and positive cultures for RSV suggested a heavy incidence of infection. However,
the severity of infection in this season was not as high as the prior seasons
nor as heavy as such earlier evidence indicated, resulting in a lower hospital
demand for ribavirin and consequently an increased level of inventory at the
wholesale level. The increased wholesale inventory levels, combined with trends
in the industry toward managed health care during the first part of the
1996/1997 season, adversely impacted total 1996 ribavirin sales despite
additional sales promotional efforts which included more favorable credit terms
and sales discounts.
Sales of ribavirin for 1997 and 1996 may have been (any may continue to be)
affected by a January 1996 change in the American Academy of Pediatrics
guidelines for the use of the ribavirin in RSV from "should be used" to "may be
considered." Future sales may also be impacted by the severity of the next RSV
season, the increased level of inventory still remaining at the wholesale level
and by a recently approved product designed to prevent RSV. Due to the fact that
RSV is a seasonal disease, ribavirin sales from year to year are subject to the
incidence and severity of the disease which cannot be predicted with certainty.
Pharmaceutical net sales in Latin America for the year ended December 31,
1997 were $59.4 million compared with $47.4 million for the same period in 1996,
an increase of $12.0 million or 25%. Such increases were primarily due to price
increases and volume increases, partially offset by unfavorable currency
exchange fluctuations.
Pharmaceutical net sales in Latin America for the year ended December 31,
1996 were $47.4 million compared to $42.0 million for the same period in 1995,
an increase of $5.4 million or 13%. Such increases were primarily due to price
increases, partially offset by a small decrease in unit sales and currency
exchange fluctuations. Net sales for 1995 were negatively impacted by inflation
and the devaluation of the Mexican peso.
Pharmaceutical net sales in Western Europe for the year ended December 31,
1997 were $32.0 million compared with $35.8 million in 1996. The decrease of
$3.8 million or 11% primarily reflects unfavorable currency exchange
fluctuations, partially offset by an increase in ribavirin sales.
Pharmaceutical net sales in Western Europe for the year ended December 31,
1996 were $35.8 million compared to $37.2 million in 1995. The decrease of $1.4
million or 4% primarily reflects a decline in vision care sales in Holland and a
decline in other pharmaceutical sales, partially offset by an increase in
ribavirin sales.
Pharmaceutical net sales in Eastern Europe was the major contributor to
sales growth in 1997. Pharmaceutical net sales in Eastern Europe for the year
ended December 31, 1997 were $433.3 million compared to $355.4 million for the
same period in 1996. The increase of $77.9 million or 22% is primarily the
result of the Company's continued expansion program that included three
acquisitions in 1997, and the inclusion in 1997 of a full year's results of
operations for the Company's 1996 acquisitions. In Russia, the Company acquired
AO Tomsk and Marbiopharm in the fourth quarter of 1997, which added $17.9
million of sales. The Company's 1996 Russian acquisitions, Polypharm and
Leksredstva, generated additional sales in 1997 of $35.4 million, of which $15.9
million was due to price and volume increases and the remainder was the result
of the inclusion of a full year's sales in 1997. Sales by ICN Oktyabr in Russia
increased $14.6 million in 1997 compared with 1996 due to price and volume
increases. The Company also acquired Rzeszow, a pharmaceutical company in
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Poland, in the fourth quarter of 1997, which generated sales of $13.1 million.
In Hungary, sales at Alkaloida increased by $38.5 million, principally due to
the inclusion of a full year's operations in 1997. These increases were
partially offset by ICN Yugoslavia, where net sales were $225.5 million in 1997,
compared with $267.2 million in 1996. The Company has limited its sales to the
Yugoslavian government to those amounts which could be paid in cash or in notes
receivable fixed in dollar amounts. Sales at ICN Yugoslavia have also been
affected by limitations on governmental health care expenditures. See expanded
discussion below regarding ICN Yugoslavia.
Pharmaceutical net sales in Eastern Europe for the year ended December 31,
1996 were $355.4 million compared to $255.0 million for the same period in 1995.
The increase of $100.5 million or 39% reflects the Company's expansion program
that included three acquisitions in 1996. In Russia, the Company acquired
Leksredstva in the second quarter of 1996, which added $21.1 million of sales,
and in the third quarter of 1996, it acquired Polypharm, which added $7.4
million of sales. In Hungary, the Company acquired Alkaloida in the fourth
quarter of 1996, which added $21.5 million of sales. Sales at ICN Oktyabr in
Russia increased $18.0 million in 1996 compared to 1995 due to price and volume
increases and the inclusion of a full twelve months of activity in 1996 compared
to three quarters of ICN Oktyabr sales in 1995. During 1996, ICN Yugoslavia
began recovering from the effects of a November 1995 devaluation of the
Yugoslavian dinar. Net sales at ICN Yugoslavia amounted to $267.2 million in
1996, an increase of $32.5 million or 14% over the previous year, primarily due
to higher prices partially offset by currency fluctuations resulting from the
1995 devaluation. With the lifting of United Nations sanctions, ICN Yugoslavia
was able to resume exporting in 1996, which contributed $20.2 million of sales.
Biomedical net sales for 1997 were $70.9 million compared with $64.3
million in 1996, an increase of $6.6 million or 10%. This increase was primarily
due to the acquisition of the former Dosimetry Service Division of Siemens
Medical Systems, Inc. ("Dosimetry") in July 1996, partially offset by a $1.3
million decrease resulting from the sale of the instrument business
("Instrument") in March 1996.
Biomedical net sales for 1996 were $64.3 million compared to $61.3 million
in 1995, an increase of $3.0 million or 5%. This increase was primarily due to
the effect of additional sales of diagnostic products acquired from Becton
Dickinson and Company in May 1995 of $1.8 million and additional Dosimetry sales
of $446,000, which were partially offset by a decrease in Instrument sales of
$4.4 million resulting from the sale of Instrument in March 1996.
Gross Profit: Gross profit as a percentage of sales was 53% for 1997
compared to 52% for 1996. ICN Yugoslavia achieved a gross profit margin of 48%
in 1997 compared to 41% for 1996, when gross profit margins were adversely
affected by the November 1995 devaluation of the Yugoslavian dinar. The
devaluation suppressed gross margins in 1996 due to higher exchange rates and a
lack of sufficient price increases while the cost of sales for inventory
manufactured prior to the devaluation is expensed at a higher historical
exchange rate. The Company also achieved improved gross profit margins in each
of the businesses acquired during 1996, Leksredstva, Polypharm and Alkaloida,
where in 1997 margins improved to 40%, 37% and 32%, respectively, compared with
36%, 36% and 22% for 1996. The improved margins on the previously acquired
businesses were partially offset by lower gross profit margins on the Company's
1997 Russian acquisitions and at ICN Oktyabr where gross profit was affected by
competitive pricing pressures. Gross profit margins for the Company's North
American operations were 79% for 1997 compared with 85% in 1996. Lower ribavirin
sales, which carry higher gross profit margins, and sales of the products
acquired from Roche, which generally yield a relatively lower gross profit,
contributed to the decrease.
Gross profit as a percentage of sales was 52% for 1996 compared to 59% for
1995. The decrease in gross profit margins was primarily due to a decrease in
gross margins at ICN Yugoslavia reflecting the impact of the November 1995
devaluation which was partially offset by an 83% price increase in December 1995
and a 30% price increase in April 1996. Typically, sales made subsequent to a
devaluation are lower due to higher exchange rates and a lack of sufficient
price
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<PAGE> 38
increases while the cost of sales for inventory manufactured prior to the
devaluation is expensed at a higher historical exchange rate. Margins will begin
to improve after a devaluation if price increases are obtained and when older,
higher priced inventory is replaced with inventory manufactured after the
devaluation. ICN Yugoslavia's gross margins for the first, second, third and
fourth quarters of 1996 were 29%, 37%, 43% and 53%, respectively. Additionally,
the gross profit margins of the companies acquired in 1996, Leksredstva (36%),
Polypharm (36%) and Alkaloida (22%), also contributed to the relative decline.
The gross profit margin in the Company's operating units outside of Eastern
Europe remained consistent with 1995 at 69%.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses were $256.2 million or 34% of sales in 1997 compared to
$192.4 million or 31% in 1996. The increase was primarily due to additional
expenses of the operations acquired in 1997 and 1996 totaling $25.7 million,
additional costs of approximately $5.9 million resulting from the establishment
of the Company's Eastern European headquarters in Moscow, and additional
amortization of purchased intangibles of $3.8 million resulting from the
acquisition of certain product rights from Roche. The 1997 amount also includes
a one-time $12.0 million charge related to the settlement of the 1995 class
action suit related to the Company's hepatitis C NDA.
Selling, general and administrative expenses were $192.4 million or 31% of
sales in 1996 compared to $191.5 million or 38% in 1995. For 1996, these costs
reflect decreasing expenses primarily at ICN Yugoslavia principally due to
differences in exchange rates of the Yugoslavian dinar in 1996 compared to 1995
and lower level of expenditures. Offsetting such decreases were increases in
selling, general and administrative expenses in North America and Western Europe
due to expanded marketing efforts in these regions and a charge of $3.5 million
related to the settlement of a commercial dispute and a penalty imposed by the
Canadian Patent Price Review Board. Additionally, the new Eastern European
acquisitions contributed $4.5 million of expenses in 1996.
Research and Development Costs: Research and development costs increased
$3.0 million in 1997 compared to 1996. The increase is primarily the result of
the acquisition of personnel and modern research facilities at Alkaloida, and
increased investment in research and development efforts at ICN Yugoslavia.
Research and development costs decreased $1.5 million in 1996 compared to 1995.
Such decrease occurred primarily at ICN Yugoslavia and was principally due to
differences in exchange rates of the Yugoslavian dinar.
Translation and Exchange Gains and Losses, Net: Foreign exchange losses,
net, in 1997 were $12.8 million compared to foreign exchange losses, net, of
$2.3 million in 1996. In 1997, ICN Yugoslavia had translation losses of $12.6
million, related to changes in local currency and its impact on their net
monetary asset position. In addition, Alkaloida recorded transaction losses of
approximately $2.4 million on long-term obligations denominated in currencies
other than its functional currency. Partially offsetting these losses were gains
of $1.1 million related to the Company's foreign-denominated debt.
Foreign exchange losses, net, in 1996 were $2.3 million compared to foreign
exchange gains, net, of $9.5 million in 1995. For the year ended December 31,
1996, ICN Yugoslavia's and ICN Oktyabr's translation losses were $4.3 million
and $1.0 million, respectively, which related to changes in local currency and
its impact on their net monetary asset position. Partially offsetting these
losses were translation gains of $3.3 million related to the Company's foreign
denominated debt.
Interest Income and Expense: The increase in interest expense in 1997
compared to 1996 of $7.1 million is primarily due to interest expense on the
9 1/4% Senior Notes, issued in August 1997 and to interest expense on debt
acquired in connection with the Company's 1996 and 1997 acquisitions. This
additional interest expense was partially offset by reduced interest expense as
a result of the conversion of $115.0 million principal amount of the Company's
8.5% Convertible Subordinated Notes due 1999 and all of the outstanding 5 5/8%
Swiss Franc Exchangeable Certificates, as well as increased interest
capitalization of interest costs related to plant construction at
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ICN Yugoslavia. During 1997, the Company capitalized interest of $5.4 million
compared with $3.8 million in 1996. Interest income increased to $15.9 million
in 1997 from $3.0 million in 1996 due to the investment of a significant portion
of the proceeds of the 9 1/4% Senior Notes.
The decrease in interest expense in 1996 compared to 1995 of $7.1 million
is primarily due to the effect of the retirement of $34.2 million of the
Company's 12 7/8% Sinking Fund Debentures during 1995 and the capitalization of
interest cost related to plant construction at ICN Yugoslavia. During 1996, the
Company capitalized $3.8 million compared to $2.0 million in 1995.
Income Taxes: The Company's effective income tax rate (benefit) was (26%),
(7%) and 3% for 1997, 1996, and 1995, respectively. The Company operates in many
regions where the tax rate is low or it benefits from a tax holiday. In 1997,
the provision for income taxes reflects a deferred tax benefit of $35.4 million
resulting from the recognition of certain deferred tax assets and the reduction
of the related valuation allowance. During 1997, the Company acquired certain
products from Roche and, in early 1998, it acquired certain products from SKB.
These new products are expected to generate future taxable income that provided
a basis for reducing the Company's valuation allowance for its deferred tax
assets in 1997. Ultimate realization of the deferred tax assets is dependent
upon the Company generating sufficient taxable income prior to expiration of the
loss carryforwards. Although realization is not assured, management believes it
is more likely than not that the net deferred tax assets will be realized. In
1997, the benefits from a tax holiday expired in Yugoslavia; however, changes in
Yugoslavian tax law in 1997 created benefits that resulted in an overall 2%
effective tax rate. The benefits from the 1997 change in tax law will probably
continue into 1998. In Russia, the Company continued to benefit from special tax
relief that benefits pharmaceutical companies resulting in an effective tax rate
of 8%. In Hungary, the Company continued to benefit from a tax holiday expiring
December 31, 1998.
In 1996, the Company benefited from tax credits arising from the
acquisition of ICN Yugoslavia and in Russia the tax rate was low due to special
tax relief afforded to pharmaceutical companies. In 1996, the Company recorded a
tax benefit of $6.8 million primarily resulting from the favorable outcome of
tax audits and the tax benefit from the Company's current year tax loss in the
United States which was carried back to prior tax years resulting in the
recovery of taxes previously paid.
The trend of low tax rates may not continue in the future. In 1997, the
Company recognized substantially all of the benefit of its future United States
net operating loss carryforwards. The continuing tax benefits in Yugoslavia and
Russia are subject to potential changes in tax law that may be enacted in the
future.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1998, cash used in operating
activities totaled $29.5 million. Operating cash flows reflected the Company's
net loss of $63.6 million and net noncash charges (including the $173.4 million
provision at ICN Yugoslavia, in addition to depreciation, minority interest, and
foreign exchange gains and losses) of $182.4 million, offset by working capital
increases (after the effect of business acquisitions and currency translation
adjustments) totaling approximately $148.3 million. The working capital
increases are principally related to increases in accounts and notes receivable,
especially at ICN Yugoslavia and at the Company's Russian operations. The
collection period of receivables for ICN Yugoslavia continues to be affected by
the lack of availability of dinars in Yugoslavia -- see "ICN Yugoslavia." The
Company's inventories increased by approximately $15.5 million, primarily to
support increased sales volume in the Company's Eastern European operations and
a build-up of inventories of recently-acquired products. Prepaid expenses and
other assets increased approximately $26.4 million, primarily due to vendor
prepayments made in Yugoslavia to reduce the Company's exposure to exchange rate
fluctuations. A decrease in trade payables and accrued liabilities of $1.4
million and other working capital changes also required cash.
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Cash used in investing activities of $86.4 million for the six months ended
June 30, 1998 includes $62.6 million paid for the acquisition of the rights to
certain products from SKB and Cassara, and for the acquisition of VUAB. In
addition, the Company made capital expenditures of $47.0 million, continuing its
plant expansion efforts. These amounts were partially offset by proceeds from
the sale of marketable securities of $23.0 million and proceeds from the sale of
fixed assets of $209,000.
Cash used in financing activities totaled $1.9 million during the six
months ended June 30, 1998. The Company made principal payments on long-term
debt of $18.7 million, reduced short-term borrowings by $194,000, and paid
common stock dividends of $8.1 million. The dividend payments reflect higher
levels of shares outstanding and a 12.5% increase in the per share dividend from
the same period in 1997. Sources of cash included long-term borrowings of $14.9
million and proceeds of $5.9 million from the exercise of employee stock
options. The Company also received proceeds of $4.3 million related to the
shares issued in the Company's acquisition of certain product rights from Roche
in 1997; under the purchase agreement, the Company was entitled to a portion of
the proceeds realized by Roche from the sale of the shares in excess of a
specified price.
Cash provided by operating activities in 1997 was $9.3 million compared
with cash used by operating activities of $25.6 million in 1996. Operating cash
flows for 1997 were affected by working capital increases (after the effect of
business acquisitions and currency translation adjustments) totaling
$129.2 million. The working capital increases are principally related to
increases in accounts and notes receivable especially at ICN Yugoslavia. The
collection period of receivables for ICN Yugoslavia continues to be affected by
the lack of availability of dinars in Yugoslavia. During 1997, $50.0 million of
accounts receivable from the Yugoslavian government were converted from dinar-
denominated, unsecured accounts receivable to notes receivable payable in
dinars, but fixed in dollar amounts. Additional sales to the Yugoslavian
government and government-sponsored entities during 1997 were made under similar
note receivable terms in order to reduce the Company's exposure to losses
resulting from exchange rate fluctuations. The outstanding balance of the notes
receivable from the Yugoslavian government was $145.4 million at December 31,
1997. See expanded discussion above regarding liquidity at ICN Yugoslavia. The
Company's inventories increased by $6.2 million, primarily to support increased
sales volume in the Company's Russian operations. The net deferred income tax
asset increased by $35.4 million due to increases in the expected tax benefits
to be derived from the future utilization of the Company's net operating losses.
These amounts were partially offset by a $30.7 million increase in trade
payables and accrued liabilities, and by other working capital changes.
Cash used in investing activities increased to $100.1 million in 1997
compared with $42.0 million in 1996. Capital expenditures totaled $100.4
million, including cash payments of $49.0 million for the Humacao, Puerto Rico
manufacturing plant acquired from Roche, $7.3 million for the Company's Eastern
European headquarters building in Moscow, Russia, $12.7 million of capital
expenditures at ICN Yugoslavia and $11.3 million at the Company's Russian
subsidiaries. The ICN Yugoslavia expenditures primarily represent the
continuation of the Company's ongoing plant expansion efforts. The estimated
cost of completing this project is $50.0 million, to be funded out of internal
cash flow of ICN Yugoslavia over the next three to five years. From the
beginning of the project in 1994, ICN Yugoslavia has expended $62.4 million.
Cash used in investing activities also includes payments of $44.8 million for
the acquisition of four businesses -- AO Tomsk and Marbiopharm in Russia,
Rzeszow in Poland, and the joint venture with Jiangsu Provincial Wuxi
Pharmaceutical Corporation in China. These expenditures were partially offset by
proceeds from the sale of marketable securities of $40.8 million and other
sources. In 1996, net cash used in investing activities of $42.0 million
principally consisted of payments for acquisitions (primarily in Eastern Europe
and the United States) totaling $51.2 million and capital expenditures of $26.2
million, which were partially offset by proceeds from the sale of marketable
securities of $27.7 million and other sources.
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Net cash provided by financing activities was $262.7 million in 1997
compared with $82.7 million in 1996, In 1997, funds were principally provided by
long-term borrowings totaling $284.1 million, including the sale of $275.0
million principal amount of the 9 1/4% Senior Notes in August 1997, and proceeds
from the exercise of stock options of $20.5 million. These amounts were
partially offset by principal payments on long-term debt of $17.6 million, a net
reduction in notes payable of $14.4 million, and cash dividends of $11.6
million. Included in 1996 are $32.8 million and $47.4 million of net proceeds
from the issuance of common stock and preferred stock, respectively, primarily
used to fund acquisitions in the United States and Eastern Europe and working
capital, and $10.2 million of proceeds from the exercise of stock options,
partially offset by payment of short-term and long-term debt of $42.3 million
and $7.0 million of dividends paid.
During 1997, $114.9 million of the Company's 8 1/2% Convertible
Subordinated Notes were converted into approximately 7,793,939 shares of the
Company's common stock, and the remainder was redeemed for cash. In addition,
SFr 66.5 million principal amount of the Company's 5 5/8% Swiss Franc
Exchangeable Certificates were converted into 2,246,868 shares of the Company's
common stock, and the remainder was redeemed for cash. The conversion and
redemption of these obligations reduced the Company's long-term debt by an
aggregate of $123.8 million. In addition, marketable securities with a value of
$38.8 million, previously held in trust for the payment of debt service on the
5 5/8% Swiss Franc Exchangeable Certificates, became available to the Company
and were sold for cash.
In March 1998, the Company announced the redemption of its Bio Capital
Holdings 5 1/2% Swiss Franc Exchangeable Certificates (the "New Certificates")
and SFr 37,670,000 principal amount of the New Certificates was exchanged for an
aggregate of approximately 802,000 shares of the Company's common stock. The
remaining SFr 200,000 principal amount of the New Certificates was redeemed for
cash. Upon the exchange of the New Certificates, marketable securities held in
trust for the payment of the New Certificates, having a market value of
approximately $23.0 million, became available to the Company.
In June 1998, the Company's Board of Directors declared a second quarter
cash dividend of $.06 per share payable on July 22, 1998 to shareholders of
record on July 8, 1998.
The Company's principal sources of liquidity are its existing cash and cash
equivalents and cash provided by operations. Cash and cash equivalents at June
30, 1998 totaled $91.0 million compared to $209.9 million at December 31, 1997.
Working capital at June 30, 1998 was $404.9 million compared to $585.6 million
at December 31, 1997, primarily due to the $173.4 million charge recorded at ICN
Yugoslavia and cash payments of approximately $45.0 million for the acquisition
of product rights. Certain of the Company's lines of credit and long term
borrowings include covenants restricting the payment of dividends, the issuance
of new indebtedness, and the repurchase of the Company's common stock and
requiring the maintenance of certain financial ratios. Management believes that
funds generated from operations will be sufficient to meet its normal operating
requirements.
The Company also has several preliminary acquisition prospects that may
require significant funds in 1998. Also, if the historic rate of growth in
Eastern Europe continues, these operations will require increasing levels of
working capital and funds for additional facilities or upgrading of existing
facilities. In connection with a recent acquisition, the Company has guaranteed
the collection of certain accounts receivable and could potentially be required
to pay up to 147.0 million dinars in the event that any such accounts are
ultimately uncollectible. In August 1998, the Company completed the offering of
the Notes for net proceeds of approximately $190.1 million. Management believes
that the Company's existing cash and cash equivalents and funds generated from
operations, along with the proceeds of the Notes, will be sufficient to meet its
liquidity requirements and to fund anticipated acquisitions and capital
expenditures estimated at an aggregate of $75.0 million for 1998. The Company
may also seek additional debt financing or issue additional equity securities to
finance future acquisitions.
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The Company is currently self-insured with respect to product liability
claims. While to date no material adverse claim for personal injury resulting
from allegedly defective products has been successfully maintained against the
Company, a substantial claim, if successful, could have a material adverse
effect on the Company's liquidity and financial performance. See Note 12 of
Notes to Consolidated Financial Statements for the year ended December 31, 1997
included in this Prospectus.
ICN YUGOSLAVIA
ICN Yugoslavia, a 75% owned subsidiary, operates in a business environment
that is subject to significant economic volatility and political instability.
Currently the Yugoslavian economy is affected by continuing liquidity problems,
inflation and monetary exposures, recent and potential future currency
devaluations, price controls, government spending limitations, credit risk,
political instability, and international economic sanctions. The future of the
economic and political environment of Yugoslavia is uncertain and conditions may
deteriorate further, resulting in a further material adverse impact on the
Company's financial position and results of operations.
On April 1, 1998, the Yugoslavian government devalued the dinar from a rate
of 6.0 dinars per U.S. $1 to 10.92 dinars per U.S. $1. At the time of the
devaluation the Company's net monetary asset position in Yugoslavia was
approximately $38.0 million, resulting in a foreign translation loss of
approximately $17.0 million which was recognized in the second quarter of 1998.
In addition to the foreign translation loss, the devaluation has and will
continue to adversely affect sales and gross profit margins at ICN Yugoslavia.
Subsequent to the devaluation, sales are lower due to higher exchange rates and
a lack of immediate price increases. Gross profit margins are further affected
as inventories manufactured prior to the devaluation are charged to cost of
sales at the higher historical exchange rate. Margins are expected to improve
after a devaluation if price increases are obtained and, to some extent, when
older, higher-priced inventory is replaced with inventory manufactured after the
devaluation.
Recovery from the effects of the devaluation will depend on the approval of
new price increases by the Yugoslavian government. Subsequent to the
devaluation, the Company, along with others in the Yugoslavian pharmaceutical
industry, applied to the government for price increases in an amount believed to
be adequate to make possible a recovery from the effects of the devaluation.
However, the Yugoslavian government has not approved any significant price
increases and the Company, along with many of its competitors, has suspended all
direct sales to the Yugoslavian government in an effort to encourage the
Yugoslavian government to approve price increases. The suspension of sales
continued through the second quarter of 1998. The Company is unable to predict
the amount and timing of future price increases that may be allowed by the
Yugoslavian government, if any, and the resultant impact on future earnings.
As of June 30, 1998 the Company had notes receivable, including accrued
interest, of approximately $176.2 million due from the Yugoslavian government.
The Yugoslavian government has defaulted on approximately $39.0 million of these
notes. In negotiations with the Company subsequent to the default, the
Yugoslavian government has notified the Company that it can no longer honor the
terms of the existing credit agreements. The Yugoslavian government is seeking
concessions from the Company, including the forgiveness of a portion of the
amounts owed, and has ceased making all payments outlined in the credit
agreements.
As a result of the government's default and the suspension of sales to the
government, the Company has recorded a $173.4 million charge against earnings
($130.1 million after minority interests) at ICN Yugoslavia in the second
quarter of 1998. The charge consists of a $151.2 million reserve for estimated
losses on notes receivable, a $7.8 million reserve for accounts receivable from
government-sponsored entities, and a $14.4 million write-down of the value of
certain related investments and assets.
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The Company is currently working to renegotiate the credit terms and is
hopeful that an agreement will be reached on the amounts due the Company and
future sales to the government. If an agreement is reached on future sales, it
is likely that the level of these sales will be substantially lower than the
level of sales prior to the default. The Company intends to expand ICN
Yugoslavia's selling efforts toward the private sector and export customers.
However, the outcome of these efforts is uncertain and there can be no assurance
that the Company will be able to generate new business to replace the government
sales. Should the Company be unable to reach an agreement providing for the
resumption of sales to the Yugoslavian government or to generate adequate non-
government sales, there may be a further material adverse impact on the
Company's financial position and results of operations.
Yugoslavia is also subject to political instability. The elections that
took place in 1997 have not resulted in a change of political leadership that
would provide a foundation for significant economic reforms. The Federal
Republic of Yugoslavia is comprised of two states, Serbia and the much smaller
state of Montenegro. Within Yugoslavia there exist political dissension and
unrest. The state of Montenegro has been active in seeking greater autonomy from
Serbia. Additionally, in the Serbian province of Kosovo, ethnic Albanians are
also seeking independence from Serbia. Recent armed conflicts in Kosovo between
ethnic Albanians and Serbian forces continue to escalate and have contributed to
increased instability in the Balkans.
In June 1998, in response to continued violence by Yugoslavian government
forces against the ethnic Albanian population in Kosovo, the United States
government imposed a ban on new American investments in Yugoslavia and a freeze
on that country's assets in the United States. These sanctions are likely to
worsen economic conditions in Yugoslavia and may result in further adverse
impact on the Company's financial position and results of operations.
INFLATION AND CHANGING PRICES
Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, fluctuations in
the relative values of currencies, political instability and restrictive
governmental actions. Changes in the relative values of currencies occur from
time to time and may, in certain instances, materially affect the Company's
results of operations. The effect of these risks remains difficult to predict.
The Russian economy is increasingly volatile. In response to worsening
liquidity and declining currency reserves, the Russian government has continued
to seek international financial assistance. The Russian Central Bank has used
recent financial assistance from the International Monetary Fund, along with its
existing monetary reserves, in an effort to support the value of the ruble.
However, in August 1998, the Central Bank announced that it was no longer able
to support the ruble at its then-current exchange rate of approximately 6.3
rubles to $1, and that it would allow the ruble to fall as far as 9.5 rubles to
$1. Subsequently, the ruble fell sharply and the Russian Central Bank was unable
to support the ruble, even at the previously announced level. In September 1998,
there have been large fluctuations in exchange rates for the ruble and the value
of the ruble has continued to decline in relation to the dollar, at times
exceeding 20 rubles to $1, a decline of more than 68% from the ruble's
mid-August 1998 level.
As of June 30, 1998 (the most recent information available), the Company
had a net monetary asset position in Russia of approximately $59.0 million which
is subject to loss as a result of the decline in the value of the ruble. Due to
the extremely large fluctuation in the ruble exchange rate, the ultimate amount
of the foreign exchange loss the Company will incur cannot presently be
determined and such loss may have a material adverse effect on the Company's
financial position and results of operations. The Company's management continues
to work to reduce its net monetary exposure, including the strategic acquisition
of distributors in various regions within Russia, the suspension of credit sales
and increased accounts receivable collection efforts includ-
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<PAGE> 44
ing, in some cases, discounts for early payment from customers. However, there
can be no assurance that such efforts will be successful.
During the last three years, the cumulative inflation rate in Mexico has
exceeded 100%. In 1997, the Company began translating the financial statements
of its operations in Mexico using accounting methods that apply to
hyperinflationary economies, resulting in a foreign exchange loss of
approximately $400,000. At June 30, 1998, Mexico had a net monetary asset
position of $4.8 million, which would be subject to loss if a devaluation were
to occur.
The Company and its subsidiaries are also subject to foreign currency risk
on its foreign-denominated debt of $21.1 million at June 30, 1998, which is
primarily denominated in Swiss francs and German marks and, at Alkaloida, in
U.S. dollars, and to devaluation losses on its net monetary asset positions in
Yugoslavia and Russia. See "-- ICN Yugoslavia" above and Note 14 of Notes to
Consolidated Financial Statements for the year ended December 31, 1997 for
further discussion.
The effects of inflation are experienced by the Company through increases
in the costs of labor, services and raw materials. The Company is subject to
price control restrictions on its pharmaceutical products in the majority of
countries in which it operates. While the Company attempts to raise selling
prices in anticipation of inflation, the Company has been affected by the lag in
allowed price increases in Yugoslavia and Mexico, which has created lower sales
in U.S. dollars and reductions in gross profit. Future sales and gross profit
could be materially affected if the Company is unable to obtain price increases
commensurate with the levels of inflation. Pharmaceutical prices in the United
States and the Russian pharmaceutical markets are not heavily regulated by the
government.
THE YEAR 2000 ISSUE
The Company is pursuing an action plan to be Year 2000 compliant in all
locations by the middle of 1999. The Company does not have heavy reliance on
custom, internally generated software; the Company principally uses third party
software that is in most cases already Year 2000 compliant. The Company has
completed an assessment of its worldwide computer systems and has determined
that it will be required to perform some modification or replacement of software
so that all systems will properly utilize dates beyond December 31, 1999.
The cost of making the Company's information systems and software Year 2000
compliant is not expected to be material to the financial results of the
Company. The Company does not consider itself particularly vulnerable to third
parties' failure to remediate those third parties' own Year 2000 issues and
continues to assess the issue.
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<PAGE> 45
THE EXCHANGE OFFER
GENERAL
Registration Rights
The Company and the Initial Purchasers entered into the Registration Rights
Agreement on or pursuant to which the Company agreed, for the benefit of holders
of the Old Notes, that it will, at its expense (i) on or prior to the 30th day
following the Issue Date, file the Exchange Offer Registration Statement with
the Commission with respect to the Exchange Offer pursuant to which the Notes
will be exchanged for the Exchange Notes, which will have terms identical to the
Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions or any provision relating to this paragraph) and (ii) use
its best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act by the 150th day after the Issue
Date. Upon effectiveness of the Exchange Offer Registration Statement, the
Company will offer to all holders of the Notes an opportunity to exchange their
securities for a like principal amount of the Exchange Notes. The Company will
keep the Exchange Offer open for acceptance for not less than 20 business days
after the date the Exchange Offer Registration Statement is declared effective.
For each Note surrendered to the Company for exchange pursuant to the Exchange
Offer, the holder of such Note will receive an Exchange Note having a principal
amount at maturity equal to that of the surrendered Note. Interest on each
Exchange Note will accrue from the last interest payment date on which interest
was paid on the Note surrendered in exchange therefor or, if no interest has
been paid on such Note, from the Issue Date.
Under existing interpretations of the staff of the Commission's Division of
Corporation Finance (the "Staff"), the Exchange Notes will generally be freely
transferable after the Exchange Offer without further registration under the
Securities Act; provided, however, that broker-dealers ("Participating
Broker-Dealers") receiving Exchange Notes in the Exchange Offer will be subject
to a prospectus delivery requirement with respect to resales of such Exchange
Notes. To date, the Staff has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as the exchange
pursuant to the Exchange Offer (other than a resale of an unsold allotment from
the sale of the Notes to the Initial Purchasers) with the prospectus contained
in the Exchange Offer Registration Statement. Pursuant to the Registration
Rights Agreement, the Company will permit Participating Broker-Dealers and other
persons, if any, subject to similar prospectus delivery requirements to use the
prospectus contained in the Exchange Offer Registration Statement in connection
with the resale of such Exchange Notes.
Each holder of the Notes who wishes to exchange its Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations to
the Company, including that (i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in a public distribution (within the meaning of the
Securities Act) of the Exchange Notes and (iii) it is not an "affiliate," as
defined in Rule 405 of the Securities Act, of the Company, or if it is such an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it.
In addition, each holder who is not a broker-dealer will be required to
represent that it is not engaged in, and does not intend to engage in, a public
distribution of the Exchange Notes. Each holder who is a broker-dealer and who
receives Exchange Notes for its own account in exchange for Notes that were
acquired by it as a result of market-making activities or other trading
activities will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such Exchange Notes.
In the event that applicable interpretations of the Staff do not permit the
Company to effect the Exchange Offer or if for any other reason the Exchange
Offer is not consummated by the 180th day following the Issue Date, or if the
Initial Purchaser so requests with respect to the Notes not eligible
39
<PAGE> 46
to be exchanged for Exchange Notes in the Exchange Offer or if any holder of
Notes is not eligible to participate in the Exchange Offer or does not receive
freely tradeable Exchange Notes in the Exchange Offer, the Company will, at its
expense, (a) promptly file a Shelf Registration Statement (the "Shelf
Registration Statement") permitting resales from time to time of the Notes, (b)
use its best efforts to cause the Shelf Registration Statement to become
effective and (c) use its best efforts to keep the Shelf Registration Statement
current and effective until two years from the Issue Date or such shorter period
that will terminate when all the Notes covered by the Shelf Registration
Statement have been sold pursuant thereto. The Company, at its expense, will
provide to each holder of the Notes copies of the prospectus, that is a part of
the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes from time to time. A
holder of Notes who sells such Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
In the event that (i) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the 30th day after the Issue Date or
declared effective on or prior to the 150th day after the Issue Date, (ii) the
Exchange Offer is not consummated on or prior to the 180th day following the
Issue Date, (iii) the Shelf Registration Statement is not filed or declared
effective within the required time periods or (iv) the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared effective
but thereafter ceases to be effective (except as specifically permitted therein)
for a period of 15 consecutive days without being succeeded immediately by an
additional Exchange Offer Registration Statement or Shelf Registration
Statement, as the case may be, filed and declared effective (each such event a
"Registration Default"), the interest rate borne by the Notes shall be increased
by 0.50% per annum for the 90-day period following such Registration Default.
Such interest rate will increase by an additional 0.25% per annum at the
beginning of each subsequent 90-day period following such Registration Default,
up to a maximum aggregate increase of 1.0% per annum. From and after the date
that all Registration Defaults have been cured, the Notes bear interest at the
rate set forth on the cover page of this Prospectus.
Notwithstanding the foregoing, to the extent necessary, there shall be
added to all time limitation periods that number of days representing delays in
the Company's filings with the Commission caused by events beyond the Company's
control despite its best efforts in either of the following categories: (i)
events affecting issuers generally, such as the temporary closure of federal
agencies; or (ii) events directly affecting the Company such as its inability to
obtain all information of an acquisition entity constituting a significant
subsidiary within a time period that would permit independent auditors to
prepare required audited information on a timely basis. In addition, if at any
time counsel to the Company has determined in good faith that it is reasonable
to conclude that the filing of the Exchange Offer Registration Statement or the
Shelf Registration Statement or the compliance by the Company with its
disclosure obligations in connection with the Exchange Offer Registration
Statement or the Shelf Registration Statement may require the disclosure of
information which the Board of Directors of the Company has identified as
material and which the Board of Directors has determined that the Company has a
bona fide business purpose for preserving as confidential, then the Company may
delay the filing or the effectiveness of the Exchange Offer Registration
Statement or Shelf Registration Statement (if not then filed or effective, as
applicable) and shall not be required to maintain the effectiveness thereof or
amend or supplement the Exchange Offer Registration Statement or Shelf
Registration Statement for a period expiring upon the earlier to occur of (A)
the date on which such material information is disclosed to the public or ceases
to be material or the Company is able to so comply with its disclosure
obligations and Commission requirements or (B) 30 days after the Company
notifies the holders of such good faith determination.
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<PAGE> 47
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
As of the date of this Prospectus, $200.0 million aggregate principal
amount of the Old Notes is outstanding. In connection with the issuance of the
Old Notes, ICN arranged for the Old Notes initially purchased by qualified
institutional buyers, as defined pursuant in Rule 144A under the Securities Act
("Qualified Institutional Buyers"), to be issued and transferable in book-entry
form through the facilities of DTC, acting as depositary. The New Notes will
also be issuable and transferable in book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal is
being sent to all registered holders of Old Notes as of , 1998
(the "Record Date").
ICN shall be deemed to have accepted validly tendered Old Notes when, as
and if ICN has given oral or written notice thereof to the Exchange Agent. See
"Exchange Agent." The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purpose of receiving New Notes from ICN and delivering New
Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. ICN will pay all charges and expenses, other
than certain applicable taxes, in connection with the Exchange Offer. See "Fees
and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1998, unless
ICN, in its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, ICN will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Such announcement may state that ICN is extending the Exchange Offer for a
specified period of time.
ICN reserves the right (i) to delay acceptance of any Old Notes, to extend
the Exchange Offer or to terminate the Exchange Offer and to refuse to accept
Old Notes not previously accepted, if any of the conditions set forth herein
under "Termination" shall have occurred and shall not have been waived by ICN
(if permitted to be waived by ICN), by giving oral or written notice of such
delay, extension or termination to the Exchange Agent and (ii) to amend the
terms of the Exchange Offer in any manner deemed by it to be advantageous to the
holders of the Old Notes. Any such delay in acceptance, extension, termination
or amendment will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by ICN
to constitute a material change, ICN will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of the Old Notes of such
amendment.
Without limiting the manner in which ICN may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, ICN shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
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<PAGE> 48
INTEREST ON THE NEW NOTES
Interest on each New Note will accrue from the last Interest Payment Date
on which interest was paid on the Old Note tendered in exchange therefor or, if
no interest has been paid on such tendered Old Note, from August 20, 1998.
Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to
have waived the right to receive any payment in respect of interest on the Old
Notes accrued from the last Interest Payment Date or August 20, 1998 (as the
case may be) to the date of the issuance of the New Notes. Consequently, holders
who exchange their Old Notes for New Notes will receive the same interest
payment on the same Interest Payment Date that they would have received had they
not accepted the Exchange Offer. Interest on the New Notes is payable
semi-annually on May 15 and November 15 of each year accruing from the last
Interest Payment Date or, in the case of the first payment, August 20, 1998 at a
rate of 8 3/4% per annum.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless such tender is being effected pursuant to the procedure for
book-entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Exchange Agent at its
addresses set forth herein under "Exchange Agent" prior to 5:00 p.m., New York
City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE
WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Old Notes will constitute an agreement between
such holder and ICN in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to ICN.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of ICN or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Old Notes are held of record by DTC who desires to deliver such Old
Notes by book-entry transfer at DTC.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
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<PAGE> 49
appropriate arrangements to register ownership of the Old Notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old Notes
tendered pursuant thereto are tendered (i) by a registered holder (including any
participant in DTC whose name appears on a security position listed as the owner
of Old Notes) who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by ICN, evidence
satisfactory to ICN of their authority to so act must be submitted with the
Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by ICN in its sole discretion, which determination will be final and binding.
ICN reserves the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes ICN's acceptance of which would, in the opinion of
counsel for ICN, be unlawful. ICN also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Old Notes. ICN's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as ICN shall determine. Neither ICN,
the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes
nor shall any of them incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Old Notes unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, ICN reserves the right in its sole discretion to (a) purchase
or make offers for any Old Notes that remain outstanding subsequent to the
Expiration Date, or, as set forth under "Termination," to terminate the Exchange
Offer and (b) to the extent permitted by applicable law, purchase Old Notes in
the open market, in privately negotiated transactions or otherwise. The terms of
any such purchases or offers may differ from the terms of the Exchange Offer.
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<PAGE> 50
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or if such holder cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within five business days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Old Notes to be tendered in prior form for
transfer and any other documents required by the Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at DTC of Old Notes
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the business day prior to the Expiration Date and prior to acceptance for
exchange thereof by ICN. Any such notice of withdrawal must (i) specify the name
of the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Old Notes to register the transfer of
such Old Notes into the name of the Deposit or withdrawing the tender and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by ICN, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered. Any
Old Notes which have been tendered but which are not accepted for exchange will
be returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "Procedures for Tendering" at any time prior to
the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, ICN will not be
required to accept for exchange, or exchange New Notes for, any Old Notes not
theretofore accepted for exchange, and
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<PAGE> 51
may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes if: (i) any action or proceeding is instituted or
threatened in any court or by or before any governmental agency with respect to
the Exchange Offer, which, in ICN's judgment, might materially impair ICN's
ability to proceed with the Exchange Offer or (ii) any law, statute, rule or
regulation is proposed, adopted or enacted, or any existing law, statute, rule
or regulation is interpreted by the staff of the Commission in a manner, which,
in ICN's judgment, might materially impair ICN's ability to proceed with the
Exchange Offer.
If ICN determines that it may terminate the Exchange Offer, as set forth
above, ICN may (i) refuse to accept any Old Notes and return any Old Notes that
have been tendered to the holders thereof, (ii) extend the Exchange Offer and
retain all Old Notes tendered prior to the Expiration Date of the Exchange
Offer, subject to the rights of such holders of tendered Old Notes to withdraw
their tendered Old Notes, (iii) waive such termination event with respect to the
Exchange Offer and accept all properly tendered Old Notes that have not been
withdrawn. If such waiver constitutes a material change in the Exchange Offer,
ICN will disclose such change by means of a supplement to this Prospectus that
will be distributed to each registered holder of Old Notes, and ICN will extend
the Exchange Offer for a period of five to 10 business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Old Notes, if the Exchange Offer would otherwise expire during
such period.
EXCHANGE AGENT
The United States Trust Company of New York, the Trustee under the
Indenture, has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
By Mail: United States Trust Company of New
York
P.O. Box 483
Cooper Station
New York, NY 10276
Attention: Corporate Trust Services
By Hand Prior to 4:30 p.m.: United States Trust Company of New
York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust
Window
By Hand After 4:30 p.m.: United States Trust Company of New
York
and by Overnight Courier: 770 Broadway, 13th floor
New York, NY 10003
Attention: Corporate Trust Services
By Facsimile: (212) 780-0592
Confirm by Telephone: (800) 548-6565
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by ICN. The principal solicitation for tenders pursuant to the Exchange
Offer is being made by mail. Additional solicitations may be made by officers
and regular employees of ICN and its affiliates in person, by telegraph or
telephone.
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<PAGE> 52
ICN will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. ICN, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. ICN may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this Prospectus, Letters of Transmittal and related documents to the
beneficial owners of the Old Notes and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by ICN.
ICN will pay all transfer taxes, if any, applicable to the exchange of Old
Notes pursuant to the Exchange Offer. If, however, certificates representing New
Notes or Old Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by ICN upon the
consummation of the Exchange Offer. The expenses of the Exchange Offer will be
amortized by ICN over the term of the New Notes under generally accepted
accounting principles. Unamortized expenses relating to the Old Notes will be
deferred and amortized over the life of the New Notes.
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<PAGE> 53
BUSINESS
INTRODUCTION
ICN is a multinational pharmaceutical company that develops, manufactures,
distributes and sells pharmaceutical, research and diagnostic products. In 1997,
the Company had revenues of $752.2 million and earnings before interest, taxes,
depreciation and amortization ("EBITDA") of $154.1 million. Based on the closing
price of the Company's common stock on the New York Stock Exchange on September
11, 1998, the Company has an equity market capitalization of approximately $1.1
billion.
ICN distributes and sells a broad range of prescription (or "ethical") and
OTC pharmaceutical and nutritional products in over 90 countries. These
pharmaceutical products treat viral and bacterial infections, diseases of the
skin, neuromuscular disorders, cancer, cardiovascular disease, diabetes and
psychiatric disorders.
The Company pursues a strategy of international expansion which includes:
(i) the consolidation of the Company's leadership position in Eastern Europe,
including Russia; (ii) the acquisition of high margin products that complement
existing product lines and can be introduced into additional markets to meet the
specific needs of those markets; and (iii) the creation of a pipeline of new
products through internal research and development, as well as strategic
partnerships and licensing arrangements. The Company intends to continue its
strategy of seeking acquisition and other growth opportunities in North America
and Western Europe, as well as in Eastern Europe (including Russia) and other
emerging markets, such as China and Latin America.
The Company currently operates 11 pharmaceutical companies throughout
Eastern Europe (including Russia) and, as measured by sales, the Company
believes it is currently the largest pharmaceutical company in Eastern Europe
(including Russia), a region with an estimated population of 425.1 million
people with a collective GNP of $838.3 billion. The current rate of per capita
spending on pharmaceuticals in Eastern Europe currently is only 13% of such rate
in Western Europe. The Company believes it has also established itself as the
largest pharmaceutical company, as measured by sales, in Russia, a market that
is expected to grow significantly over the next decade.
ICN believes it is uniquely positioned as being both large enough to have
an effective international distribution network not enjoyed by smaller
pharmaceutical companies and small enough to permit lower sales thresholds that
will achieve profitability that cannot be realized under the production and
marketing constraints of larger pharmaceutical companies. The Company has
increased sales and profitability in part by acquiring high margin
pharmaceutical products that complement its existing product lines.
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<PAGE> 54
The following table summarizes the Company's principal acquisitions of
pharmaceutical companies and existing product lines:
<TABLE>
<CAPTION>
PERCENTAGE
PURCHASE OWNERSHIP 1997
ACQUISITION COUNTRY DATE ACQUIRED PRICE ACQUIRED SALES
- ----------- ------- ----------------- ------------- ---------- -------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ICN Czech Republic(1) Czech Republic June 1998 $ 18.6 100% $ 16.5
Products of Laboratorio
Pablo Cassara(1) Argentina March 1998 22.5 N/A 9.0
Products of SKB(1) Africa/Asia/Aust February 1998 45.5 N/A 32.3
ICN Poland(1) Poland October 1997 44.1 86% 40.9
ICN Yoshkar-Ola(1) Russia October 1997 4.4 93% 26.8
ICN Tomsk(1) Russia October 1997 4.9 90% 36.7
Products of Roche(1) Worldwide July/October 1997 183.2 N/A 108.8
ICN China China January 1997 24.0 75% 9.1
ICN Chelyabinsk Russia August 1996 2.3 96% 22.0
ICN Hungary Hungary September 1996 23.6 66% 60.0
Cappel Division of Organon
Teknika Corporation United States September 1996 4.3 100% N/A
Dosimetry Service Division
of Siemens Medical
Systems, Inc. United States July 1996 23.7 100% N/A
ICN Kursk Russia April 1996 6.2 97% 41.8
ICN St. Petersburg Russia June 1993 7.6 93% 53.0
ICN Yugoslavia Yugoslavia May 1991 74.5 75% 225.5
</TABLE>
- ---------------
(1) 1997 sales represent pro forma sales as if acquisition had occurred on
January 1, 1997.
On June 15, 1998, the Company acquired VUAB, a manufacturing and research
facility located in a suburb of Prague in the Czech Republic for $18.6 million.
VUAB's two main product lines are finished forms of human drugs, including
injectable antibiotics and infusion solutions, and pharmaceutical raw materials,
including ephedrine, a powdered or crystalline alkaloid used in the treatment of
allergies and asthma, and nystatin, an antibiotic used in the treatment of
fungal infections. The Company believes that VUAB currently accounts for 10 %
and 8%, respectively, of the world market for ephedrine and nystatin. Exports of
these products accounted for more than 50% of VUAB's total 1997 sales volume of
$16.5 million.
On April 1, 1998, Eli Lilly and Company ("Lilly") and the Company entered
into an agreement in which the Company acquired the rights to manufacture,
market and sell several Lilly pharmaceutical products in Russia and the
Commonwealth of Independent States ("CIS") under its own brand names. Lilly will
continue to market these products under its own brand names.
On March 18, 1998, the Company acquired the global rights to a portfolio of
32 dermatology products from Laboratorio Pablo Cassara, an Argentine-based
pharmaceutical manufacturer, for $22.5 million. These products had annual sales
in Argentina of $9.0 million in 1997. The Company markets these products through
its subsidiary, ICN Argentina.
In February 1998, the Company acquired from SKB the Asian, Australian and
African rights to 39 prescription and over-the-counter pharmaceutical products.
These products had annual sales of $32.3 million in 1997. The Company received
the product rights in exchange for $45.5 million, of which $22.5 million was
paid in cash and the balance in 821 shares of the Company's Series D Convertible
Preferred Stock. Each share of the Series D Convertible Preferred Stock is
initially convertible into 750 shares of the Company's common stock (together,
the "SKB Shares"), subject to certain antidilution adjustments. The Company has
agreed to pay SKB an additional amount in cash (or, under certain circumstances,
in shares of common stock) to the extent proceeds received
48
<PAGE> 55
by SKB from the sale of the SKB Shares during a specified period ending in
December, 1999 and the then market value of the unsold SKB Shares do not provide
SKB with an average value of $46.00 per common share (including any dividend
paid on the SKB Shares). Alternatively, SKB is required to pay the Company an
amount, in cash or shares of the Company's common stock, to the extent that such
proceeds and market value provide SKB with an average per share value in excess
of $46.00 per common share (including any dividend paid on the SKB Shares).
In 1997, the Company acquired the rights to 11 products from Roche for
$183.2 million. The products include Librium(R) (tranquilizer), Efudex(R)
(topical anti-skin cancer), Glutril(R) (anti-diabetic), Alloferin(R)
(anesthetic), Ancotil(R) (antifungal), Limbitrol(R) (anti-depressant),
Protamin(R) (heparin overdose), Levo-Dromoran(R) (pain management) and
Mestinon(R)/Prostigmin(R)/Tensilon(R) (myasthenia gravis). Sales of these
products since the initial acquisition (effective July 1, 1997) contributed
$37.9 million to the Company's revenues for 1997. The Company believes that
certain of these products in specific markets have growth potential and intends
to promote the products accordingly. A state-of-the-art manufacturing facility
in Humacao, Puerto Rico was also purchased from Roche in a separate transaction.
The Company has previously announced plans to invest $300.0 million in
Russia over the next five years, of which only $20.0 million is subject to firm
commitments as part of the original acquisition agreements. The additional
potential investments will be primarily funded by cash flow generated by
operations in Russia and subject to review on a project by project basis. Such
review will consider the current economic conditions in existence at the time as
well as customary financial review.
The Company's research and development activities are based upon the
expertise accumulated in over 35 years of nucleic acids research focusing on the
internal generation of novel molecules. The research and development function
works closely with corporate marketing on a local, regional and worldwide basis.
In this connection, the Company has entered into a number of licensing
arrangements with other larger pharmaceutical companies, as well as strategic
partnerships to develop its proprietary products.
Among the Company's products is the broad spectrum antiviral agent
ribavirin, which it markets in the United States, Canada and most of Europe
under the Virazole(R) trademark. In 1995, the Company entered into the License
Agreement with Schering-Plough whereby Schering-Plough licensed all oral forms
of ribavirin for the treatment of chronic hepatitis C in combination with
Schering-Plough's alpha interferon (the "Combination Therapy"). The License
Agreement provided the Company an initial non-refundable payment by
Schering-Plough of $23.0 million and future royalty payments to the Company from
sales of ribavirin by Schering-Plough, including certain minimum royalty rates.
As part of the initial License Agreement, the Company retained the right to
co-market ribavirin capsules in the European Union under its trademark
Virazole(R). Schering-Plough currently has exclusive marketing rights for oral
forms of ribavirin for hepatitis C worldwide and is responsible for all clinical
development and regulatory activities. In addition, Schering-Plough agreed to
purchase up to $42.0 million in common stock of the Company upon achieving
certain regulatory milestones.
Under the License Agreement, if the Company pursues regulatory approval to
market oral ribavirin for an additional indication, Schering-Plough will have
the right to require that such indication become included in the License
Agreement on the same terms and conditions (including royalties), in which case
Schering-Plough must take responsibility for all further development activities
and reimburse the Company for its development costs related to these additional
indications.
Schering-Plough has the right to terminate the License Agreement on six
months' notice, in which event it would retain a non-exclusive license to oral
ribavirin, subject to the royalty obligations of the License Agreement, but it
would no longer have any obligation to purchase common stock of the Company.
Also, on such a termination, Schering-Plough would be required to provide to the
49
<PAGE> 56
Company reference to any regulatory approvals obtained by Schering-Plough and
all information and data to allow the Company to pursue its own regulatory
approval.
On June 3, 1998, Schering-Plough received approval from the FDA to market
the Combination Therapy under the brand name Rebetron(TM) for the treatment of
chronic hepatitis C in patients with compensated liver disease who have relapsed
following alpha interferon therapy. On June 8, 1998, Schering-Plough began
selling the Combination Therapy in the United States. On June 9, 1998,
Schering-Plough submitted an MAA for the Combination Therapy to the EMEA for the
treatment of relapsed chronic hepatitis C patients. On June 16, 1998,
Schering-Plough filed a supplemental NDA with the FDA for the Combination
Therapy for the treatment of chronic hepatitis C in patients with compensated
liver disease previously untreated with alpha interferon therapy (referred to as
treatment-naive patients).
On July 16, 1998, the Company sold to Schering-Plough its rights to
co-market oral ribavirin for the treatment of hepatitis C in the European Union.
Under the amended License Agreement, the Company will receive increased royalty
rates worldwide as well as a one-time payment of $16.5 million, which includes
reimbursement for certain expenses incurred by the Company in preparation for
the launch of ribavirin capsules in the European Union.
The Company believes that the approval of the Combination Therapy for the
treatment of chronic hepatitis C would be important to the Company because of
the potential size of the chronic hepatitis C market in the United States,
Western Europe, Japan and other markets. According to the CDCP, approximately
four million Americans are chronically infected with the hepatitis C virus. Of
these, 20%-50% are expected to develop liver cirrhosis, of which 20%-30% are
expected to go on to develop liver cancer or liver failure requiring liver
transplant. An equal or greater degree of disease prevalence is projected in
Western Europe and Japan
Besides the use of ribavirin in the Combination Therapy, the Company
markets ribavirin under its own trademark Virazole(R) for commercial sale in
over 40 countries for one or more of a variety of viral infections, including
RSV. In the United States and Europe, Virazole(R) is approved only for use in
hospitalized infants and children with severe lower respiratory infections due
to RSV. See "Risk Factors -- No Assurance of Successful Development and
Commercialization of Future Products" and "-- Government Regulation."
In addition to its pharmaceutical operations, the Company also develops,
manufactures and sells, through its wholly-owned subsidiary, Biomedicals, a
broad range of research products and related services, immunodiagnostic reagents
and radiation monitoring services. The Company markets these products
internationally to major scientific, academic, health care and governmental
institutions through catalog and direct mail marketing programs. Biomedicals
accounted for approximately 9% of the Company's total 1997 sales.
PRODUCTS
During 1997, the ten pharmaceutical products generating the greatest sales
for the Company represented approximately 21% of worldwide pharmaceutical sales.
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<PAGE> 57
The following table summarizes the Company's top 10 pharmaceutical products
based on sales in 1997:
<TABLE>
<CAPTION>
THERAPEUTIC 1997
PRODUCT GENERIC NAME CATEGORY/INDICATION SALES % OF SALES
- ------- ------------ ------------------- ----- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Mestinon(R) pyridostigmine Neuromuscular $ 27.9 4%
bromide disorders
Virazole(R) ribavirin Antiviral (RSV) 23.2 3%
Bedoyecta(R) vitamin B complex Vitamin Supplement 18.4 3%
Palitrex(R) cefalexin Antibacterial 15.1 2%
Pentrexyl(R) ampicillin Antibacterial 12.6 2%
Oxsoralen(R) methoxsalen Antipsoriatic 11.3 2%
Prilazid(R) cilazapril Antihypertensive 10.2 2%
Gentamicin(R) gentamicin Antibacterial 10.0 1%
Bactrim(R) trimethoprim + Antibacterial 9.4 1%
sulfamethoxazole
Amikasin(R) amikasin sulphate Antibacterial 7.5 1%
------ ---
Sub-total...................................................... $145.6 21%
All Others..................................................... 535.7 79%
------ ---
Total Pharmaceutical Sales..................................... $681.3 100%
====== ===
</TABLE>
Antivirals
The Company sells its antiviral drug, ribavirin, under the tradename
Virazole(R) in North America and most European countries. Ribavirin is sold as
Vilona(R) and Virazide(R) in Latin America and Virazide(R) in Spain. References
to the sale of Virazole(R) in this Prospectus include sales made under the
trademarks Vilona(R) and Virazide(R). Ribavirin accounted for approximately 3%,
5% and 10% of the Company's net sales for the years ended December 31, 1997,
1996 and 1995, respectively. Ribavirin is currently approved for sale in various
pharmaceutical formulations in over 40 countries for the treatment of several
different human viral diseases, including RSV, hepatitis, herpes, influenza,
measles, chicken pox and HIV. In the United States and Canada, Virazole(R) has
only been approved for hospital use in aerosolized form to treat infants and
young children who have severe lower respiratory infections caused by RSV. In
treating RSV, the drug is administered by a small particle aerosolized generator
("SPAG"), a system that permits direct delivery of ribavirin to the site of the
infection. Similar approvals for ribavirin for use in the treatment of RSV have
been granted by governmental authorities in 22 other countries. In 1995, the
Company entered into the License Agreement with Schering-Plough whereby
Schering-Plough has assumed responsibility for worldwide clinical development
and registration of oral ribavirin in the Combination Therapy for the treatment
of chronic hepatitis C.
Antibacterials
The Company sells approximately 70 antibacterial products which accounted
for approximately 14%, 22% and 21% of the Company's net sales for the years
ended December 31, 1997, 1996 and 1995, respectively. Most of the antibacterials
manufactured and sold by the Company are under exclusive licenses held by ICN
Yugoslavia for specific geographical areas, primarily Yugoslavia, from other
manufacturers, including Roche, Lilly and Bristol-Myers Squibb Co.
Palitrex(R) belongs to the cefalesporin group of medications used to treat
afflictions that may not be responsive to penicillin treatment. Pentrexyl(R)
belongs to the penicillin group of medications used in a wide variety of
bacterial infections including urinary and upper respiratory tract infections.
Bactrim(R) is a combination product that is used in the treatment of urinary
tract infections. Gentamicin(R) and Amikasin(R) are antibacterials sold by ICN
Yugoslavia in various Eastern European markets.
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<PAGE> 58
Other Ethicals
The Company manufactures and/or markets a wide variety of other ethical
pharmaceuticals, including analgesics, anticholinesterases, antirheumatics,
cardiovasculars, dermatologicals, endocrine agents, gastrointestinals, hormonals
and psychotropics. Other ethicals accounted for approximately 49%, 41% and 40%
of net sales for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company's largest selling other ethical pharmaceutical product line is
dermatological products. The Company manufactures and markets approximately 75
dermatological products, primarily in North America and Eastern Europe.
Dermatological products include Oxsoralen-Ultra(R), Solaquin(R), Trisoralen(R)
and Eldoquine(R), which are principally used for intractable psoriasis and
pigmentation disorders, hypopigmentation (the skin losing its color) and
hyperpigmentation (the skin darker than normal).
The Company's largest selling ethical product is Mestinon(R), an
anticholinesterase. The Company markets three anticholinesterase product lines
in North America under the trade names Mestinon(R), Prostigmin(R) and
Tensilon(R). These products are used in treating myasthenia gravis, a
progressive neuromuscular disorder, and in reversing the effects of certain
muscle relaxants. Prilazid is an antihypertensive sold in Yugoslavia.
Bensedin(R) is a tranquilizer manufactured by ICN Yugoslavia and is used in the
treatment of psychological and emotional disorders.
OTC Products
OTC products encompass a broad range of ancillary products which are sold
through the Company's existing distribution channels, including Bedoyecta(R), a
B-complex injectable vitamin marketed by ICN Mexico. OTC products accounted for
approximately 25%, 22% and 17% of the Company's net sales for the years ended
December 31, 1997, 1996 and 1995, respectively.
Biomedical Products
Research chemicals, diagnostic and other biomedical products accounted for
approximately 9%, 10% and 12% of the Company's net sales for the years ended
December 31, 1997, 1996 and 1995, respectively.
Research Chemicals: The Company serves life science researchers throughout
the world through a catalog sales operation, direct sales and distributors. The
Company's catalog lists approximately 55,000 products which are used by medical
and scientific researchers involved in molecular biology, cell biology,
immunology and biochemistry, microbiology and other areas. A majority of these
products are purchased from third party manufacturers and distributed by the
Company. Products include biochemicals, immunobiologicals, radiochemicals,
tissue culture products and organic and rare and fine chemicals.
Diagnostics: Among the diagnostics marketed by the Company are reagents
that are routinely used by physicians and medical laboratories to accurately and
quickly diagnose hundreds of patient samples for a variety of disease
conditions. The Company manufactures both enzyme and radio-immunoassay kits,
which it markets under the ImmuChem(TM) product line. The Company is also a
supplier of immunodiagnostic tests for the screening of newborn infants for
inherited and other disorders.
Dosimetry: The Company is a supplier of analytical monitoring services to
detect personal occupational exposure to radiation. This service is provided to
dentists, veterinarians, chiropractors, podiatrists, hospitals, universities,
government institutions, nuclear power plants, small office practitioners and
others exposed to ionizing radiation. The Company's service includes both film
and thermo luminescent badges in several configurations to accommodate a broad
scope of users. This service includes the manufacture of badges, distribution to
and from clients, analysis of badges and a radiation report including exposure.
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<PAGE> 59
RESEARCH AND DEVELOPMENT
The Company's research and development activities use the expertise
accumulated by the Company and its predecessors in over 35 years of nucleic
acids research. In addition, the Company develops innovative products targeted
to address the specific needs of the Company's local markets. The Company
currently has approximately 590 employees devoted to research and development
activities.
Near and Medium-Term Research and Development
The Company's short-term development pipeline includes the registration of
a number of products in regional markets, including, but not limited to, Latin
America and Eastern and Central Europe. This ongoing activity introduces both
high quality generic and licensed proprietary products into under-served
markets.
The Company's medium-term research and development pipeline involves the
preclinical and clinical evaluation of certain nucleotide compounds which have
broad market attractiveness and which have shown promise for successful
commercialization. These compounds include:
Virazole(R) (ribavirin): In 1995, the Company entered into the License
Agreement with Schering-Plough, under which Schering-Plough assumed
responsibility for the worldwide clinical development and registration of the
Combination Therapy and received certain geographically exclusive marketing
rights. During 1997, phase III clinical trials comparing the Combination Therapy
versus INTRON-A(R) alone were completed in the United States and Europe and
demonstrated a statistically significant improvement in sustained response in
patients taking the Combination Therapy who had relapsed following previous
interferon treatment. On June 3, 1998, Schering-Plough received approval from
the FDA to market the Combination Therapy under the brand name Rebetron(TM) for
the treatment of chronic hepatitis C in patients with compensated liver disease
who have relapsed following alpha interferon therapy. On June 8, 1998,
Schering-Plough began selling the Combination Therapy in the United States. On
June 9, 1998, Schering-Plough submitted an MAA for the Combination Therapy to
the EMEA for the treatment of relapsed chronic hepatitis C patients. On June 16,
1998, Schering-Plough filed a supplemental NDA with the FDA for the Combination
Therapy for the treatment of chronic hepatitis C in treatment-naive patients. On
July 16, 1998, ICN sold its previously retained rights to market ribavirin
capsules in the European Union to Schering-Plough for a combination of cash and
increased royalties.
Clinical studies have been performed with ribavirin in various formulations
for the treatment of several other viral diseases. Among diseases for which at
least one governmental health regulatory agency, in countries other than the
United States, has approved commercialization of ribavirin are herpes zoster,
genital herpes, chicken pox, hemorrhagic fever with renal syndrome, Lassa Fever,
measles, influenza and HIV. The Company is initiating focused clinical studies
evaluating the use of ribavirin in the treatment of papilloma virus infections
and for early intervention against RSV infections in persons whose immune
defenses are compromised as a consequence of bone marrow transplantation.
Somatorelin(TM) (HGRF1-44): Somatorelin(TM) is a peptide which causes the
synthesis and release of human growth hormone. The Company believes that
somatorelin offers advantages over treatment with growth hormone. Notable among
these advantages are the induction of a normal daily cycle of growth hormone
levels and the induction of the ability of the body to produce growth hormone,
which should offer significant benefits to patients. The Company is currently
sponsoring Phase III trials in short stature pediatric patients.
Tiazole(TM) (tiazofurin): The Company has maintained an active research
program centered on tiazofurin, which the Company is developing under the
tradename Tiazole(TM). This product is a nucleoside analog demonstrated to cause
inhibition of IMP-dehydrogenase, whose activity is elevated in a number of
cancers. Studies of Tiazole(TM) by independent investigators indicate
significant activity in myelogenous leukemia. The Company is in the process of
preparing Phase II/
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<PAGE> 60
III evaluation of Tiazole(TM) for use in the treatment of the late stages of
refractory chronic myelogenous leukemia. The Company is also evaluating
Tiazole(TM) for the treatment of ovarian carcinoma.
Adenazole(TM) (8-CI cAMP, ocladesine): This nucleotide analog has been
shown to control cell growth and proliferation in certain cancers by selective
interaction with intracellular regulatory molecules. Independent investigators
in Italy and Scotland have conducted preliminary trials in humans that indicate
significant utility of this compound. Based on these encouraging results, the
Company has undertaken a formal development program designed to lead to
registration in the United States for the treatment of colon cancer. The Company
plans to file an Investigational New Drug Application ("IND") with the FDA in
the second half of 1998, with clinical evaluations beginning shortly thereafter.
Long-Term Research and Development
The Company's long-term research and development activities are focused on
the identification and development of novel therapeutic and diagnostic agents
for the treatment of viral diseases, cancer, immunologic dysfunction, diseases
of the skin, hormonal therapy and cardiovascular diseases.
The Company is engaged in two research areas that involve nucleic acids.
One area is based on extending the library of nucleoside analogs through new
synthesis and screening efforts. This is a proven approach which led to the
identification of ribavirin by the Company and to other nucleoside therapeutics
by other companies. The second area is the use of "antisense" oligonucleotide
technology. This approach seeks to block the undesirable expression of genetic
material in a highly selective way through the construction of short sequences
of nucleotides which uniquely bind and inactivate the disease-causing genetic
material. Both these approaches take advantage of the Company's knowledge base
in nucleic acids.
There can be no assurance of the results of any of the Company's research
and development efforts or the ultimate commercial success of any of the
products in development.
MARKETING AND CUSTOMERS
The Company markets its pharmaceutical products in some of the most
developed pharmaceutical markets, including the United States, Canada and
Western Europe, as well as developing markets, including Russia, Eastern Europe
and Latin America. The Company adjusts its marketing strategies according to the
individual markets in which it operates. The Company believes its marketing
strategy is distinguished by flexibility, allowing the Company to successfully
market a wide array of pharmaceutical products within diverse regional markets
as well as certain drugs on a worldwide basis.
The Company has a marketing and sales staff of approximately 2,000 persons,
including sales representatives in North America, Latin America, Western Europe
and Eastern Europe, who promote its pharmaceutical products. As part of its
marketing program for pharmaceuticals, the Company uses direct mailings,
advertises in trade and medical periodicals, exhibits products at medical
conventions, sponsors medical education symposia and sells through distributors
in countries where it does not have its own sales staff.
In the United States, the Company currently promotes its pharmaceutical
products to physicians through its own sales force. These products are
distributed to drug stores and hospitals through wholesalers. In Canada, the
Company has its own sales force and promotes and sells directly to physicians,
hospitals, wholesalers and large drug store chains. In Latin America,
principally Mexico and Argentina, the Company promotes to physicians and
distributes products either directly or indirectly to hospitals and pharmacies.
The Company's Spanish and Dutch subsidiaries promote and sell pharmaceutical
products through their own sales forces to physicians, hospitals, retail
outlets, pharmacies and wholesalers. In other Western European markets,
particularly the United Kingdom and Germany, sales forces have recently been
established and distribution methods are in transition as ICN affiliates are
formed.
ICN Yugoslavia sells a broad range of pharmaceutical and other products in
Yugoslavia through approximately 30 wholesalers, six sales offices and 85 sales
representatives. In December 1995, the
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<PAGE> 61
United Nations Security Council adopted a resolution that suspended economic
sanctions imposed on Yugoslavia. The suspension of most economic sanctions
enabled ICN Yugoslavia to resume exporting certain of its product lines to
Russia, other Eastern European markets, Africa, the Middle East and the Far
East. However, in response to continued violence by Yugoslavian government
forces against pro-independence Albanian militants in the province of Kosovo, on
June 8, 1998, the United States announced a ban on new American investments in
Yugoslavia and a freeze on that country's assets in the United States. During
1997, approximately 80% or $162 million of ICN Yugoslavia's domestic sales were
to government-sponsored entities of Yugoslavia. Future domestic sales by ICN
Yugoslavia could be dependent on the ability of the Company to resolve its
current dispute with the Yugoslavian government, and the Yugoslavian government
to continue to subsidize purchases of pharmaceutical products. See "Risk
Factors -- Risk of Operations in Yugoslavia."
The Company's sales and marketing organizations are in various stages of
development in Russia, Hungary, Poland and the Czech Republic. In Russia, the
lower-priced generic domestic product line is sold through a network of
distributors and their agents which account for approximately 90% of in-market
sales. Products imported from other subsidiaries as branded generics or
proprietary drugs are promoted to physicians through the Company's own sales
force to create demand and are distributed to pharmacies and hospitals through
distributors and wholesalers. There are currently over 400 personnel in Russia
supporting the sales and marketing function. ICN Hungary, ICN Poland and ICN
Czech Republic continue to develop sales and marketing organizations structured
for their specific market opportunities.
The research chemical and diagnostic product lines are sold worldwide
primarily through the Company's mail order catalogs, with additional sales being
generated through affiliates and a network of distributors. The Company's
customer group for research products is principally composed of biomedical
research institutions, such as universities, the National Institutes of Health,
pharmaceutical companies and, to a lesser extent, hospitals. The Company has a
sales and marketing organization of approximately 230 persons for its research
products, including approximately 130 persons in the United States and Canada,
approximately 95 in Europe and the balance in Australia.
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors, many of whom have substantially greater capital resources and
marketing capabilities and larger research and development staffs and facilities
than the Company, are actively engaged in marketing products similar to those of
the Company and in developing new products similar to those proposed to be
developed and sold by the Company. The Company believes that many of its
competitors spend significantly more on research and development related
activities than the Company spends. Competitive factors vary by product line and
customer and include service, product availability and performance, price and
technical capabilities. The Company does business in an industry characterized
by extensive and ongoing research efforts. Others may succeed in developing
products that are more effective than those presently marketed or proposed for
development by the Company. Progress by other researchers in areas similar to
those explored by the Company may result in further competitive challenges.
In early 1996, MedImmune, Inc. began marketing RespiGam(R), a prophylactic
drug (as opposed to a therapeutic drug such as ribavirin) for the treatment of
RSV in the United States. The Company is aware of several other ongoing research
and development programs which are attempting to develop new prophylactic and
therapeutic products for treatment of RSV. The Company is unable to evaluate
whether RespiGam(R) or the other technology being developed in these programs
poses a threat to the Company's current market position in the treatment of RSV
or its revenue streams. In addition, a number of companies and researchers are
engaged in developmental efforts for the treatment of hepatitis C, including
through the use of protease inhibitors.
The Company may also face increased competition from manufacturers of
generic pharmaceutical products when patents covering certain of its currently
marketed products expire.
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FACILITIES
The following are the principal facilities of the Company and its
subsidiaries:
<TABLE>
<CAPTION>
OWNED OR SQUARE
LOCATION PURPOSE LEASED FOOTAGE
-------- ------------------------------------ -------- -------
<S> <C> <C> <C>
NORTH AMERICA
Costa Mesa, California.......... Corporate headquarters and Owned 178,000
administrative offices
Irvine, California.............. Manufacturing facility Leased 27,000
Orangeburg, New York............ Manufacturing facility Owned 100,000
Aurora, Ohio.................... Manufacturing and repackaging Leased 67,000
facility
Bryan, Ohio..................... Warehouse and manufacturing facility Owned 37,000
Humacao, Puerto Rico............ Offices and manufacturing facility Owned 410,000
Montreal, Canada................ Offices and manufacturing facility Owned 93,519
LATIN AMERICA
Buenos Aires, Argentina......... Offices and manufacturing facility Owned 27,500
Mexico City, Mexico............. Offices and manufacturing facility Owned 220,000
WESTERN EUROPE
Brussels, Belgium............... Sales office Leased 6,323
Paris, France................... Sales office Leased 2,658
Eschwege, Germany............... Offices and manufacturing facility Owned 13,278
Opera, Italy.................... Sales office and warehouse Owned 153,777
Zoetermeer, The Netherlands..... Offices and manufacturing facility Owned 23,430
Barcelona, Spain................ Offices and manufacturing facility Owned 93,991
Basingstoke, United Kingdom..... Administrative office Leased 3,300
EASTERN EUROPE
Prague, Czech Republic.......... Offices and manufacturing facility Owned 259,000
Budapest, Hungary............... Administrative and sales office Leased 8,740
Tiszavasvari, Hungary........... Offices and manufacturing facility Owned 559,465
Rzeszow, Poland................. Offices and manufacturing facility Owned 397,775
Belgrade, Yugoslavia............ Offices and manufacturing facility Owned 781,000
Chelyabinsk, Russia............. Offices and manufacturing facility Owned 166,534
Kursk, Russia................... Offices and manufacturing facility Owned 167,791
Moscow, Russia.................. Eastern European headquarters Owned 102,400
Moscow, Russia.................. Administrative and sales office Leased 8,450
St. Petersburg, Russia.......... Offices and manufacturing facility Owned 319,102
Tomsk, Russia................... Offices and manufacturing facility Owned 294,582
Yoshkar-Ola, Russia............. Offices and manufacturing facility Owned 142,397
ASIA/AUSTRALIA/AFRICA
Wuxi, China..................... Offices and manufacturing facility Owned 112,750
Sydney, Australia............... Sales office Leased 10,650
</TABLE>
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The Company manufactures or will manufacture pharmaceuticals at 19
facilities. The Humacao, Puerto Rico plant is currently being leased to Roche
under a two year lease which expires in August 1999. After the expiration of the
lease, the Company intends to use the Humacao plant to produce pharmaceutical
products. The Company believes it has sufficient manufacturing capacity to meet
its needs for the foreseeable future. All of the manufacturing facilities that
require current Good Manufacturing Practices approval from the FDA or foreign
agencies have obtained such approval.
The Company subcontracts all of the manufacture of bulk ribavirin to third
party suppliers. Most of the finishing and packaging of ribavirin is done by the
Company and the balance by third party subcontractors. The Company believes that
capacities of these manufacturers are sufficient to meet the current demand for
ribavirin.
Manufacturing of the Company's research chemical products is chiefly
carried out in three domestic facilities and one foreign facility: Irvine,
California (radiochemicals), Orangeburg, New York (diagnostic and
immunobiologicals), Aurora, Ohio (biochemicals and immuno-biologicals) and
Eschwege, Germany (chromatography products).
EMPLOYEES
As of December 31, 1997, the Company employed 15,744 persons. Of such
employees, the Company employed 10,676 in production, 2,168 persons in sales and
marketing, 587 in research and development, and 2,313 in general and
administrative matters. All of the employees employed by ICN Yugoslavia and
Alkaloida, 1,620 of the employees of ICN Russia, St. Petersburg, 708 of the
employees of ICN Russia, Chelyabinsk, 227 of the employees of the Company's
Mexican subsidiaries, 238 employees of the Company's Spanish subsidiary and 26
employees of the Company's German subsidiary are covered by collective
bargaining agreements, or similar agreements. National labor laws in some
foreign countries in which the Company has substantial operations, including
Yugoslavia, Russia and Spain, govern the amount of wages and benefits paid to
employees and establish severance and related provisions. The Company currently
considers its relations with its employees to be satisfactory and has not
experienced any work stoppages, slowdown or other serious labor problems which
have materially impeded its business operations.
LICENSES, PATENTS AND TRADEMARKS (PROPRIETARY RIGHTS)
The Company may be dependent on the protection afforded by its patents
relating to ribavirin and no assurance can be given as to the breadth or degree
of protection which these patents will afford the Company. The Company has
patent rights in the United States expiring in July 1999 relating to the use of
ribavirin to treat specified viral diseases. Also, the Drug Price Competition
and Patent Term Restoration Act of 1984 (the Waxman-Hatch Act) provides for the
award of exclusivity for a period of three years from the date of approval of
NDAs containing significant new clinical studies for products whose patent
protection would otherwise expire. A request for such an award has been made
subsequent to the approval of the Combination Therapy for the treatment of
relapsed patients. The FDA Modernization Act of 1997 provides for the award of
six months of additional exclusivity following the submission to the FDA of data
from appropriate studies in pediatric patients. Studies that qualify under this
provision are planned. The Company has patents in certain foreign countries,
including Japan, covering the antiviral use of ribavirin, for which coverage and
expiration varies and which patents expire at various times through June 2005.
The Company has no, or limited, patent rights relating to the antiviral use of
ribavirin in certain foreign countries where ribavirin is currently, or in the
future may be, approved for commercial sale, including countries in the European
Union. However, the Combination Therapy was granted a favorable review
classification through the Concertation Procedure for regulatory approval within
the European Union. As a result, if approval is obtained to market the
Combination Therapy, the data submitted to obtain such approval cannot be
referenced in support of another's application to register a competing product
for the approved indications for a period of no less than six and not more than
ten years. Any such application must be on the basis of independently generated
data of
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substantially equal quality, thus providing a significant barrier to entry for
any generic substitutes of the Combination Therapy in the European Union.
Marketing approvals in certain foreign countries provide an additional
level of protection for products approved for sale in such countries. As a
general policy, the Company expects to seek patents, where available, on
inventions concerning novel drugs, techniques, processes or other products which
it may develop or acquire in the future. However, there can be no assurance that
any patents applied for will be granted, or that, if granted, they will have
commercial value or as to the breadth or the degree of protection which these
patents, if issued, will afford the Company. The Company intends to rely
substantially on its unpatented proprietary know-how, but there can be no
assurance that others will not develop substantially equivalent proprietary
information or otherwise obtain access to the Company's know-how. Patents for
pharmaceutical compounds are not available in certain countries in which the
Company markets its products.
ICN Yugoslavia manufactures and sells two of its top-selling antibacterial
products, Pentrexyl(R) and Palitrex(R), under licenses from Bristol-Myers Squibb
Co. and Lilly, respectively. See "-- Products."
Many of the names of the Company's products are registered trademarks in
the United States, Yugoslavia, Mexico, Canada, Spain, The Netherlands and other
countries. The Company anticipates that the names of future products will be
registered as trademarks in the major markets in which it will operate. Other
organizations may in the future apply for and be issued patents or own
proprietary rights covering technology which may become useful to the Company's
business. The extent to which the Company at some future date may need to obtain
licenses from others is not known.
GOVERNMENT REGULATION
The Company is subject to licensing and other regulatory control by the
FDA, the Nuclear Regulatory Commission, other Federal and state agencies and
comparable foreign governmental agencies.
FDA approval must be obtained in the United States and approval must be
obtained from comparable agencies in other countries prior to marketing or
manufacturing new pharmaceutical products for use by humans. Obtaining FDA
approval for new products and manufacturing processes can take a number of years
and involve the expenditure of substantial resources. To obtain FDA approval for
the commercial sale of a therapeutic agent, the potential product must undergo
testing programs on animals, the data from which is used to file an
Investigational New Drug Application with the FDA. In addition, there are three
phases of human testing. Phase I: safety tests for human clinical experiments,
generally in normal, healthy people; Phase II: expanded safety tests conducted
in people who are sick with the particular disease condition that the drug is
designed to treat; and Phase III: greatly expanded clinical trials to determine
the effectiveness of the drug at a particular dosage level in the affected
patient population. The data from these tests is combined with data regarding
chemistry, manufacturing and animal toxicology and is then submitted in the form
of a NDA to the FDA. The preparation of a NDA requires the expenditure of
substantial funds and the commitment of substantial resources. The review by the
FDA could take up to several years. If the FDA determines that the drug is safe
and effective, the NDA is approved. No assurance can be given that authorization
for the commercial sale by the Company of any new drugs or compounds for any
application will be secured in the United States or any other country, or that,
if such authorization is secured, those drugs or compounds will be commercially
successful. The FDA in the United States and other regulatory agencies in other
countries also periodically inspect manufacturing facilities.
The Company is subject to price control restrictions on its pharmaceutical
products in the majority of countries in which it operates. To date, the Company
has been affected by pricing adjustments in Spain and by the lag in allowed
price increases in Yugoslavia and Mexico, which has
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created lower sales in United States dollars and reductions in gross profit.
Future sales and gross profit could be materially affected if the Company is
unable to obtain price increases commensurate with the levels of inflation.
LITIGATION, GOVERNMENT INVESTIGATIONS AND OTHER MATTERS
Litigation: In a Consolidated Amended Class Action Complaint for
Violations of Federal Securities Laws (the "Securities Complaint") (the "Class
Action"), plaintiffs allege that the Company, two directors and an officer
(including the Chairman and Chief Executive Officer of the Company) made various
deceptive and untrue statements of material fact and omitted material facts
regarding the Company's 1994 Hepatitis C NDA in connection with: (i) the Merger
of ICN, SPI, Viratek and Biomedicals in November 1994 and the issuance of
convertible debentures in connection therewith; and (ii) information provided to
the public. Plaintiffs also allege that the Chairman of the Company traded on
inside information relating to the 1994 Hepatitis C NDA. The Securities
Complaint asserts claims for alleged violations of Sections 11 and 15 of the
Securities Act, Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5
promulgated thereunder. Plaintiffs motion seeking the certification of (i) a
class of persons who purchased ICN securities from November 10, 1994 through
February 17, 1995; and (ii) a subclass consisting of persons who owned SPI
and/or Biomedicals common stock prior to the Merger was granted. On July 23,
1997, plaintiffs and defendants entered into a Memorandum of Agreement to Settle
Action, whereby the parties agreed to settle the Class Action for $15.0 million
in cash. The settlement was confirmed by the district court, the settlement
amount was paid, and an order and judgment dismissing the Class Action with
prejudice was entered by the district court on February 24, 1998.
Investigations: Pursuant to the Order, a private investigation is being
conducted by the Commission with respect to certain matters pertaining to the
status and disposition of the 1994 Hepatitis C NDA. As set forth in the Order,
the investigation concerns whether, during the period June 1994 through February
1995, the Company, persons or entities associated with it and others, in the
offer and sale or in connection with the purchase and sale of Company
securities, engaged in possible violations of Section 17(a) of the Securities
Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, by having
possibly: (i) made false or misleading statements or omitted material facts with
respect to the status and disposition of the 1994 Hepatitis C NDA; or (ii)
purchased or sold ICN common stock while in possession of material, non-public
information concerning the status and disposition of the 1994 Hepatitis C NDA;
or (iii) conveyed material, non-public information concerning the status and
disposition of the 1994 Hepatitis C NDA, to other persons who may have purchased
or sold ICN stock. The Company has cooperated and continues to cooperate with
the Commission in its investigation. On January 13, 1998, the Company received a
letter from the District Office stating the District Office's intention to
recommend to the Commission that it authorize the institution of a civil action
against the Company, Milan Panic, Chairman and Chief Executive Officer of the
Company and a former senior executive of the Company. As set forth in the
letter, the District Office seeks the authority to commence a civil action to
enjoin the Company from future violations of Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder and to impose a civil penalty of up to $500,000 on the
Company. In regard to Mr. Panic, the District Office seeks the authority to
commence a civil action (i) to enjoin Mr. Panic from future violations of
Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule
10b-5 thereunder; (ii) for disgorgement of approximately $390,000; (iii) for
prejudgment interest; (iv) for a civil penalty pursuant to Section 21A of the
Exchange Act that cannot exceed three times any amount disgorged, and (v) for an
order barring Mr. Panic from serving as an officer or director of a public
company pursuant to Section 21 of the Exchange Act.
On January 30, 1998, counsel for the Company and Mr. Panic filed
submissions with the Commission urging that it reject the District Office's
request. On August 27, 1998, the Company's counsel was informed by the District
Office that (i) the District Office had withdrawn its request for authorization
to commence an enforcement action against Mr. Panic with respect to allegations
of
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illegal insider trading and the remedies of disgorgement, interest, and monetary
penalties attendant thereto; and (ii) the Commission had granted the District
Office's request for authorization to commence an enforcement action against the
Company and Mr. Panic alleging false or misleading statements or omissions with
respect to the status and disposition of the 1994 Hepatitis C NDA, including the
remedies of injunctive relief and a civil penalty not to exceed $500,000 against
the Company, and injunctive relief and a director and officer bar against Mr.
Panic.
The Company has received Subpoenas from a Grand Jury in the United States
District Court, Central District of California requesting the production of
documents covering a broad range of matters over various time periods. In March
1998, the Company was advised that the office of the United States Attorney for
the Central District of California, is considering the Company, Mr. Panic and a
former officer of the Company targets of the investigation. The Company was also
advised that two senior executive officers of the Company, a former officer of
the Company and a current employee of the Company are considered subjects of the
investigation. The United States Attorney's office has advised counsel for the
company that the areas of its investigation include disclosures made and not
made concerning the 1994 Hepatitis C NDA to the public and all other third
parties; stock sales for the benefit of Mr. Panic following receipt on November
28, 1994 of a letter from the FDA informing the Company that the 1994 Hepatitis
C NDA had been found not approvable; possible violations of the economic embargo
imposed by the United States upon the Federal Republic of Yugoslavia, based upon
alleged sales by the Company and Mr. Panic of stock belonging to ICN employees;
and, with respect to Mr. Panic, personal disposition of assets of entities
associated with Yugoslavia, including possible misstatements and/or omissions in
federal tax filings. The Company has and continues to cooperate in the Grand
Jury investigation. A number of current and former employees of the Company have
been interviewed by the government in connection with the investigation.
Recently, the United States Attorney's office issued subpoenas requiring various
current and former officers and employees of the Company to testify before the
Grand Jury. Certain current and former employees testified before the Grand Jury
beginning in July 1998.
The ultimate outcome of the Commission and Grand Jury investigations cannot
be predicted and any unfavorable outcome could have a material adverse effect on
the Company.
The Company is a party to a number of other pending lawsuits or subject to
a number of threatened lawsuits, including two complaints alleging sexual
harassment that also name Mr. Panic as a defendant. In the opinion of
management, the ultimate resolution will not have a material effect on the
Company's consolidated financial position, results of operations or liquidity.
However, there can be no assurance that any unfavorable outcome of any such
matter would not have a material adverse effect on the Company.
Product Liability Insurance: The Company could be exposed to possible
claims for personal injury resulting from allegedly defective products. While to
date no material adverse claim for personal injury resulting from allegedly
defective products has been successfully maintained against the Company, a
substantial claim, if successful, could have a material adverse effect on the
Company.
Environmental Issues in Hungary: In connection with the acquisition of
Alkaloida, an environmental remediation fund (the "Fund") of approximately $7
million was established by the government from the proceeds that the Company
tendered. The Fund will be used to remediate a waste disposal site adjacent to
Alkaloida, contaminated by past plant operations. In 1997, ownership of the
waste disposal site was transferred to the Hungarian government and the Company
was released from all future liability associated with the site.
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MANAGEMENT
The following individuals are the members of the Board of Directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH THE COMPANY
- ---- --- ------------------------------------------
<S> <C> <C>
Milan Panic............................... 68 Chairman of the Board and Chief Executive
Officer
Norman Barker, Jr......................... 75 Director
Birch E. Bayh............................. 70 Director
Alan F. Charles........................... 60 Director
Roger Guillemin, M.D., Ph.D. ............. 74 Director
Adam Jerney............................... 56 Director, President and Chief Operating
Officer
Weldon B. Jolley, Ph.D. .................. 72 Director
Andrei Kozyrev, Ph.D. .................... 47 Director
Jean-Francois Kurz........................ 63 Director
Thomas H. Lenagh.......................... 79 Director
Charles T. Manatt......................... 61 Director
Stephen D. Moses.......................... 63 Director
Michael Smith, Ph.D. ..................... 65 Director
Roberts A. Smith, Ph.D. .................. 69 Director
Richard W. Starr.......................... 77 Director
Devron Averett, Ph.D. .................... 48 Senior Vice President -- Research and
Development
John E. Giordani.......................... 55 Executive Vice President -- Chief
Financial Officer and Corporate Controller
John R. Julian............................ 53 Senior Vice President -- Worldwide
Marketing
Bill A. MacDonald......................... 50 Executive Vice President -- Strategic
Planning
David C. Watt............................. 45 Executive Vice President -- General
Counsel and Corporate Secretary
Richard A. Meier.......................... 39 Senior Vice President -- Treasurer and
Corporate Finance
Jack L. Sholl............................. 56 Senior Vice President -- Human Resources
</TABLE>
Milan Panic, the founder of ICN, has been Chairman of the Board and Chief
Executive Officer of the Company since its inception in 1960; except for a leave
of absence from July 14, 1992 to March 4, 1993 while he was serving as Prime
Minister of Yugoslavia and a leave of absence from October 1979 to June 1980.
Mr. Panic served as Chairman of the Board and Chief Executive Officer of SPI,
Viratek and Biomedicals from their respective inceptions (except for such leaves
of absence) prior to the Merger, and he may be deemed to be a "control person"
of the Company.
Norman Barker, Jr., has served as a director of the Company since 1988. Mr.
Barker is the retired Chairman of the Board of First Interstate Bank of
California and Former Vice Chairman of the Board of First Interstate Bancorp.
Mr. Barker joined First Interstate Bank of California in 1957 and was elected
President and Director in 1968, Chief Executive Officer in 1971 and Chairman of
the Board in 1973. He retired as Chairman of the Board at the end of 1985.
Birch E. Bayh, has served as a director of ICN since 1992. Senator Bayh is
a senior partner in the Washington, D.C. law firm of Oppenheimer, Wolff,
Donnelly and Bayh, L.L.P. He was previously head of the Washington, D.C. office
of Bayh, Connaughton & Stewart, L.L.P. (1991-1997) and Rivkin, Radler, Bayh,
Hart & Kremer (1985-1991), and a partner of the Indianapolis, Indiana and
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Washington, D.C. law firm of Bayh, Tabbert & Capehart (1981-1985). From 1963 to
1981, Mr. Bayh served as United States Senator from the State of Indiana.
Alan F. Charles has served as a director of the Company since 1986. Mr.
Charles was Vice Chancellor of University Relations at the University of
California, Los Angeles from 1980 to 1993 and served in various administrative
capacities at that University since 1972. Mr. Charles is now an independent
consultant in higher education management.
Roger Guillemin, M.D., Ph.D., has served as a director of the Company since
1989. Dr. Guillemin has been a Distinguished Scientist at the Whittier Institute
in La Jolla, California from March 1989 to 1995 and was Resident Fellow and
Chairman of the Laboratories for Neuroendocrinology at the Salk Institute in La
Jolla, California, and Adjunct Professor of Medicine at the Medical School of
the University of California at San Diego. Dr. Guillemin was awarded the Nobel
Prize in Medicine in 1977 and, in the same year, was presented the National
Medal of Science by the President of the United States. He was affiliated with
the Department of Physiology at Baylor College of Medicine in Houston, Texas
from 1952 to 1970. Dr. Guillemin is a member of the National Academy of
Sciences, and a Fellow of the American Association for the Advancement of
Science. Dr. Guillemin has also served as President of the American Endocrine
Society.
Adam Jerney has served as a director of the Company since 1992. Mr. Jerney
is currently President and Chief Operating Officer of ICN. He served as Chairman
of the Board and Chief Executive Officer of ICN, SPI, Viratek and Biomedicals
from July 14, 1992 to March 4, 1993 during Milan Panic's leave of absence. Mr.
Jerney joined ICN in 1973 as Director of Marketing Research in Europe and
assumed the position of General Manager of ICN Netherlands in 1975. In 1981, he
was elected Vice President -- Operations and in 1987 he became President and
Chief Operating Officer of SPI. He became President of the Company in 1997.
Prior to joining ICN, he spent four years with F. Hoffmann-La Roche & Company.
Weldon B. Jolley, Ph.D., has served as a director of the Company since
1960. Dr. Jolley is President of Golden Opportunities and was President of the
Nucleic Acid Research Institute, a former division of ICN, from 1985 to 1989.
Dr. Jolley was a Vice President of ICN until 1991. Prior to that, he was, for
eleven years, Professor of Surgery at the Loma Linda University School of
Medicine in Loma Linda, California and a physiologist at the Veterans Hospital
in Loma Linda, California.
Andrei Kozyrev, Ph.D., has served as a director of ICN since 1998. Dr.
Kozyrev currently serves as a member of the Russian Parliament. Dr. Kozyrev
served as the Minister of Foreign Affairs of the first democratic government of
the Russian Federation from 1990 until 1992. After dissolution of the Soviet
Union, Dr. Kozyrev was appointed Foreign Minister and served until January 1996.
Dr. Kozyrev earned his Ph.D. in History. He is also an author, having published
several works on the Russian economy and international affairs.
Jean-Francois Kurz has served as a director of the Company since 1989. Mr.
Kurz was a Member of the Board of Directors and the Executive Committee of the
Board of DG Bank Switzerland Ltd. from 1990 to 1992. In 1988 and 1989, Mr. Kurz
served as a General Manager of TDB American Express Bank of Geneva and, from
1969 to 1988, he was Chief Executive Officer of Banque Gutzweiler, Kurz,
Bungener in Geneva. Mr. Kurz is also Chairman of the Board and a director of
Banque Pasche S.A., Geneva.
Thomas H. Lenagh has served as a director of the Company since 1979. Mr.
Lenagh is an independent financial advisor. He was Chairman of the Board of
Greiner Engineering, Inc. from 1982 to 1985. Mr. Lenagh served as Financial Vice
President to the Aspen Institute from 1978 to 1980, and since then as an
independent financial consultant. From 1964 to 1978, he was Treasurer of the
Ford Foundation. Mr. Lenagh is also a director of Adams Express Company, U.S.
Life Corporation, SCI Systems, Inc., Gintel Funds, Irvine Sensors, Inc., CML,
Inc., Clemente Global Funds, Franklin Quest, and V Band Corp.
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Charles T. Manatt has served as a director of the Company since 1992. Mr.
Manatt is a partner in the law firm of Manatt, Phelps & Phillips, of which he
was a founder in 1965. Mr. Manatt served as Chairman of the Democratic National
Committee from 1981 to 1985. Mr. Manatt is also a director of Federal Express
and Comsat.
Stephen D. Moses has served as a director of the Company since 1988. Mr.
Moses is Chairman of the Board of Stephen Moses Interests. He was formerly
Chairman of the Board of National Investment Development Corporation and
Brentwood Bank in Los Angeles, California and a member of the National Advisory
Board of the Center for National Policy. Mr. Moses serves on the Board of
Visitors of Hebrew Union College, as well as the Board of Trustees of Franklin
and Marshall College and the UCLA Foundation. From 1967 to 1971, Mr. Moses was
an executive of the Boise Cascade Corporation, serving in several capacities,
including President of Boise Cascade Home and Land Corporation. In the early
1970's, Mr. Moses was President of Flagg Communities, Inc.
Michael Smith, Ph.D., has served as a director of ICN since 1994. Dr. Smith
is Director of the Biotechnology Laboratory, an interdisciplinary unit and a
privately funded research institute at the University of British Columbia. He is
a Peter Wall Distinguished Professor of Biotechnology and University Professor
at the University. In 1993, Dr. Smith received the Nobel Prize in Chemistry. He
has been a Career Investigator of the Medical Research Council of Canada since
1966 and is a member of the American Endocrine Society.
Roberts A. Smith, Ph.D., has served as a director of ICN since 1960. Dr.
Smith was President of Viratek and Vice President -- Research and Development of
SPI through 1992. Dr. Smith was also a director of the Nucleic Acid Research
Institute from 1985 to 1989. For more than eleven years, Dr. Smith was Professor
of Chemistry and Biochemistry at the University of California at Los Angeles.
Dr. Smith is also a director of PLC Systems.
Richard W. Starr has served as a director of ICN since 1983. Mr. Starr is
the retired Executive Vice President and Chief Credit Officer Worldwide of First
Interstate Bank of California. Mr. Starr spent 31 years with First Interstate
before retiring in 1983 and has over 44 years of experience in commercial
banking.
Devron Averett, Ph.D., joined ICN in May 1996 as Senior Vice President,
Research and Development. From 1995 to 1996, Dr. Averett was head of the
Department of Molecular and Cellular Virology at Glaxo Wellcome Research
Laboratories. From 1974 to 1996, Dr. Averett held positions of increasing
responsibility in the division of Experimental Therapy at Glaxo Wellcome Inc.
and its predecessor, Burroughs Wellcome Co. Dr. Averett holds his Ph.D. in
microbiology and immunology from the University of North Carolina at Chapel
Hill.
John E. Giordani joined ICN in 1987 after serving as Vice President and
Corporate Controller of Revlon, Inc., in New York, New York since February 1982.
Prior to the Merger, Mr. Giordani's primary duties were as Chief Financial
Officer of ICN. From 1978 until February 1982, he held Deputy and Assistant
Corporate Controller positions with Revlon, Inc. He was with Peat, Marwick,
Mitchell & Co. from 1969 to 1978.
John R. Julian joined ICN in October 1994 as Vice President, Worldwide
Marketing and was promoted to Senior Vice President in May 1995. From 1989 to
1994, Mr. Julian was Vice President of United States Marketing for Marion
Merrell Dow. From 1985 to 1989, Mr. Julian was Director, Global Commercial
Development of Marion Merrell Dow. From 1967 to 1985, Mr. Julian held positions
of increasing responsibility with Marion Merrell Dow and its predecessor
companies.
Bill A. MacDonald joined ICN in March 1982. Prior to the Merger, he was
President of Biomedicals since March 1993. From 1980 to 1982, he served as Tax
Manager of Pertec Computer Corporation. From 1973 to 1980, he was Tax Manager
and Assistant Treasurer of Republic Corporation.
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David C. Watt joined ICN in March 1988 as Assistant General Counsel and
Secretary. He was elected Vice President -- Law and Secretary in December 1988.
In January 1992, Mr. Watt was promoted to Senior Vice President of ICN. In
February 1994, Mr. Watt was elected Executive Vice President, General Counsel
and Secretary of ICN. From 1986 to 1987, he was President and Chief Executive
Officer of Unitel Corporation. He also served as Executive Vice President and
General Counsel and Secretary of Unitel Corporation during 1986. From 1983 to
1986, he served with ICA Mortgage Corporation as Vice President, General Counsel
and Corporate Secretary. Prior to that time, he served with Central Savings
Association as Assistant Vice President and Associate Counsel from 1981 to 1983
and as Assistant Vice President from 1980 to 1981.
Richard A. Meier joined ICN in May 1998 as Senior Vice
President -- Treasurer and Corporate Finance. From October 1996 to May 1998, he
served in various capacities with the investment banking firm of Schroder & Co.
Inc. From 1994 to 1996, he was employed by Smith Barney, Inc. Prior to that, he
served in various banking capacities at other firms.
Jack L. Sholl joined ICN in August 1987 as Vice President, Public
Relations. He was promoted to Senior Vice President of SPI in January 1991 and
was elected Senior Vice President -- Corporate Human Resources in September
1994. From 1979 to August 1987, he served as Director of Financial and Media
Communications with Warner-Lambert Company of Morris Plains, New Jersey, and
from 1973 to 1979 as Manager, Department of Communications with Equibank, N.A.
of Pittsburgh, Pennsylvania. Prior to that time, he served on the Public
Relations staff of the New York Stock Exchange (1971-1973) and in editorial
positions with The Associated Press (1968-1971), the last as supervising
Business and Financial Editor in New York.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The New Notes will be issued under an Indenture (the "Indenture"), to be
dated as of August 20, 1998, by and between the Company and U.S. Trust Company
of New York, as trustee (the "Trustee"). Upon the issuance of the New Notes or
the effectiveness of a Shelf Registration Statement (as defined below), the
Indenture will be subject to and governed by the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). As used in this "Description of the New
Notes" section, references to the Notes means the New Notes and the "Company"
means ICN Pharmaceuticals, Inc., but not any of its subsidiaries (unless the
context otherwise requires).
The following is a summary of the material provisions of the Indenture.
This summary does not purport to be complete and is subject to the detailed
provisions of, and is qualified in its entirety by reference to, the Trust
Indenture Act, the Notes and the Indenture, including the definitions of certain
terms contained therein and including those terms made part of the Indenture by
reference to the Trust Indenture Act. A copy of the proposed form of Indenture
may be obtained from the Company. The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." Reference
is made to the Indenture for the full definition of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
MATURITY AND INTEREST
The Notes will be unsecured senior obligations of the Company limited in
aggregate principal amount to $350.0 million ($200.0 million of which were
issued in the Offering). The Notes will mature on November 15, 2008. Interest on
the Notes will accrue at the rate of 8 3/4% per annum and will be payable
semi-annually in arrears on May 15 and November 15 in each year, commencing on
November 15, 1998, to holders of record on the immediately preceding May 1 and
November 1, respectively. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of the original issuance of the Notes (the "Issue Date"). Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable at
the office or agency of the Company maintained for such purpose in The City of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the holders of the Notes at their respective addresses as set
forth in the register of holders of Notes. Until otherwise designated by the
Company, the Company's office or agency in The City of New York will be the
office of the Trustee maintained for such purpose. The Notes will be issued in
fully registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof. No service charge will be made for any transfer,
exchange or redemption of Notes, except in certain circumstances for any tax or
other governmental charge that may be imposed in connection therewith.
REDEMPTION
Mandatory Redemption. The Notes are not subject to any mandatory sinking
fund redemption prior to maturity.
Optional Redemption. At any time or from time to time on or prior to
November 15, 2001, the Company may, at its option, redeem up to $70 million of
the aggregate principal amount of the Notes with the net proceeds of one or more
Public Equity Offerings, at a redemption price equal to 108.75% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
redemption; provided, however, that such redemption is effected within 90 days
after the consummation of any such Public Equity Offering.
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"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Capital Stock) of the Company pursuant to an
effective registration statement filed under the Securities Act.
Selection and Notice. If less than all of the Notes are to be redeemed at
any time, selection of the Notes to be redeemed will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not listed on a
securities exchange, on a pro rata basis or by lot or any other method as the
Trustee shall deem fair and appropriate; provided, however, that Notes redeemed
in part shall only be redeemed in integral multiples of $1,000. Notices of any
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at such
holder's registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed, and the Trustee shall authenticate and
mail to the holder of the original Note a new Note in principal amount equal to
the unredeemed portion of the original Note promptly after the original Note has
been cancelled. On and after the redemption date, interest will cease to accrue
on Notes or portions thereof called for redemption.
RANKING
The Notes will be general unsecured obligations of the Company. The Notes
will rank pari passu in right of payment with all unsecured senior indebtedness,
including the Company's 9 1/4% Senior Notes and senior to all subordinated
indebtedness of the Company. The Notes will be effectively subordinated to all
secured indebtedness of the Company to the extent of the assets securing such
indebtedness and will also be effectively subordinated to all indebtedness of
the Company's subsidiaries. As of June 30, 1998, the Company had approximately
$11.5 million of secured indebtedness outstanding and its subsidiaries had
aggregate indebtedness and other obligations of approximately $55.3 million
outstanding. See "Risk Factors -- Ranking of the Notes; Subsidiary Operations."
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Notes will have the
right, unless the Company has given a notice of redemption, subject to the terms
and conditions of the Indenture, to require the Company to offer to purchase all
or any portion (equal to $1,000 or an integral multiple thereof) of such
holder's Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase, in accordance with the terms set forth below (a "Change of Control
Offer").
Other debt instruments of the Company may in the future restrict the
Company's ability to purchase Notes pursuant to a Change of Control Offer.
Moreover, such debt instruments may contain a "change of control" provision that
is similar to the provision in the Indenture relating to a Change of Control,
and the occurrence of such a "change of control" would constitute a default
under such debt instruments. Such debt instruments may not permit the purchase
of the Notes absent consent of the lenders thereunder in the event of a Change
of Control. Notwithstanding the foregoing, the failure of the Company to effect
a Change of Control Offer would constitute an Event of Default under the
Indenture.
If the Company is unable to obtain the requisite consents and/or repay all
indebtedness which restricts the Company's ability to repurchase the Notes upon
the occurrence of a Change of Control, the Company may not be able to commence a
Change of Control Offer to purchase the Notes within 30 days of the occurrence
of the Change of Control. Such failure would constitute an Event of Default
under the Indenture. If a Change of Control were to occur, there can be no
assurance that the Company would have sufficient assets to first satisfy its
obligations under any other agreements
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relating to indebtedness, if accelerated, and then to purchase all of the Notes
that might be delivered by holders seeking to accept a Change of Control Offer.
On or before the 30th day following the occurrence of any Change of
Control, the Company shall mail to each holder of Notes at such holder's
registered address a notice stating: (i) that a Change of Control has occurred
and that such holder has the right to require the Company to purchase all or a
portion (equal to $1,000 or an integral multiple thereof) of such holder's Notes
at a purchase price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Purchase Date"), which shall be a business day, specified in
such notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed, (ii) the amount of accrued and unpaid interest, if
any, as of the Change of Control Purchase Date, (iii) that any Note not tendered
will continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Change of
Control Offer, any Notes accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest on the Change of Control Purchase Date, (v)
the procedures, consistent with the Indenture, to be followed by a holder of
Notes in order to accept a Change of Control Offer or to withdraw such
acceptance, and (vi) such other information as may be required by the Indenture
and applicable laws and regulations.
On the Change of Control Purchase Date, the Company will (x) accept for
payment all Notes or portions thereof tendered pursuant to the Change of Control
Offer, (y) deposit with the Paying Agent the aggregate purchase price of all
Notes or portions thereof accepted for payment, and (z) deliver or cause to be
delivered to the Trustee all Notes tendered pursuant to the Change of Control
Offer. The Paying Agent shall promptly mail to each holder of Notes or portions
thereof accepted for payment an amount equal to the purchase price for such
Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall
promptly authenticate and mail to each holder of Notes accepted for payment in
part a new Note equal in principal amount to any unpurchased portion of the
Notes, and any Note not accepted for payment in whole or in part shall be
promptly returned to the holder of such Note. On and after a Change of Control
Purchase Date, interest will cease to accrue on the Notes or portions thereof
accepted for payment, unless the Company defaults in the payment of the purchase
price therefor. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Purchase
Date.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Change
of Control Offer and will be deemed not to be in violation of any of the
covenants under the Indenture to the extent such compliance is in conflict with
such covenants.
CERTAIN COVENANTS
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or directly or indirectly guarantee or in any other manner become
directly or indirectly liable for ("incur") any Indebtedness (including Acquired
Debt), except that the Company may incur Indebtedness (including Acquired Debt)
if, at the time of, and immediately after giving pro forma effect to, such
incurrence of Indebtedness, the Consolidated Cash Flow Coverage Ratio of the
Company for the most recently ended four fiscal quarters would be at least 3.0
to 1.0.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(i) Senior Bank Debt of the Company or any of its Restricted
Subsidiaries, in an aggregate principal amount not to exceed at any time
outstanding the greater of (x) $50.0 million, and (y) the sum, at such
time, of (I) 85% of the consolidated book value of net accounts receivable
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and current notes receivable of the Company and the Restricted Subsidiaries
and (II) 60% of the consolidated book value of inventory of the Company and
the Restricted Subsidiaries;
(ii) Indebtedness of the Company represented by the Notes issued in
the Offering and the Exchange Notes;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
covered by any other clause of this paragraph which is outstanding on the
Issue Date ("Existing Indebtedness");
(iv) Indebtedness owed by any Restricted Subsidiary to the Company or
to another Restricted Subsidiary, or owed by the Company to any Restricted
Subsidiary; provided, however, that any such Indebtedness shall at all
times be held by a Person which is either the Company or a Restricted
Subsidiary; provided, further, however, that upon either (a) the transfer
or other disposition of any such Indebtedness to a Person other than the
Company or another Restricted Subsidiary or (b) the sale, lease, transfer
or other disposition of shares of Capital Stock (including by consolidation
or merger) of any such Restricted Subsidiary to a Person other than the
Company or another Restricted Subsidiary resulting in such Restricted
Subsidiary ceasing to be a Restricted Subsidiary, the incurrence of such
Indebtedness shall be deemed to be an incurrence that must be permitted by
this covenant other than by virtue of this clause (iv);
(v) Indebtedness of the Company or any Restricted Subsidiary arising
with respect to Interest Rate Agreement Obligations and Currency Agreement
Obligations incurred for the purpose of fixing or hedging interest rate
risk or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the terms of the Indenture to be
outstanding or with respect to any receivable or liability the payment of
which is determined by reference to a foreign currency;
(vi) Indebtedness represented by performance, completion, guarantee,
surety and similar bonds provided by the Company or any Restricted
Subsidiary in the ordinary course of business consistent with past
practice;
(vii) Any Indebtedness incurred in connection with or given in
exchange for the renewal, extension, substitution, refunding, defeasance,
refinancing or replacement, in whole or in part (a "refinancing"), of any
Indebtedness incurred as permitted under the first paragraph of this
covenant or any Indebtedness described in clauses (ii) or (iii) above and
this clause (vii) ("Refinancing Indebtedness"); provided, however, that (a)
the principal amount of such Refinancing Indebtedness shall not exceed the
principal amount (or accreted amount, if less) of the Indebtedness so
refinanced (plus the premiums and reasonable expenses to be paid in
connection therewith); (b) if the Weighted Average Life to Maturity of the
Indebtedness being refinanced is equal to or greater than the Weighted
Average Life to Maturity of the Notes, the Refinancing Indebtedness shall
have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced; (c)
with respect to Refinancing Indebtedness that is subordinated to the Notes,
such Refinancing Indebtedness shall be at least as subordinated in right of
payment to the Notes as, the Indebtedness being refinanced; and (d) the
Company or the obligor on such Refinancing Indebtedness shall be the
obligor on the Indebtedness being refinanced;
(viii) Indebtedness incurred by the Company or any Restricted
Subsidiary constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims or self-insurance;
(ix) Indebtedness of the Company or any Restricted Subsidiary arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, in each case incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary,
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other than Guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided that the maximum liability in respect
of such Indebtedness shall not exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition; and
(x) Indebtedness of the Company or any Restricted Subsidiary in
addition to that described in clauses (i) through (ix) above, and any
renewals, extensions, substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all such
Indebtedness incurred pursuant to this clause (x) does not exceed $35.0
million at any one time outstanding.
Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary or is merged with or into or consolidated with
the Company or a Restricted Subsidiary shall be deemed to have been incurred at
the time such Person becomes a Restricted Subsidiary or is merged with or into
or consolidated with the Company or a Restricted Subsidiary, and Indebtedness
which is assumed at the time of the acquisition of any asset shall be deemed to
have been incurred at the time of such acquisition.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make any Restricted Payment, unless at the time of and immediately
after giving effect to the proposed Restricted Payment (with the value of any
such Restricted Payment, if other than cash, to be determined reasonably and in
good faith by the Board of Directors of the Company):
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under "-- Limitation on Incurrence of Indebtedness"; and
(iii) the aggregate amount of all Restricted Payments made after the
Issue Date shall not exceed the sum of:
(a) an amount equal to 50% of the Company's aggregate cumulative
Consolidated Net Income accrued on a cumulative basis during the period
(treated as one accounting period) beginning on the Issue Date and
ending on the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income for such period shall be a
deficit, minus 100% of such deficit); plus
(b) the aggregate amount of all net cash proceeds received since
the Issue Date by the Company from the issuance and sale (other than to
a Restricted Subsidiary) of, or equity contribution with respect to,
Capital Stock (other than Disqualified Stock) and the principal amount
of Indebtedness of the Company or any Restricted Subsidiary issued or
incurred on or after the Issue Date that has been converted into or
exchanged for Capital Stock (other than Disqualified Stock), in any such
case to the extent that such proceeds are not used to redeem,
repurchase, retire or otherwise acquire Capital Stock or any
Indebtedness of the Company or any Restricted Subsidiary pursuant to
clause (ii) of the next paragraph; plus
(c) the amount of the net reduction in Restricted Investments
resulting from (x) the payment of dividends or the repayment in cash of
the principal of loans or the cash return on any Restricted Investment,
in each case to the extent received by the Company or any Restricted
Subsidiary, (y) the release or extinguishment of any guarantee of
Indebtedness which guarantee constituted a Restricted Investment, and
(z) in the case of Investments in Unrestricted Subsidiaries the
redesignation of Unrestricted Subsidiaries as Restricted
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Subsidiaries (valued as provided in the definition of "Investment"),
such aggregate amount of the net reduction in Restricted Investments not
to exceed the amount of Restricted Investments previously made by the
Company or any Restricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments.
The foregoing provisions will not prohibit, so long as no Default or Event
of Default is continuing, the following actions (collectively, "Permitted
Payments"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under the Indenture (which payment shall be deemed to have
been paid on such date of declaration for purposes of clause (iii) of the
preceding paragraph);
(ii) the redemption, repurchase, retirement or other acquisition of
any Capital Stock or any Indebtedness of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary) of, or equity
contribution with respect to, Capital Stock of the Company (other than any
Disqualified Stock);
(iii) cash dividends on the Common Stock of the Company paid in the
ordinary course consistent with past practice; provided that the Company
could incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "-- Limitation on
Incurrence of Indebtedness";
(iv) the redemption, repurchase or other acquisition of Capital Stock
of the Company issued to SmithKline Beecham plc or any other Person as
consideration for or in exchange for products used in the Company's
business in an amount not to exceed $40.0 million in the aggregate;
(v) other payments not otherwise permitted by the foregoing clauses
(i) through (iv) in an aggregate amount not to exceed $20.0 million.
For purposes of clause (iii) of the first paragraph of this covenant, the
Permitted Payments referred to in clauses (i), (iii) and (v) above shall be
included in the aggregate amount of Restricted Payments made since the Issue
Date.
Limitation on Asset Sales. The Indenture provides that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
unless (i) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) of the assets or other
property sold or disposed of in the Asset Sale and (ii) at least 75% of such
consideration consists of either cash or Cash Equivalents; provided, however,
that (A) for purposes of this covenant, "cash" shall include (x) the amount of
any Indebtedness (other than any Indebtedness that is by its terms subordinated
to the Notes) of the Company or such Restricted Subsidiary as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto that is assumed by the transferee of any such assets or other
property in such Asset Sale (and excluding any liabilities that are incurred in
connection with or in anticipation of such Asset Sale), but only to the extent
that such assumption is effected on a basis such that there is no further
recourse to the Company or any of the Restricted Subsidiaries with respect to
such liabilities and (y) any notes, obligations or securities received by the
Company or such Restricted Subsidiary from such transferee that are converted
within 60 days by the Company or such Restricted Subsidiary into cash (to the
extent of the cash received) and (B) the 75% cash or Cash Equivalents
requirement will not apply to any sale of all or substantially all of the assets
or Capital Stock of ICN Biomedicals, Inc.
Within one year after any Asset Sale, the Company may elect to apply the
Net Proceeds from such Asset Sale to (a) permanently reduce any Senior Bank Debt
of the Company and/or (b) make
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an investment in, or acquire assets and properties that will be used in, a
Related Business. Any Net Proceeds from an Asset Sale not applied or invested as
provided in the first sentence of this paragraph within one year of such Asset
Sale will be deemed to constitute "Excess Proceeds."
Each date that the aggregate amount of Excess Proceeds in respect of which
an Asset Sale Offer (as defined below) has not been made exceeds $10.0 million
shall be deemed an "Asset Sale Offer Trigger Date." As soon as practicable, but
in no event later than 20 business days after each Asset Sale Offer Trigger
Date, the Company shall commence an offer (an "Asset Sale Offer") to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds. Any Notes to be purchased pursuant to an Asset Sale Offer shall be
purchased pro rata based on the aggregate principal amount of Notes outstanding,
and all Notes shall be purchased at an offer price in cash in an amount equal to
100% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase. To the extent that any Excess Proceeds remain after
completion of an Asset Sale Offer, the Company may use the remaining amount for
general corporate purposes otherwise permitted by the Indenture. Upon the
consummation of any Asset Sale Offer, the amount of Excess Proceeds shall be
deemed to be reset to zero.
Notice of an Asset Sale Offer shall be mailed by the Company not later than
the 20th business day after the related Asset Sale Offer Trigger Date to each
holder of Notes at such holder's registered address, stating: (i) that an Asset
Sale Offer Trigger Date has occurred and that the Company is offering to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds (to the extent provided in the immediately preceding paragraph),
at an offer price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of the purchase
(the "Asset Sale Offer Purchase Date"), which shall be a business day, specified
in such notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed, (ii) the amount of accrued and unpaid interest, if
any, as of the Asset Sale Offer Purchase Date, (iii) that any Note not tendered
will continue to accrue interest, (iv) that, unless the Company defaults in the
payment of the purchase price for the Notes payable pursuant to the Asset Sale
Offer, any Notes accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Asset Sale Offer Purchase Date, (v) the
procedures, consistent with the Indenture, to be followed by a holder of Notes
in order to accept an Asset Sale Offer or to withdraw such acceptance, and (vi)
such other information as may be required by the Indenture and applicable laws
and regulations.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment the maximum principal amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds
from such Asset Sale that are to be applied to an Asset Sale Offer, (ii) deposit
with the Paying Agent the aggregate purchase price of all Notes or portions
thereof accepted for payment, and (iii) deliver or cause to be delivered to the
Trustee all Notes tendered pursuant to the Asset Sale Offer. If less than all
Notes tendered pursuant to the Asset Sale Offer are accepted for payment by the
Company for any reason consistent with the Indenture, selection of the Notes to
be purchased by the Company shall be in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not so listed, on a pro rata basis or by lot; provided,
however, that Notes accepted for payment in part shall only be purchased in
integral multiples of $1,000. The Paying Agent shall promptly mail to each
holder of Notes or portions thereof accepted for payment an amount equal to the
purchase price for such Notes plus accrued and unpaid interest, if any, thereon,
and the Trustee shall promptly authenticate and mail to such holder of Notes
accepted for payment in part a new Note equal in principal amount to any
unpurchased portion of the Notes, and any Note not accepted for payment in whole
or in part shall be promptly returned to the holder of such Note. On and after
an Asset Sale Offer Purchase Date, interest will cease to accrue on the Notes or
portions thereof accepted for payment, unless the Company defaults in the
payment of the purchase price therefor. The Company will publicly announce the
results of the Asset Sale Offer on or as soon as practicable after the Asset
Sale Offer Purchase Date.
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The foregoing provisions will not apply to a transaction consummated in
compliance with the provisions of the Indenture described under "-- Merger,
Consolidation and Sale of Assets" below.
The Company will comply with the applicable tender offer rules, including
the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all
other applicable securities laws and regulations in connection with any Asset
Sale Offer and will be deemed not to be in violation of any of the covenants
under the Indenture to the extent such compliance is in conflict with such
covenants.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien securing Indebtedness (other than
Permitted Liens) on any asset now owned or hereafter acquired, or any income or
profits therefrom, or assign or convey any right to receive income therefrom to
secure any such Indebtedness, unless (i) if such Lien secures Indebtedness which
is pari passu with the Notes, then the Notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligation is no
longer secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes, any such Lien shall be subordinated to a Lien granted
to the holders of the Notes in the same collateral as that securing such Lien to
the same extent as such subordinated Indebtedness is subordinated to the Notes.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause to become effective any consensual encumbrance or consensual restriction
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions to the Company or any other Restricted Subsidiary on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (ii) make loans or advances to, or issue Guarantees
for the benefit of, the Company or any other Restricted Subsidiary or (iii)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (a) applicable law, (b) any instrument governing Indebtedness or
Capital Stock of an Acquired Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition); provided, however, that no such encumbrance or restriction
is applicable to any Person, or the properties or assets of any Person, other
than the Acquired Person, (c) by reason of customary non-assignment, subletting
or net worth provisions in leases or other agreements entered into the ordinary
course of business and consistent with past practices, (d) Purchase Money
Obligations for property acquired in the ordinary course of business that impose
restrictions only on the property so acquired, (e) an agreement for the sale or
disposition of assets or the Capital stock of a Restricted Subsidiary; provided,
however, that such restriction or encumbrance is only applicable to such
Restricted Subsidiary or assets, as applicable, and such sale or disposition
otherwise is permitted by the provisions described under "-- Limitation on Asset
Sales"; provided, further, however, that such restriction or encumbrance shall
be effective only for a period from the execution and delivery of such agreement
through a termination date not later than 180 days after such execution and
delivery, (f) the Indenture and the Notes and (g) Refinancing Indebtedness
permitted under the Indenture; provided that such encumbrances and restrictions
are, in the good faith judgment of the Company's Board of Directors, no more
restrictive, in any material respect, than those contained in the Indebtedness
being so refinanced.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate of the Company unless (1) such transaction or
series of transactions is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could reasonably
be obtainable at such time in a comparable
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transaction in arm's-length dealings with an unrelated third party, and (2) the
Company delivers to the Trustee (a) with respect to any transaction or series of
transactions involving aggregate payments in excess of $1.0 million, an
Officers' Certificate certifying that such transaction or series of related
transactions complies with clause (1) above and (b) with respect to any
transaction or series of transactions involving aggregate payments in excess of
$2.0 million, an Officer's Certificate certifying that such transaction or
series of related transactions has been approved by a majority of the members of
the Board of Directors of the Company (and approved by a majority of the
Independent Directors or, in the event there is only one Independent Director,
by such Independent Director), and (c) with respect to any transaction or series
of transactions involving aggregate payments in excess of $10.0 million, an
opinion as to the fairness to the Company from a financial point of view issued
by an investment banking firm of national standing. Notwithstanding the
foregoing, this covenant will not apply to (i) employment agreements or
compensation or employee benefit arrangements with any officer, director or
employee of the Company or any of its Restricted Subsidiaries entered into in
the ordinary course of business (including customary benefits thereunder and
including reimbursement or advancement of out-of-pocket expenses, and director's
and officer's liability insurance), (ii) any transaction entered into by or
among the Company or one of its Restricted Subsidiaries with one or more
Restricted Subsidiaries of the Company, (iii) any transaction permitted by the
second paragraph under "-- Limitation on Restricted Payments", and (iv)
transactions permitted by, and complying with, the provisions described under
"-- Merger, Consolidation and Sale of Assets."
Limitation on Designation of Unrestricted Subsidiaries. The Indenture
provides that the Company will not designate any Subsidiary of the Company
(other than a newly created Subsidiary in which no Investment has previously
been made) as an "Unrestricted Subsidiary" under the Indenture (a "Designation")
unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) immediately after giving effect to such Designation, the Company
would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant described under "-- Limitation
on Incurrence of Indebtedness"; and
(c) the Company would not be prohibited under the Indenture from
making an Investment at the time of such Designation in an amount (the
"Designation Amount") equal to the greater of (x) the book value of such
Restricted Subsidiary on such date and (y) the Fair Market Value of such
Restricted Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "-- Limitation on Restricted Payments" for all purposes of the
Indenture in an amount equal to the Designation Amount.
The Indenture further provides that the Company will not designate an
Unrestricted Subsidiary as a Restricted Subsidiary (a "Redesignation"), unless:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Redesignation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Redesignation shall be deemed to
have been incurred at such time and shall have been permitted to be
incurred for all purposes of the Indenture.
An Unrestricted Subsidiary shall be deemed to be redesignated as a
Restricted Subsidiary at any time if (a) the Company or any other Restricted
Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness
of such Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) or (ii) is directly or indirectly
liable for any
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Indebtedness of such Unrestricted Subsidiary or (b) a default with respect to
any Indebtedness of such Unrestricted Subsidiary (including any right which the
holders thereof may have to take enforcement action against it) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its final scheduled maturity, except in the case of clause (a) to the extent
permitted under the covenant described above under the caption "-- Limitation on
Restricted Payments."
All Designations and Redesignations must be evidenced by Board Resolutions
delivered to the Trustee certifying compliance with the foregoing provisions.
Subsidiaries that are not designated by the Board of Directors as Restricted or
Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries. The
Designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be
deemed a Designation of all of the Subsidiaries of such Unrestricted Subsidiary
as Unrestricted Subsidiaries.
Provision of Financial Statements and Information. Whether or not the
Company is then subject to Section 13(a) or 15(d) of the Exchange Act, the
Indenture provides that the Company will file with the Securities and Exchange
Commission (the "Commission"), so long as any Notes are outstanding, the annual
reports, quarterly reports and other periodic reports which the Company would
have been required to file with the Commission pursuant to such Section 13(a) or
15(d) if the Company were so subject, and such documents shall be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (i) within 15 days
of each Required Filing Date, file with the Trustee, and supply the Trustee with
copies for delivery to the holders of the Notes, the annual reports, quarterly
reports and other periodic reports which the Company would have been required to
file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
if the Company were subject to such Sections and (ii) if the Commission will not
accept the filing of such documents promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of such documents
to any prospective holder of the Notes.
Additional Covenants. The Indenture also contains covenants with respect
to the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) maintenance of
corporate existence; (iv) payment of taxes and other claims; (v) maintenance of
properties; and (vi) maintenance of insurance.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that the Company shall not, in any single
transaction or series of related transactions, consolidate or merge with or into
(whether or not the Company is the Surviving Person), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets (determined on a consolidated basis for the Company and its Restricted
Subsidiaries) in one or more related transactions to, another Person, and the
Company will not permit any Restricted Subsidiary to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries, taken
as a whole, to another Person, unless (i) the Surviving Person is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Surviving Person (if other than the Company)
assumes all the obligations of the Company under the Notes, the Indenture and,
if then in effect, the Registration Rights Agreement pursuant to a supplemental
indenture or other written agreement, as the case may be, in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction, no
Default or Event of Default shall have occurred and be continuing; and (iv)
after giving pro forma effect to such transaction, the Surviving Person (x)
would have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of
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the Company immediately preceding such transaction and (y) would be permitted to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness." Notwithstanding clauses
(iii) and (iv) above, any Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its properties and assets to the Company or another
Restricted Subsidiary.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the Surviving Person, such Surviving Person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, and the Company shall be discharged from its obligations under, the
Indenture, the Notes and the Registration Rights Agreement.
EVENTS OF DEFAULT
The Indenture provides that each of the following constitutes an Event of
Default:
(i) a default for 30 days in the payment when due of interest on, or
Liquidated Damages (if any) with respect to, any Note;
(ii) a default in the payment when due of principal on any Note,
whether upon maturity, acceleration, optional redemption, required
repurchase or otherwise;
(iii) failure to perform or comply with any covenant, agreement or
warranty in the Indenture (other than the defaults specified in clauses (i)
and (ii) above) which failure continues for 30 days after written notice
thereof has been given to the Company by the Trustee or to the Company and
the Trustee by the holders of at least 25% in aggregate principal amount of
the then outstanding Notes;
(iv) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Restricted
Subsidiary then has outstanding Indebtedness in excess of $10.0 million in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been accelerated;
(v) one or more judgments, orders or decrees for the payment of money
in excess of $10.0 million, either individually or in the aggregate, shall
be entered against the Company or any Restricted Subsidiary or any of their
respective properties and which judgments, orders or decrees are not paid,
discharged, bonded or stayed or stayed pending appeal for a period of 60
days after their entry; or
(vi) certain events of bankruptcy, insolvency or reorganization of the
Company or any Restricted Subsidiary.
If any Event of Default (other than as specified in clause (vi) of the
preceding paragraph with respect to the Company) occurs and is continuing, the
Trustee or the holders of at least 25% in aggregate principal amount of the then
outstanding Notes may, and the Trustee at the request of such holders shall,
declare all the Notes to be due and payable immediately by notice in writing to
the Company, and to the Company and the Trustee if by the holders, specifying
the respective Event of Default and that such notice is a "notice of
acceleration," and the Notes shall become immediately due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
the events specified in clause (vi) of the preceding paragraph with respect to
the Company, the principal of, premium, if any, and any accrued interest on all
outstanding Notes shall ipso facto become immediately due and payable without
further action or notice. Holders of the Notes may not enforce the Indenture or
the Notes except as provided in the Indenture.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except (i) a continuing Default or Event of Default in the payment
of the principal of, or premium, if any, or interest on, the Notes (which may
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only be waived with the consent of each holder of Notes affected), or (ii) in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note outstanding. Subject
to certain limitations, holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium or interest on the Notes, a Default in payment
on the Change of Control Purchase Date pursuant to a Change of Control Offer or
on the Asset Sale Offer Purchase Date pursuant to an Asset Sale Offer or a
Default in compliance with the provisions described under "-- Merger,
Consolidation and Sale of Assets") if it determines that withholding notice is
in their interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, interest on or Liquidated Damages, if any, with respect to
any of the Notes or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in the Indenture, or in any of the Notes or because of the creation of
any Indebtedness represented thereby, shall be had against any incorporator,
shareholder, officer, director, employee or controlling person of the Company or
of any successor Person thereof. Each Holder, by accepting the Notes, waives and
releases all such liability.
DEFEASANCE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding Notes
and to have satisfied all other obligations under the Notes and the Indenture
except for (i) the rights of holders of the outstanding Notes to receive, solely
from the trust fund described below, payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and
the maintenance of an office or agency for payment, (iii) the rights, powers,
trusts, duties and immunities of the Trustee under the Indenture, and (iv) the
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company released
with respect to certain covenants that are described in the Indenture ("covenant
defeasance") and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Notes. In the
event that a covenant defeasance occurs, certain events (not including
non-payment, bankruptcy and insolvency events) described under "-- Events of
Default" will no longer constitute Events of Default with respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company shall irrevocably deposit with the Trustee, as trust funds in trust, for
the benefit of the holders of the Notes, cash in United States dollars, United
States Government Obligations (as defined in the Indenture), or a combination
thereof, in such amounts as will be sufficient, in the report of a nationally
recognized firm of independent public accountants or a nationally recognized
investment banking firm, to pay and discharge the principal of, premium, if any,
and interest on the outstanding Notes to redemption or maturity; (ii) the
Company shall have delivered to the Trustee an opinion of counsel in the United
States to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance or covenant defeasance, as the case may be, and will be subject
to Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance or
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covenant defeasance, as the case may be, had not occurred (in the case of
defeasance, such opinion must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable Federal income tax laws);
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as clause (vi) under the first paragraph
under "-- Events of Default" is concerned, at any time during the period ending
on the 91st day after the date of deposit; (iv) such defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a Default
under, the Indenture or any other agreement or instrument to which the Company
is a party or by which it is bound; (v) the Company shall have delivered to the
Trustee an opinion of counsel to the effect that (A) the trust funds will not be
subject to any rights of holders of Indebtedness (other than holders of the
Notes) and (B) after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and (vi)
the Company shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent under the
Indenture to either defeasance or covenant defeasance, as the case may be, have
been complied with and that no violations under agreements governing any other
outstanding Indebtedness would result therefrom.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust and
thereafter repaid to the Company) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee an amount in United States
dollars sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for the principal of,
premium, if any, and interest to the date of deposit; (ii) the Company has paid
or caused to be paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an Officers' Certificate and
an opinion of counsel each stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two paragraphs, the Indenture or the Notes
may be amended or supplemented with the written consent of the holders of at
least a majority in aggregate principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes), and any existing Default or Event of Default or compliance with
any provision of the Indenture or the Notes may be waived with the consent of
the holders of a majority in aggregate principal amount of the then outstanding
Notes (including consents obtained in connection with a tender offer or exchange
offer for Notes).
Without the consent of each holder affected, an amendment or waiver shall
not: (i) reduce the principal amount of the Notes whose holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note, or alter or waive the provisions with respect to the
redemption of the Notes in a manner adverse to the holders of the Notes other
than with respect to a Change of Control Offer or an Asset Sale Offer, (iii)
reduce the rate of or change the time for payment of interest on any Notes, (iv)
waive a Default or Event of Default in the payment of principal of, premium, if
any, or interest on the Notes (except that holders of at least a majority in
aggregate principal amount of the then outstanding Notes may (a) rescind an
acceleration of the Notes that resulted from a non-payment default, and (b)
waive the payment default that resulted from such acceleration), (v) make any
Note payable in money other than that stated in the
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Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive payments
of principal of, or premium, if any, or interest on, the Notes, or (vii)
following the occurrence of a Change of Control, amend, change or modify the
Company's obligation to make and consummate a Change of Control Offer in the
event of a Change of Control or modify any of the provisions or definitions with
respect thereto in a manner adverse to the holders of the Notes, or following
the occurrence of an Asset Sale, amend, change or modify the Company's
obligation to make and consummate an Asset Sale Offer or modify any of the
provisions or definitions with respect thereto in a manner adverse to the
holders of the Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
(i) to cure any ambiguity, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes, (iii) to
provide for the assumption of the Company's obligations to holders of the Notes
in the event of any Disposition involving the Company in which the Company is
not the Surviving Person, (iv) to make any change that would provide any
additional rights or benefits to the holders of the Notes or that does not
adversely affect the rights of any such holder, or (v) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
TRANSFER AND EXCHANGE
The registered holder of a Note will be treated as the owner of it for all
purposes. A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. Neither the Company nor the Registrar shall be
required to issue, register the transfer of or exchange any Note (i) during a
period beginning at the opening of business on the day that the Trustee receives
notice of any redemption from the Company and ending at the close of business on
the day the notice of redemption is sent to holders, (ii) selected for
redemption, in whole or in part, except the unredeemed portion of any Note being
redeemed in part may be transferred or exchanged, and (iii) during a Change of
Control Offer or an Asset Sale Offer if such Note is tendered pursuant to such
Change of Control Offer or Asset Sale Offer and not withdrawn.
THE TRUSTEE
U.S. Trust Company of New York is the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
The Indenture (including the provisions of the Trust Indenture Act
incorporated by reference therein) contains limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of
New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for the definition of all other terms used in the
Indenture.
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"Acquired Debt" means, with respect to any specified Person, Indebtedness
of any other Person (the "Acquired Person") existing at the time the Acquired
Person merges with or into, or becomes a Restricted Subsidiary of, such
specified Person, including Indebtedness incurred in connection with, or in
contemplation of, the Acquired Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person; provided, however, that
Indebtedness of such Acquired Person which is redeemed, defeased, retired or
otherwise repaid at the time of or immediately upon consummation of the
transactions by which such Acquired Person merges with or into or becomes a
Restricted Subsidiary of such specified Person shall not be Acquired Debt.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") of any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) any sale, lease, conveyance or other disposition by
the Company or any Restricted Subsidiary of any assets (including by way of a
sale-and-leaseback) other than in the ordinary course of business, or (ii) the
issuance or sale of Capital Stock of any Restricted Subsidiary, in the case of
each of (i) and (ii), whether in a single transaction or a series of related
transactions, to any Person (other than to the Company or a Restricted
Subsidiary and other than directors' qualifying shares) for Net Proceeds in
excess of $1.0 million. Notwithstanding the foregoing, (a) the transfer of any
assets constituting an Investment by the Company or any Restricted Subsidiary
shall not be considered an Asset Sale if such Investment is permitted pursuant
to the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments" and (b) exchanges of assets of the Company for assets of
any other Person in the ordinary course of business shall not constitute an
Asset Sale.
"Capital Lease Obligation" of any Person means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease for property leased by such Person that would at such time be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, of
such Person, including any Preferred Stock.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Rating Services or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Rating Services or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
(or, with respect to foreign banks, similar instruments) maturing within one
year from the date of acquisition thereof issued by any bank organized under the
laws of the United States of America or any state thereof or the District of
Columbia or any member of the European Union or any United States branch of a
foreign bank having at the date of acquisition thereof combined capital and
surplus of not less than $200 million; (v) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any bank meeting the qualifications specified
in clause (iv) above; and (vi) investments in
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money market funds which invest substantially all their assets in securities of
the types described in clauses (i) through (v) above.
"Cash Flow" means, with respect to any period, Consolidated Net Income for
such period, plus, to the extent deducted in computing such Consolidated Net
Income: (i) extraordinary net losses, plus (ii) provision for taxes based on
income or profits and any provision for taxes utilized in computing the
extraordinary net losses under clause (i) hereof, plus (iii) Consolidated
Interest Expense, plus (iv) depreciation, amortization and all other non-cash
charges (including amortization of goodwill and other intangibles but excluding
any items that will require cash payments in the future for which an accrual or
reserve is made).
"Change of Control" means the occurrence of any of the following events
after the Issue Date: (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes (including by
merger, consolidation or otherwise) the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 50% or more of the voting power of the
total outstanding Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
nomination for election by the stockholders of the Company was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of such
Board of Directors of the Company then in office; (iii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the terms of the Indenture); or (iv) the sale or other
disposition (including by merger, consolidation or otherwise) of all or
substantially all of the Capital Stock or assets of the Company to any Person or
group (as defined in Rule 13d-5 of the Exchange Act) as an entirety or
substantially as an entirety in one transaction or a series of related
transactions.
"Consolidated Cash Flow Coverage Ratio" means, for any period, the ratio of
(i) the aggregate amount of Cash Flow for such period, to (ii) Consolidated
Interest Expense for such period, each determined on a pro forma basis after
giving pro forma effect to (a) the incurrence of the Indebtedness giving rise to
the calculation of the Consolidated Cash Flow Coverage Ratio and (if applicable)
the application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such period; (b) the incurrence,
repayment or retirement of any other Indebtedness by the Company and its
Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average balance of
such Indebtedness at the end of each month during such period); (c) in the case
of Acquired Debt, the related acquisition as if such acquisition had occurred at
the beginning of such period; and (d) any acquisition or disposition by the
Company and its Restricted Subsidiaries of any company or any business or any
assets out of the ordinary course of business, or any related repayment of
Indebtedness, in each case since the first day of such period, assuming such
acquisition or disposition had been consummated on the first day of such period.
"Consolidated Interest Expense" means, with respect to any period, the sum
of (i) the interest expense of the Company and its Restricted Subsidiaries for
such period, including, without limitation, (a) amortization of debt discount,
(b) the net payments, if any, under interest rate contracts (including
amortization of discounts), (c) the interest portion of any deferred payment
obligation and (d) accrued interest, plus (ii) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued
by the Company and its Restricted Subsidiaries during such period, and all
capitalized interest of the Company and its Restricted Subsidiaries, plus (iii)
all dividends paid during such period by the Company and its
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Restricted Subsidiaries with respect to any Disqualified Stock (other than by
any Restricted Subsidiary to the Company or any other Restricted Subsidiary and
other than any dividend paid in Capital Stock (other than Disqualified Stock)),
in each case, as determined on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Net Income" means, with respect to any period, the net income
(or loss) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently applied,
adjusted to the extent included in calculating such net income (or loss), by
excluding, without duplication, (i) all extraordinary gains and losses (less all
fees and expenses relating thereto), (ii) the portion of net income (or loss) of
the Company and its Restricted Subsidiaries allocable to interests in
unconsolidated Persons or Unrestricted Subsidiaries, except to the extent of the
amount of dividends or distributions actually paid to the Company or its
Restricted Subsidiaries by such other Person during such period, (iii) for
purposes of the covenant entitled "-- Certain Covenants -- Limitation on
Restricted Payments", net income (or loss) of any Person combined with the
Company or any of its Restricted Subsidiaries on a "pooling-of-interests" basis
attributable to any period prior to the date of combination, (iv) net gains and
losses (less all fees and expenses relating thereto) in respect of disposition
of assets (including, without limitation, pursuant to sale and leaseback
transactions) other than in the ordinary course of business, or (v) the net
income of any Restricted Subsidiary to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
to the Company is not at the time permitted, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders.
"Consolidated Net Worth" means, with respect to any Person at any date, the
sum of (i) the consolidated stockholders' equity of such Person less the amount
of such stockholders' equity attributable to Disqualified Stock of such Person
and its Subsidiaries (Restricted Subsidiaries, in the case of the Company), as
determined on a consolidated basis in accordance with GAAP consistently applied
and (ii) the amount of any Preferred Stock of such Person not included in the
stockholders' equity of such Person in accordance with GAAP, which Preferred
Stock does not constitute Disqualified Stock.
"Currency Agreement Obligations" means the obligations of any person under
a foreign exchange contract, currency swap agreement or other similar agreement
or arrangement to protect such person against fluctuations in currency values.
"Default" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Stock" means (i) any Preferred Stock of any Restricted
Subsidiary and (ii) that portion of any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof (other than upon a Change of Control of the
Company in circumstances where the holders of the Notes would have similar
rights), in whole or in part on or prior to the stated maturity of the Notes.
"Dollars" and "$" means lawful money of the United States of America.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"GAAP" means generally accepted accounting principles in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession in the United States of America, which are applicable
as of the Issue Date and consistently applied.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection or deposit in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Indebtedness" means, with respect to any Person, without duplication, and
whether or not contingent, (i) all indebtedness of such Person for borrowed
money or which is evidenced by a note, bond, debenture or similar instrument,
(ii) all obligations of such Person to pay the deferred or unpaid purchase price
of property or services, which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such service, (iii) all Capital Lease Obligations
of such Person, (iv) all obligations of such Person in respect of letters of
credit or bankers' acceptances issued or created for the account of such Person,
(v) to the extent not otherwise included in this definition, all net obligations
of such Person under Interest Rate Agreement Obligations or Currency Agreement
Obligations of such Person, (vi) all liabilities of others of the kind described
in the preceding clause (i), (ii) or (iii) secured by any Lien on any property
owned by such Person; provided, however, if the obligations secured by a Lien
(other than a Permitted Lien not securing any liability that would itself
constitute Indebtedness) on any assets or property have not been assumed by such
Person in full or are not such Person's legal liability in full, the amount of
such Indebtedness for purposes of this definition shall be limited to the lesser
of the amount of Indebtedness secured by such Lien and the Fair Market Value of
the property subject to such Lien, (vii) all Disqualified Stock issued by such
Person and all Preferred Stock issued by a Subsidiary of such Person, and (viii)
to the extent not otherwise included, any guarantee by such Person of any other
Person's indebtedness or other obligations described in clauses (i) through
(vii) above. "Indebtedness" of the Company and the Restricted Subsidiaries shall
not include current trade payables incurred in the ordinary course of business
and payable in accordance with customary practices, and non-interest bearing
installment obligations and accrued liabilities incurred in the ordinary course
of business which are not more than 90 days past due. The principal amount
outstanding of any Indebtedness issued with original issue discount is the
accreted value of such Indebtedness. Notwithstanding the foregoing, Indebtedness
shall not include Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business; provided
that such Indebtedness is extinguished within 3 business days of the incurrence
thereof.
"Independent Director" means a director of the Company other than a
director (i) who (apart from being a director of the Company or any Subsidiary
of the Company) is an employee, associate or Affiliate of the Company or a
Subsidiary of the Company, or (ii) who is a director, employee, associate or
Affiliate of another party (other than the Company or any of its Subsidiaries)
to the transaction in question.
"Interest Rate Agreement Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
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"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any other Person. "Investment" shall exclude travel and similar advances to
officers and employees of the Company in the ordinary course of business and
extensions of trade credit by the Company and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the
Company or such Restricted Subsidiary, as the case may be. For the purposes of
the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include
and be valued at the Fair Market Value of the net assets of any Restricted
Subsidiary (to the extent of the Company's equity interest in such Restricted
Subsidiary) at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the Fair Market Value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
writedowns or write-offs with respect to such Investment, reduced by the payment
of dividends or distributions in connection with such Investment or any other
amounts received in respect of such Investment; provided, however, that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, greater than
50% of the outstanding Common Stock of such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the Fair Market Value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date on which the Notes are first issued under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages owing under the
Registration Rights Agreement.
"Net Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate cash or Cash Equivalent proceeds received by such Person and/or its
Affiliates in respect of such Asset Sale, which amount is equal to the excess,
if any, of (i) the cash or Cash Equivalents received by such Person and/or its
Affiliates (including any cash payments received by way of deferred payment
pursuant to, or monetization of, a note or installment receivable or otherwise,
but only as and when received) in connection with such Asset Sale, over (ii) the
sum of (a) the amount of any Indebtedness that is secured by such asset and
which is required to be repaid by such person in connection with such Asset
Sale, plus (b) all fees, commissions and other expenses incurred by such Person
in connection with such Asset Sale, plus (c) provision for taxes, including
income taxes, directly attributable to the Asset Sale or to required prepayments
or repayments of Indebtedness with the proceeds of such Asset Sale, plus (d) if
such Person is a Restricted Subsidiary, any dividends or distributions payable
to holders of minority interests in such Restricted Subsidiary from the proceeds
of such Asset Sale, plus (e) appropriate amounts to be provided by the Company
or any Restricted Subsidiary as a reserve against any liabilities associated
with such
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Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale; provided that upon the release of any such reserves, such amounts shall
constitute "Net Proceeds" hereunder.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or any
Restricted Subsidiary; provided, that the primary business of such Restricted
Subsidiary is a Related Business; (ii) any investment in cash or Cash
Equivalents; (iii) any Investment in a Person (an "Acquired Person") the primary
business of which is a Related Business if, as a result of such Investment, (a)
the Acquired Person becomes a Restricted Subsidiary, or (b) the Acquired Person
either (1) is merged, consolidated or amalgamated with or into the Company or
one of its Restricted Subsidiaries and the Company or such Restricted Subsidiary
is the Surviving Person, or (2) transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or one of its Restricted
Subsidiaries; (iv) Investments in accounts and notes receivable acquired in the
ordinary course of business; (v) any notes, obligations or other securities
received in connection with an Asset Sale that complies with the covenant
described under "Limitation on Asset Sales" or any other disposition not
constituting an "Asset Sale"; (vi) Interest Rate Agreement Obligations and
Currency Agreement Obligations permitted pursuant to clause (v) of the second
paragraph of the covenant described under "Limitation on Incurrence of
Indebtedness" above; (vii) investments in or acquisitions of Capital Stock or
similar interests in Persons (other than Affiliates of the Company) received in
the bankruptcy or reorganization of or by such Person or any exchange of such
investment with the issuer thereof or taken in settlement of or other resolution
of claims or disputes and (viii) other Investments not to exceed $50.0 million,
which shall be reinstated to the extent of any net cash proceeds, dividends,
repayments of loans or other transfers of cash or assets received by the Company
or any Restricted Subsidiary as a return of or on such Investment.
"Permitted Liens" means (i) Liens on assets or property of the Company that
secure Senior Bank Debt of the Company and Liens on assets or property of a
Restricted Subsidiary that secure Indebtedness of a Restricted Subsidiary; (ii)
Liens securing Indebtedness of a Person existing at the time that such Person is
merged into or consolidated with the Company or a Restricted Subsidiary;
provided, however, that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of such Person; (iii) Liens on property acquired by the Company or a Restricted
Subsidiary; provided, however, that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any other property; (iv)
Liens in respect of Interest Rate Agreement Obligations and Currency Agreement
Obligations permitted under the Indenture; (v) Liens in favor of the Company or
any Restricted Subsidiary; (vi) Liens existing or created on the Issue Date; and
(vii) Liens securing the Notes.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over Capital Stock of any other class of such Person.
"Purchase Money Obligation" means any Indebtedness which is incurred in
connection with the purchase, construction or improvement of assets and is
secured by a Lien on such assets related to the business of the Company or the
Restricted Subsidiaries, and any additions and accessions thereto, which are
purchased, constructed or improved by the Company or any Restricted Subsidiary.
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"Related Business" means any business that is reasonably related to or
complementary to the businesses conducted by the Company and the Restricted
Subsidiaries on the Issue Date.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) any dividend or other distribution declared
or paid on any Capital Stock of the Company (other than (A) dividends or
distributions payable solely in Capital Stock (other than Disqualified Stock) of
the Company, or (B) dividends or distributions payable to the Company or any
Restricted Subsidiary); (ii) any payment to purchase, redeem or otherwise
acquire or retire for value any Capital Stock of the Company; (iii) any payment
to purchase, redeem, defease or otherwise acquire or retire for value, prior to
any scheduled maturity, repayment or sinking fund payment, any subordinated
Indebtedness other than a purchase, redemption, defeasance or other acquisition
or retirement for value that is paid for with the proceeds of Refinancing
Indebtedness that is permitted under the covenant described under "-- Certain
Covenants -- Limitation on Incurrence of Indebtedness"; or (iv) any Restricted
Investment.
"Restricted Subsidiary" means each direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Senior Bank Debt" means Indebtedness incurred under any credit facility
entered into between the Company, any Restricted Subsidiary and bank lenders at
any time, as the same may be amended, modified, renewed, refunded, replaced or
refinanced from time to time, including (i) any related notes, letters of
credit, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time, and (ii) any notes, guarantees,
collateral documents, instruments and agreements executed in connection with any
such amendment, modification, renewal, refunding, replacement or refinancing.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding voting power of the Voting Stock of which is owned or controlled,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries thereof, or
(ii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner, or (iii) any other Person (other than a corporation
or limited partnership) in which such Person or one or more other Subsidiaries
of such Person, or such Person and one or more other Subsidiaries thereof,
directly or indirectly, has more than 50% of the outstanding partnership or
similar interests or has the power, by contract or otherwise, to direct or cause
the direction of the policies, management and affairs thereof.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries" and not
redesignated a Restricted Subsidiary in compliance with such covenant.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Old Notes were and the certificates
representing the New Notes will be issued in fully registered form. Except as
described in the next paragraph, the Old Notes initially were represented by a
single global certificate in fully registered form (the "Global Note") that was
deposited with the Trustee as custodian for The Depository Trust Company ("DTC")
and registered in the name of a nominee of DTC. The Global Old Note (and any
Notes issued in exchange therefor) will be subject to certain restrictions on
transfer set forth therein and will bear a restrictive legend.
Notes (i) originally purchased by "foreign purchasers" or (ii) held by
qualified institutional buyers as defined in Rule 144A under the Securities Act
("QIBs") which elect to take physical delivery of their certificates instead of
holding their interest through the Global Note (and which are thus ineligible to
trade through DTC) (collectively referred to herein as the "Non-Global
Purchasers") will be issued in registered form (the "Certificated Notes").
Certificated Notes will initially be registered in the name of a nominee of DTC
and be deposited with, or on behalf of, DTC. Beneficial owners of Certificated
Notes, however, may request registration of such Certificated Notes in their
names or in the names of their nominees. The Company expects that upon the
transfer to a QIB of Certificated Notes initially issued to a Non-Global
Purchaser, such Certificated Notes will, unless the transferee requests
otherwise or the Global Note has previously been exchanged in whole for
Certificated Notes, be exchanged for an interest in the Global Note.
Global Note. DTC or its custodian will credit, on its book-entry
registration and transfer system, the respective principal amount of Notes of
the individual beneficial interests represented by such Global Note to the
accounts of persons who have accounts with such depository. Ownership of
beneficial interest in the Global Note will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global Note will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants) and
the records of participants (with respect to interests of persons other than
participants). QIBs may hold their interests in the Global Note directly through
DTC if they are participants in such system, or indirectly through organizations
which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in the Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, premium (if any) and interest on the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither the Company, the Trustee nor any Paying Agent will have
any responsibility or liability for any aspect of the record relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any record relating to such beneficial
ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
The Company expects that transfers between participants in DTC will be
effected in the ordinary way in accordance with DTC rules and will be settled in
same-day funds. If a holder requires physical
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delivery of a Certificated Note for any reason, including to sell Notes to
persons in states which require physical delivery of such Notes or to pledge
such Notes, such holder must transfer its interest in the Global Note in
accordance with the normal procedures of DTC and the procedures set forth in the
Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interest in the Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants have given such direction. However, if there is an
Event of Default under the Notes or the Indenture, DTC will exchange the Global
Note for Certificated Notes, which it will distribute to its participants and
which, if representing interests in the Global Note, will be legended.
To the Company's knowledge, DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC customarily agrees to the foregoing procedures in order to
facilitate transfers of interests in global notes among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Notes will be issued in
exchange for the Global Note which certificates will bear a restrictive legend.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary presents the material U.S. federal income tax
consequences of the Exchange Offer and the ownership and disposition of the New
Notes. The summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations (including proposed Treasury regulations)
("Regulations"), Internal Revenue Service ("IRS") rulings and pronouncements and
judicial decisions currently in effect, all of which are subject to change,
possibly on a retroactive basis.
This summary does not discuss all aspects of U.S. federal income taxation
that may be relevant to investors in light of their personal investment
circumstances, including any elections made by the investors under any
applicable tax law. This summary applies to beneficial owners of the Notes who
hold such Notes as capital assets and does not apply to certain types of holders
subject to special treatment under the U.S. federal income tax laws (for
example, dealers in securities, tax- exempt organizations, insurance companies,
persons other than the initial holders of the New Notes, persons that will hold
Notes as a position in an integrated transaction (including a "straddle")
consisting of Notes and one or more other positions and persons that have a
"functional currency" other than the U.S. dollar) and does not discuss the
consequences to a holder under state, local or foreign tax laws.
ICN has not sought and will not seek any rulings from the IRS with respect
to the positions discussed below. There can be no assurance that the IRS will
not take a different position concerning the tax consequences of the Exchange
Offer and ownership or disposition of the Old Notes or New Notes or that any
such position would not be sustained.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for U.S. federal income tax purposes (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States federal income taxation regardless of its source or (iv) any other
person or entity whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSIDERATIONS OF THE EXCHANGE
OFFER AND THE OWNERSHIP AND DISPOSITION OF THE NOTES.
(i) Exchange Offer. The exchange pursuant to the Exchange Offer of Old
Notes for New Notes will not be treated as a taxable exchange for U.S. federal
income tax purposes and the New Notes will be treated as a continuation of the
Old Notes, because the terms of the New Notes are identical in all material
respects to the terms of the Old Notes. Accordingly, a U.S. Holder will not
recognize gain or loss upon such exchange.
(ii) Interest. Interest on a Note generally will be taxable to a U.S.
Holder as ordinary interest income at the time it is paid or accrued in
accordance with the U.S. Holder's method of accounting for tax purposes.
(iii) Sales, Exchange or Retirement of Notes. Upon the sale, exchange
(except pursuant to the Exchange Offer as provided above), retirement or other
disposition of a Note, a U.S. Holder will recognize gain or loss equal to the
difference between the amount realized (except to the extent attributable to
accrued interest) and the U.S. Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note will be equal to the cost of the Note,
increased by accrued market discount, if any, if the U.S. Holder has included
such market discount in income (see "Market Discount" below), and decreased by
any amortized bond premium (defined below) and payments received. Generally, and
subject to the discussion under "Market Discount" below, any gain or loss
recognized by a U.S. Holder upon a sale, retirement or other disposition of the
Note will
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be long-term capital gain or loss if the Note has been held for more than one
year, generally subject to maximum tax rate of 20 percent.
(iv) Acquisition at a Premium. If a subsequent U.S. Holder acquires a Note
for an amount (exclusive of accrued and unpaid interest through the acquisition
date) in excess of the Note's stated redemption price at maturity ("Bond
Premium"), the U.S. Holder may elect, in accordance with applicable Code
provisions, to amortize the Bond Premium using a constant yield method. The
amount of Bond Premium amortized in any year will be treated as a reduction of
the U.S. Holder's interest income from the Note.
(v) Market Discount. If a U.S. Holder purchases a Note for an amount that
is less than its issue price (or, in the case of a subsequent purchaser, its
"revised issue price," as defined in the Code) as of the purchase date, the
amount of the difference will be treated as "market discount," unless such
difference is less than a specified de minimis amount. Market discount generally
will accrue ratably during the period from the date of acquisition to the
maturity date of the Note, unless the U.S. Holder elects to accrue such discount
on the basis of the constant interest method, in accordance with applicable Code
provisions.
A U.S. Holder of a Note with market discount generally will be required to
treat as ordinary income any gain recognized on the sale, exchange, retirement
or other disposition of the Note to the extent of accrued market discount unless
the U.S. Holder elects in accordance with the applicable Code provisions to
include market discount in income as it accrues. A U.S. Holder of a Note
acquired at market discount who does not make a current inclusion election will
be required to defer the deduction of all or a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the Note until the
maturity of the Note or its earlier disposition in a taxable transaction.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The "backup" withholding and information reporting requirements may apply
to certain payments of principal, redemption or repurchase premium, if any, and
interest on a Note and to certain payments of proceeds of the sale or retirement
of a Note. ICN, its agent, a broker, or any paying agent, as the case may be,
will be required to withhold tax from any payment that is not subject to backup
withholding at a rate of 31 percent of such payment if the U.S. Holder of the
Note fails to furnish his taxpayer identification number (social security number
or employer identification number), to certify that such U.S. Holder is not
subject to backup withholding or to otherwise comply with the applicable
requirements of the backup withholding rules. Certain U.S. Holders (including,
among others, all corporations) are not subject to the backup withholding and
reporting requirements.
Any amount withheld under the backup withholding rules from a payment to a
U.S. Holder may be claimed as a credit against such U.S. Holder's United States
federal income tax liability.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF
THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
89
<PAGE> 96
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. ICN has agreed that for a period of 10 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
ICN will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market rates prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The legality of the New Notes offered hereby will be passed upon for the
Company by Proskauer Rose LLP, 1585 Broadway, New York, New York 10036.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets as of December 31, 1997 and 1996, and the
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997, included in this
Prospectus, have been included herein in reliance on the report, which includes
an emphasis-of-a-matter paragraph related to the Company's net monetary assets
at ICN Yugoslavia, which would be subject to foreign exchange loss if a
devaluation of the Yugoslavian dinar were to occur, of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing. With respect to the unaudited interim financial
information for the periods ended March 31, 1998 and 1997, incorporated by
reference in this Prospectus, and June 30, 1998 and 1997, included in this
Prospectus, the independent accountants have reported that they have applied
limited procedures in accordance with professional standards for a review of
such information. However, their separate reports included in the Company's
quarterly reports on Form 10-Q for the quarters ended March 31, 1998 and June
30, 1998, and incorporated by reference herein, state that they did not audit
and they do not express an opinion on the interim financial information.
Accordingly, the degree of reliance on their reports on such information should
be restricted in light of the limited nature of the review procedures applied.
The accountants are not subject to the liability provisions of Section 11 of the
Securities Act of 1933 for their reports on the unaudited interim financial
information because their reports are not a "report" or "part" of the
registration statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Act.
90
<PAGE> 97
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE NO.
- -------------------- --------
<S> <C>
As of June 30, 1998 and December 31, 1997 and for the three
and six months ended June 30, 1998 and 1997:
Unaudited Consolidated Condensed Balance Sheets........... F-2
Unaudited Consolidated Condensed Statements of Income..... F-3
Unaudited Consolidated Condensed Statements of
Comprehensive Income................................... F-4
Unaudited Consolidated Condensed Statements of Cash
Flows.................................................. F-5
Unaudited Notes to Consolidated Condensed Financial
Statements............................................. F-6
As of December 31, 1997 and 1996, and the years ended
December 31, 1997, 1996 and 1995:
Report of Independent Accountants......................... F-15
Consolidated Balance Sheets............................... F-16
Consolidated Statements of Income......................... F-17
Consolidated Statements of Stockholders' Equity........... F-18
Consolidated Statements of Cash Flows..................... F-19
Notes to Consolidated Financial Statements................ F-20
</TABLE>
F-1
<PAGE> 98
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 90,983 $ 209,896
Receivables, net.......................................... 293,241 260,495
Notes receivable, net..................................... 25,000 145,431
Inventories, net.......................................... 157,517 146,988
Prepaid expenses and other current assets................. 34,529 23,941
---------- ----------
Total current assets.............................. 601,270 786,751
Property, plant and equipment, net.......................... 370,013 360,713
Deferred income taxes, net.................................. 70,615 69,710
Other assets................................................ 92,810 47,978
Goodwill and intangibles, net............................... 292,923 226,593
---------- ----------
$1,427,631 $1,491,745
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables............................................ $ 98,309 $ 96,437
Accrued liabilities....................................... 66,886 67,883
Notes payable............................................. 13,780 13,759
Current portion of long-term debt......................... 12,000 19,359
Income taxes payable...................................... 5,392 3,707
---------- ----------
Total current liabilities......................... 196,367 201,145
Long-term debt, less current portion........................ 316,254 315,088
Deferred license and royalty income......................... 8,679 12,449
Other liabilities........................................... 24,722 24,658
Minority interest........................................... 104,620 142,077
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000 shares authorized;
-0- and 2 shares Series B and 1 and -0- shares Series D
issued and outstanding at June 30, 1998 and December
31, 1997, respectively ($22,988 liquidation preference
at June 30, 1998)...................................... 1 1
Common stock, $.01 par value; 200,000 shares authorized;
73,167 and 71,432 shares outstanding at June 30, 1998
and December 31, 1997, respectively.................... 731 714
Additional capital........................................ 826,435 766,868
Retained earnings (deficit)............................... (2,165) 70,129
Accumulated other comprehensive income.................... (48,013) (41,384)
---------- ----------
Total stockholders' equity........................ 776,989 796,328
---------- ----------
$1,427,631 $1,491,745
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
F-2
<PAGE> 99
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1998 1997 1998 1997
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales.................................. $ 213,891 $160,229 $453,687 $319,197
Royalties...................................... 19,052 -- 20,052 --
--------- -------- -------- --------
Total revenues......................... 232,943 160,229 473,739 319,197
Costs and expenses:
Cost of product sales.......................... 99,644 75,957 207,613 150,761
Selling, general and administrative expenses... 72,489 65,747 147,626 111,182
Research and development costs................. 5,997 4,610 11,501 8,920
Provision at ICN Yugoslavia (Note 8)........... 165,646 -- 165,646 --
--------- -------- -------- --------
Total expenses......................... 343,776 146,314 532,386 270,863
--------- -------- -------- --------
Income (loss) from operations.................... (110,833) 13,915 (58,647) 48,334
Translation and exchange losses, net............. 19,296 1,715 24,724 5,710
Interest income.................................. (2,250) (2,924) (7,223) (3,463)
Interest expense................................. 5,194 3,423 11,808 7,382
--------- -------- -------- --------
Income (loss) before provision (benefit) for
income taxes and minority interest............. (133,073) 11,701 (87,956) 38,705
Provision (benefit) for income taxes............. 6,603 (11,594) 9,987 (11,790)
Minority interest................................ (42,178) 2,027 (34,393) 6,915
--------- -------- -------- --------
Net income (loss)........................... $ (97,498) $ 21,268 $(63,550) $ 43,580
========= ======== ======== ========
Basic earnings (loss) per common share...... $ (1.34) $ 0.38 $ (0.88) $ 0.76
========= ======== ======== ========
Shares used in per share computation........ 72,813 51,984 72,274 50,985
========= ======== ======== ========
Diluted earnings (loss) per common share.... $ (1.34) $ 0.34 $ (0.88) $ 0.66
========= ======== ======== ========
Shares used in per share computation........ 72,813 64,361 72,274 63,494
========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
F-3
<PAGE> 100
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1998 1997 1998 1997
--------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income (loss).................................. $ (97,498) $21,268 $(63,550) $43,580
Other comprehensive income:
Foreign currency translation adjustments......... (2,021) (4,851) (6,629) (9,057)
Unrealized gains on marketable securities:
Unrealized holding gains arising during
period...................................... 1,238 -- 1,993 --
Reclassification adjustment for gains included
in net income............................... (1,993) -- (1,993) --
Net unrealized gains.......................... (755) -- -- --
--------- ------- -------- -------
Other comprehensive income......................... (2,776) (4,851) (6,629) (9,057)
--------- ------- -------- -------
Comprehensive income (loss)........................ $(100,274) $16,417 $(70,179) $34,523
========= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of
these consolidated condensed financial statements.
F-4
<PAGE> 101
ICN PHARMACEUTICALS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (63,550) $ 43,580
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 22,664 10,765
Provision at ICN Yugoslavia (Note 8).............. 173,440 --
Provision for losses on accounts receivable....... 4,778 1,586
Provision for inventory obsolescence.............. (840) --
Translation and exchange losses, net.............. 24,724 5,710
Other noncash items............................... (903) 12,000
Deferred income................................... (6,246) 666
Loss on sale of fixed assets...................... 72 174
Deferred income taxes............................. (905) (21,515)
Minority interest................................. (34,393) 6,915
Change in assets and liabilities, net of effects of
acquired companies:
Accounts and notes receivable..................... (108,200) (61,291)
Inventories....................................... (15,450) (1,224)
Prepaid expenses and other assets................. (26,416) (722)
Trade payables and accrued liabilities............ (1,358) 10,464
Income taxes payable.............................. 1,714 161
Other liabilities................................. 1,404 5,467
--------- --------
Net cash provided by (used in) operating
activities...................................... (29,465) 12,736
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities............ 22,958 --
Proceeds from sale of fixed assets..................... 209 1,821
Capital expenditures................................... (46,983) (10,861)
Acquisition of product rights and businesses........... (62,589) (11,334)
--------- --------
Net cash used in investing activities............. (86,405) (20,374)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............... 14,945 24,029
Proceeds from exercise of stock options................ 5,867 4,930
Proceeds from issuance of stock........................ 4,299 --
Payments on long-term debt............................. (18,677) (10,741)
Net decrease in notes payable.......................... (194) (1,988)
Dividends paid......................................... (8,111) (5,615)
--------- --------
Net cash provided by (used in) financing
activities...................................... (1,871) 10,615
--------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (1,172) (374)
--------- --------
Net increase (decrease) in cash and cash equivalents........ (118,913) 2,603
Cash and cash equivalents at beginning of period............ 209,896 39,366
--------- --------
Cash and cash equivalents at end of period.................. $ 90,983 $ 41,969
========= ========
</TABLE>
The accompanying notes are an integral part
of these consolidated condensed financial statements.
F-5
<PAGE> 102
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated condensed
financial statements include the accounts of ICN Pharmaceuticals, Inc. and
Subsidiaries (the "Company") and all of its majority-owned subsidiaries.
Investments in 20% through 50% owned affiliated companies, where the Company
exercises significant influence over operating and financial affairs, are
included under the equity method. Investments in less than 20% owned companies
are recorded at cost. All significant intercompany account balances and
transactions have been eliminated.
Per Share Information: Earnings per share have been restated to reflect the
fourth quarter 1997 adoption of Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share. Common share and per common share amounts
for all periods presented have also been restated to reflect a three-for-two
stock split (in the form of a dividend), which became effective March 16, 1998.
In March 1998, the Company's Board of Directors declared a first quarter
cash dividend of $0.06 per share, payable on April 22, 1998, to stockholders of
record on April 8, 1998. In June 1998, the Company's Board of Directors declared
a second quarter cash dividend of $0.06 per share, payable on July 22, 1998, to
stockholders of record on July 8, 1998.
Reclassifications: Certain prior year amounts have been reclassified to
conform with the current period presentation, with no effect on previously
reported net income or stockholders' equity.
2. ACQUISITIONS
Acquired Product Rights -- In February 1998, the Company acquired from
SmithKline Beecham plc ("SKB") the Asian, Australian and African rights to 39
prescription and over-the-counter pharmaceutical products, including Actal,
Breacol, Coracten, Eskornade, Fefol, Gyno-Pevaryl, Maxolan, Nyal, Pevaryl,
Ulcerin and Vylcim. The Company received the product rights in exchange for
$45,500,000 payable in a combination of $22,500,000 in cash and 821 shares of
the Company's Series D Convertible Preferred Stock. Each share of the Series D
Convertible Preferred Stock is initially convertible into 750 shares of the
Company's common stock (together, the "SKB Shares"), subject to certain
antidilution adjustments. Except under certain circumstances, SKB has agreed not
to sell the SKB Shares until November 4, 1999. The Company has agreed to pay SKB
an additional amount in cash (or, under certain circumstances, in shares of
common stock) to the extent proceeds received by SKB from the sale of the SKB
Shares during a specified period ending in December 1999 and the then market
value of the unsold SKB Shares do not provide SKB with an average value of
$46.00 per common share (including any dividend paid on the SKB Shares).
Alternatively, SKB is required to pay the Company an amount, in cash or shares
of the Company's common stock, to the extent that such proceeds and market value
provide SKB with an average per share value in excess of $46.00 per common share
(including any dividend paid on the SKB Shares). The Company has also granted
SKB certain registration rights covering the common shares issuable upon
conversion of the Series D Preferred Stock.
In March 1998, the Company acquired the rights to a portfolio of 32
dermatology products from Laboratorio Pablo Cassara ("Cassara") for $22,450,000
in cash. The Company will market the products through its subsidiary, ICN
Argentina.
Vyzkumny Ustav Antibiotic a Biotransformacii -- In June 1998, the Company
agreed to acquire Vyzkumny Ustav Antibiotic a Biotransformacii ("VUAB"), a
pharmaceutical manufacturing and
F-6
<PAGE> 103
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
research facility located in a suburb of Prague in the Czech Republic, for
approximately $18,600,000 in cash. VUAB produces and sells pharmaceutical
products in finished forms, principally injectable antibiotics and infusion
solutions, and pharmaceutical raw materials. The acquisition is expected to be
completed in the third quarter of 1998 and will be accounted for as a purchase.
The excess of the purchase price over the fair value of the net assets acquired
will be recorded as goodwill and will be amortized on a straight-line basis over
20 years. The purchase price allocation is pending appraisals, evaluations, and
other studies of the fair value of the assets and liabilities acquired. The
acquisition is not material to the financial position or results of operations
of the Company.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Income:
Net income (loss)................................. $(97,498) $21,268 $(63,550) $43,580
Dividends and accretion on preferred stock........ -- (1,650) (34) (4,959)
-------- ------- -------- -------
Numerator for basic earnings per share -- income
available to common stockholders............... (97,498) 19,618 (63,584) 38,621
Effect of dilutive securities:
Convertible debt............................. -- 2,065 -- 3,226
-------- ------- -------- -------
Numerator for diluted earnings per share -- income
available to common stockholders after assumed
conversions.................................... $(97,498) $21,683 $(63,584) $41,847
======== ======= ======== =======
Shares:
Denominator for basic earnings per share --
weighted-average shares outstanding............ 72,813 51,984 72,274 50,985
Effect of dilutive securities:
Employee stock options......................... -- 1,389 -- 1,521
Convertible debt............................... -- 10,901 -- 10,901
Other dilutive securities...................... -- 87 -- 87
-------- ------- -------- -------
Dilutive potential common shares.................. -- 12,377 -- 12,509
-------- ------- -------- -------
Denominator for diluted earnings per
share -- adjusted weighted-average shares and
assumed conversions............................... 72,813 64,361 72,274 63,494
======== ======= ======== =======
Basic earnings (loss) per common share.............. $ (1.34) $ 0.38 $ (0.88) $ 0.76
======== ======= ======== =======
Diluted earnings (loss) per common share............ $ (1.34) $ 0.34 $ (0.88) $ 0.66
======== ======= ======== =======
</TABLE>
Income available to common stockholders, for purposes of computing basic
earnings per common share, includes adjustments for preferred dividends and, in
1997, an embedded dividend arising from the discounted conversion terms of the
Series B Convertible Preferred Stock. For the three months and six months ended
June 30, 1998, the Company's stock options, preferred stock, and convertible
debt are not included in the computation of diluted earnings per share as such
securities are antidilutive. For all periods presented, the Company's Series B
Convertible Preferred Stock is not reflected in the computation of diluted
earnings per common share as such securities are antidilutive. In April 1998,
all of the remaining outstanding shares of the Company's Series B Preferred
Stock were converted into approximately 57,000 shares of the Company's common
stock.
F-7
<PAGE> 104
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income, which established standards for the
reporting and display of comprehensive income. The Company has adopted SFAS No.
130 effective January 1, 1998. Comprehensive income includes such items as
foreign currency translation adjustments and unrealized holding gains and losses
on available-for-sale securities that are currently being presented by the
Company as a component of stockholders' equity. SFAS No. 130 does not affect
current principles of measurement of revenues and expenses and accordingly the
adoption of SFAS No. 130 had no effect on the Company's results of operations or
financial position.
The balance of accumulated other comprehensive income at June 30, 1998 and
December 31, 1997 consists of accumulated foreign currency translation
adjustments. Such amounts are not recorded net of any tax provision or benefit
as the Company does not expect to realize any significant tax benefit or expense
from these items.
5. DETAIL OF CERTAIN ACCOUNTS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
RECEIVABLES, NET:
Trade accounts receivable............................. $309,505 $254,376
Other receivables..................................... 11,476 18,118
-------- --------
320,981 272,494
Allowance for doubtful accounts....................... (27,740) (11,999)
-------- --------
$293,241 $260,495
======== ========
INVENTORIES, NET:
Raw materials and supplies............................ $ 62,386 $ 65,937
Work-in-process....................................... 18,543 16,745
Finished goods........................................ 87,943 75,782
-------- --------
168,872 158,464
Allowance for inventory obsolescence.................. (11,355) (11,476)
-------- --------
$157,517 $146,988
======== ========
PROPERTY, PLANT AND EQUIPMENT, NET:
Property, plant and equipment, at cost................ $431,755 $413,825
Accumulated depreciation and amortization............. (61,742) (53,112)
-------- --------
$370,013 $360,713
======== ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Litigation: Four lawsuits have been filed with respect to the Merger in the
Court of Chancery in the State of Delaware (the "1994 Actions"). Three of these
lawsuits were filed by stockholders of SPI and, in one lawsuit, of Viratek
against ICN, SPI, Viratek (in the one lawsuit) and certain directors and
officers of ICN, SPI and/or Viratek (including the Chairman) and purport to be
class actions on behalf of all persons who held shares of SPI and Viratek common
stock. The fourth lawsuit was filed by a stockholder of Viratek against ICN,
Viratek and certain directors and officers of ICN, SPI and Viratek (including
the Chairman) and purports to be a class action on behalf of all persons who
held shares of Viratek common stock. These suits allege that the consideration
provided to the public stockholders of SPI and/or Viratek in the Merger was
unfair and inadequate,
F-8
<PAGE> 105
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
and that the defendants breached their fiduciary duties in approving the Merger
and otherwise. Stipulations of dismissal without prejudice were recently filed
in connection with the 1994 Actions and those actions are now at an end.
Investigations: Pursuant to an Order Directing Private Investigation and
Designating Officers to Take Testimony, entitled In the Matter of ICN
Pharmaceuticals, Inc., (P-177) (the "Order"), a private investigation is being
conducted by the United States Securities and Exchange Commission (the
"Commission") with respect to certain matters pertaining to the status and
disposition of the 1994 Hepatitis C NDA. As set forth in the Order, the
investigation concerns whether, during the period from June 1994 through
February 1995, the Company, persons or entities associated with it and others,
in the offer and sale or in connection with the purchase and sale of ICN
securities, engaged in possible violations of Section 17(a) of the Securities
Act of 1933 (the "Securities Act") and Section 10(b) of the Securities and
Exchange Act of 1934 (the "Exchange Act") and Rule l0b-5 thereunder, by having
possibly: (i) made false or misleading statements or omitted material facts with
respect to the status and disposition of the 1994 Hepatitis C NDA; (ii)
purchased or sold common stock while in possession of material, non-public
information concerning the status and disposition of the 1994 Hepatitis C NDA;
or (iii) conveyed material, non-public information concerning the status and
disposition of the 1994 Hepatitis C NDA, to other persons who may have purchased
or sold common stock. The Company has cooperated and continues to cooperate with
the Commission in its investigation. On January 13, 1998, ICN received a letter
from the Commission's Philadelphia District Office (the "District Office")
stating the District Office's intention to recommend to the Commission that it
authorize the institution of a civil action against the Company, Milan Panic,
Chairman and Chief Executive Officer of the Company, and a former senior
executive of the Company. As set forth in the letter, the District Office seeks
the authority to commence a civil action to enjoin the Company from future
violations of Section 10(b) of the Exchange Act and Rule l0b-5 thereunder and to
impose a civil penalty of up to $500,000 on ICN. In regard to Mr. Panic, the
District Office seeks the authority to commence a civil action: (i) to enjoin
Mr. Panic from future violations of Section 17(a) of the Securities Act, Section
10(b) of the Exchange Act and Rule 10b-5 thereunder; (ii) for disgorgement of
approximately $390,000; (iii) for prejudgment interest; (iv) for a civil penalty
pursuant to Section 21A of the Exchange Act that cannot exceed three times any
amount disgorged; and (v) for an order barring Mr. Panic from serving as an
officer or director of a public company pursuant to Section 21 of the Exchange
Act. On January 30, 1998, the Company filed submissions with the Commission
urging that it reject the District Office's request. In the event that the
Commission grants the District Office's request, a civil action could be
commenced at any time.
The Company has received subpoenas (the "Subpoenas") from a Grand Jury in
the United States District Court, Central District of California requesting the
production of documents covering a broad range of matters over various time
periods. In March 1998, the Company was advised that the office of the United
States Attorney for the Central District of California is considering the
Company, Mr. Panic and a former officer of the Company targets of the
investigation. The Company was also advised that two senior executive officers
of the Company, a former officer of the Company and a current employee of the
Company are considered subjects of the investigation. The United States
Attorney's office has advised counsel for the Company that the areas of its
investigation include disclosures made and not made concerning the 1994
Hepatitis C NDA to the public and other third parties; stock sales for the
benefit of Mr. Panic following receipt on November 28, 1994 of a letter from the
FDA informing the Company that the 1994 Hepatitis C NDA had been found not
approvable; possible violations of the economic embargo imposed by the United
States upon the Federal Republic of Yugoslavia, based upon alleged sales by the
Company and Mr. Panic of stock belonging to ICN employees; and, with respect to
Mr. Panic, personal disposition
F-9
<PAGE> 106
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
of assets of entities associated with Yugoslavia, including possible
misstatements and/or omissions in federal tax filings. The Company has and
continues to cooperate in the Grand Jury investigation. A number of current and
former employees of the Company have been interviewed by the government in
connection with the investigation. Recently, the United States Attorney's office
issued subpoenas requiring various current and former officers and employees of
the Company to testify before the Grand Jury. Certain current and former
employees testified before the Grand Jury beginning in July 1998.
The ultimate outcome of the Commission and Grand Jury investigations cannot
be predicted and any unfavorable outcome could have a material adverse effect on
the Company.
The Company is a party to a number of other pending or threatened lawsuits.
In the opinion of management, the ultimate resolution of these other matters
will not have a material effect on the Company's consolidated financial
position, results of operations, or liquidity.
F-10
<PAGE> 107
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
7. GEOGRAPHIC DATA
The following tables set forth the amount of revenues and operating income
(loss) of the Company by geographic area for the three and six months ended June
30, 1998 and 1997 and the identifiable assets of the Company by geographic area
as of June 30, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
United States....................... $ 73,936 $ 30,755 $122,574 $ 59,239
Canada.............................. 4,459 5,134 9,470 10,130
-------- -------- -------- --------
North America.................... 78,395 35,889 132,044 69,369
Latin America (principally
Mexico).......................... 20,202 14,400 37,412 27,841
Western Europe...................... 12,914 14,541 26,413 28,810
Yugoslavia.......................... 41,564 47,086 114,728 98,108
Russia.............................. 44,325 28,079 96,953 54,208
Hungary............................. 14,721 14,520 28,148 29,649
Poland.............................. 8,776 -- 17,531 --
-------- -------- -------- --------
Eastern Europe................... 109,386 89,685 257,360 181,965
Asia, Africa, and Australia......... 12,046 5,714 20,510 11,212
-------- -------- -------- --------
Total....................... $232,943 $160,229 $473,739 $319,197
======== ======== ======== ========
OPERATING INCOME (LOSS):
United States....................... $ 43,062 $ 12,215 $ 64,245 $ 20,217
Canada.............................. 1,200 1,546 3,131 3,414
-------- -------- -------- --------
North America.................... 44,262 13,761 67,376 23,631
Latin America (principally
Mexico).......................... 6,454 3,378 10,789 6,089
Western Europe...................... 577 1,011 2,388 2,195
Yugoslavia.......................... (161,555)(1) 13,275 (135,872)(1) 32,582
Russia.............................. 5,593 4,254 12,535 10,692
Hungary............................. 4,178 1,696 6,234 4,786
Poland.............................. 1,581 -- 4,209 --
-------- -------- -------- --------
Eastern Europe................... (150,203) 19,225 (112,894) 48,060
Asia, Africa, and Australia......... 1,699 (29) 2,309 115
Corporate........................... (13,622) (23,431)(2) (28,615) (31,756)(2)
-------- -------- -------- --------
Total....................... $(110,833) $ 13,915 $(58,647) $ 48,334
======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes $169,313,000 provision at ICN Yugoslavia related to certain notes
and accounts receivable and related investments -- see Note 8.
(2) Includes $12,000,000 of expenses related to a charge in connection with the
settlement of a class action lawsuit.
F-11
<PAGE> 108
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
IDENTIFIABLE ASSETS:
United States.......................................... $ 375,787 $ 377,315
Canada................................................. 8,724 11,282
---------- ----------
North America....................................... 384,511 388,597
Latin America (principally Mexico)..................... 58,090 30,191
Western Europe......................................... 51,588 48,086
Yugoslavia............................................. 292,152 421,731
Russia................................................. 196,981 145,162
Hungary................................................ 79,543 79,632
Poland................................................. 81,672 68,066
---------- ----------
Eastern Europe...................................... 650,348 714,591
Asia, Africa, and Australia............................ 79,214 26,812
Corporate.............................................. 203,880 283,468
---------- ----------
Total.......................................... $1,427,631 $1,491,745
========== ==========
</TABLE>
8. ICN YUGOSLAVIA
Business Environment: ICN Yugoslavia, a 75% owned subsidiary, operates in a
business environment that is subject to significant economic volatility and
political instability. Currently the Yugoslavian economy is affected by
continuing liquidity problems, inflation and monetary exposures, recent and
potential future currency devaluations, price controls, government spending
limitations, credit risk, political instability, and international economic
sanctions. The future of the economic and political environment of Yugoslavia is
uncertain and could deteriorate further, resulting in a material adverse impact
on the Company's financial position and results of operations.
Devaluation: On April 1, 1998, the Yugoslavian government devalued the
dinar from a rate of 6.0 dinars per U.S. $1 to 10.92 dinars per U.S. $1. At the
time of the devaluation the Company's net monetary asset position in Yugoslavia
was approximately $38,000,000, resulting in a foreign translation loss of
approximately $17,000,000 which was recognized in the second quarter of 1998. In
addition to the foreign translation loss, the devaluation has and will continue
to adversely affect sales and gross profit margins at ICN Yugoslavia. Subsequent
to the devaluation, sales are lower due to higher exchange rates and a lack of
immediate price increases. Gross profit margins are further affected as
inventories manufactured prior to the devaluation are charged to cost of sales
at the higher historical exchange rate. Margins are expected to improve after a
devaluation if price increases are obtained and, to some extent, when older,
higher-priced inventory is replaced with inventory manufactured after the
devaluation.
Recovery from the effects of the devaluation will depend on the approval of
new price increases by the Yugoslavian government. Subsequent to the
devaluation, the Company, along with others in the Yugoslavian pharmaceutical
industry, applied to the government for price increases in an amount believed to
be adequate to make possible a recovery from the effects of the devaluation.
However, the Yugoslavian government did not approve any significant price
increases and the Company, along with many of its competitors, suspended all
direct sales to the Yugoslavian government in an effort to encourage the
Yugoslavian government to approve price increases. The suspension of sales
continued through the second quarter of 1998. The Company is unable to predict
the amount and timing of future price increases that may be allowed by the
Yugoslavian government, if any, and the resultant impact on future earnings.
F-12
<PAGE> 109
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Credit Risk: Through the first quarter of 1998, the majority of ICN
Yugoslavia's domestic sales were made to the Yugoslavian government or
government-funded entities. During early 1997, the Company established credit
terms with the Yugoslavian government under which future receivables were
interest-bearing with one year terms and payable in dinars, but fixed in dollar
amounts. At December 31, 1997, the Company had approximately $145,431,000 of
notes receivable from the Yugoslavian government under such terms. During the
first quarter of 1998, the Company continued to make sales to the Yugoslavian
government and government-sponsored entities under similar terms in order to
reduce the Company's exposure to losses resulting from exchange rate
fluctuations, but sales were suspended in April 1998, following the devaluation.
As of June 30, 1998, the outstanding balance of the notes receivable from the
Yugoslavian government was approximately $176,204,000. The Yugoslavian
government has defaulted on approximately $39,000,000 of these notes. In
negotiations with the Company subsequent to the default, the Yugoslavian
government has notified the Company that it can no longer honor the terms of the
existing credit agreements. The Yugoslavian government is seeking concessions
from the Company, including the forgiveness of a substantial portion of the
amounts owed, and has ceased making all of the payments required under the
original credit agreements. The Company is currently working to renegotiate the
credit terms.
As a result of the government's default and the suspension of sales to the
government, the Company has recorded a $173,440,000 charge against earnings at
ICN Yugoslavia in the second quarter of 1998; a portion of this charge is
included in cost of sales ($3,667,000) and interest income ($4,127,000) in the
accompanying condensed consolidated statements of income. The charge consists of
a $151,204,000 reserve for estimated losses on notes receivable (including
accrued interest), a $7,757,000 reserve for accounts receivable from
government-sponsored entities, and a $14,479,000 write-down of the value of
certain related investments and assets. Pending resolution of the negotiations
and the approval of price increases, ICN Yugoslavia has suspended all direct
credit sales to the Yugoslavian government and/or government-sponsored entities.
9. SUPPLEMENTAL CASH FLOW INFORMATION
In March 1998, the Company announced the redemption of its Bio Capital
Holdings 5 1/2% Swiss Franc Exchangeable Certificates (the "New Certificates")
and during the six months ended June 30, 1998 SFr 37,670,000 principal amount of
the New Certificates was exchanged for an aggregate of approximately 802,000
shares of the Company's common stock and the remainder of the New Certificates
were redeemed for cash. Upon the exchange and redemption of the New
Certificates, marketable securities held in trust for the payment of the New
Certificates, having a market value of approximately $22,958,000, became
available to the Company. The exchange increased stockholders' equity by
$25,399,000 and reduced long-term debt and accrued interest by $4,680,000.
In March 1998, ICN Yugoslavia acquired a 33.7% interest in the Dr. Simo
Milosevic Institute A.D., a healthcare center in the Republic of Montenegro,
from the Yugoslavian government in exchange for 147,000,000 dinars ($24,400,000)
of accounts receivable and approximately $1,200,000 in cash. The Company has
guaranteed the collection of the accounts receivable given as consideration for
the health institute. ICN Yugoslavia also acquired a 15% interest in the
financial institution Komercijalna Banka A.D. from the Yugoslavian government in
exchange for 28,600,000 dinars ($4,700,000) of accounts receivable.
In January 1997, the Company issued approximately 811,000 shares of common
stock as payment of its $10,000,000 obligation under the 1987 class action
settlement. Also during the six months ended June 30, 1997, the Company accrued
a second quarter preferred dividend of
F-13
<PAGE> 110
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
$434,000 and a second quarter common stock dividend of $2,833,000. The Company
also issued approximately 103,000 shares of common stock as payment of preferred
stock dividends of $1,442,000.
Cash paid for income taxes for the six months ended June 30, 1998 and 1997
was $5,295,000 and $1,045,000, respectively. Cash paid for interest, net of
amounts capitalized, for the six months ended June 30, 1998 and 1997 was
$13,577,000 and $2,985,000, respectively.
10. SUBSEQUENT EVENT
The Company is in the process of completing a private placement of
approximately $200,000,000 of senior notes due 2008. The notes will bear
interest at approximately 8 3/4% per annum, subject to final pricing, and will
be due in 2008. Interest will be payable semiannually on May 15 and November 15
of each year, commencing in November 1998. The Company anticipates completing
the private placement in August 1998.
F-14
<PAGE> 111
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of ICN Pharmaceuticals, Inc.:
We have audited the consolidated financial statements of ICN
Pharmaceuticals, Inc. (a Delaware corporation) and Subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 14 to the financial statements, as of December 31,
1997, the Company has net monetary assets of $60,000,000 at ICN Yugoslavia which
would be subject to foreign exchange loss if a devaluation of the Yugoslavian
dinar were to occur.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ICN Pharmaceuticals, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
Coopers & Lybrand L.L.P.
Newport Beach, California
March 5, 1998
F-15
<PAGE> 112
ICN PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 209,896 $ 39,366
Restricted cash........................................... 549 552
Receivables, net.......................................... 260,495 258,531
Notes receivable.......................................... 145,431 --
Inventories, net.......................................... 146,988 120,973
Prepaid expenses and other current assets................. 23,392 24,979
---------- --------
Total current assets............................... 786,751 444,401
Property, plant and equipment, net.......................... 360,713 234,209
Deferred income taxes, net.................................. 69,710 34,334
Other assets................................................ 47,978 32,230
Goodwill and intangibles, net............................... 226,593 33,477
---------- --------
$1,491,745 $778,651
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade payables............................................ $ 96,437 $ 62,049
Accrued liabilities....................................... 67,883 55,383
Notes payable............................................. 13,759 13,231
Current portion of long-term debt......................... 19,359 5,961
Income taxes payable...................................... 3,707 1,013
---------- --------
Total current liabilities.......................... 201,145 137,637
Long-term debt, less current portion:
Convertible into common stock........................... 220 130,941
Other long-term debt.................................... 314,868 45,548
Deferred license and royalty income......................... 12,449 13,850
Other liabilities........................................... 24,658 15,622
Minority interest........................................... 142,077 96,583
Common stock subject to Put Agreement....................... -- 23,120
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 10,000 shares authorized; 2
and 50 shares of Series B issued and outstanding at
December 31, 1997 and 1996, respectively ($2,249
liquidation preference at December 31, 1997).............. 1 1
Common stock, $.01 par value; 100,000 shares authorized;
71,432 and 50,134 shares issued and outstanding at
December 31, 1997 and 1996, respectively (including shares
subject to Put Agreement in 1996)......................... 714 485
Additional capital.......................................... 766,868 368,026
Retained earnings (deficit)................................. 70,129 (25,915)
Foreign currency translation adjustment..................... (41,384) (27,247)
---------- --------
Total stockholders' equity......................... 796,328 315,350
---------- --------
$1,491,745 $778,651
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-16
<PAGE> 113
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales............................................... $752,202 $614,080 $507,905
Cost of sales........................................... 351,978 291,807 206,049
-------- -------- --------
Gross profit.......................................... 400,224 322,273 301,856
Selling, general and administrative expenses............ 256,234 192,441 191,459
Research and development costs.......................... 18,692 15,719 17,231
-------- -------- --------
Income from operations................................ 125,298 114,113 93,166
Translation and exchange (gains) losses, net............ 12,790 2,282 (9,484)
Interest income......................................... (15,912) (3,001) (6,488)
Interest expense........................................ 22,849 15,780 22,889
-------- -------- --------
Income before provision (benefit) for income taxes and
minority interest.................................. 105,571 99,052 86,249
Provision (benefit) for income taxes.................... (27,736) (6,815) 2,997
Minority interest....................................... 19,383 18,939 15,915
-------- -------- --------
Net income............................................ $113,924 $ 86,928 $ 67,337
======== ======== ========
Basic earnings per common share....................... $ 1.93 $ 1.75 $ 1.51
======== ======== ========
Shares used in per share computation.................. 55,965 48,341 44,562
======== ======== ========
Diluted earnings per common share..................... $ 1.69 $ 1.51 $ 1.44
======== ======== ========
Shares used in per share computation.................. 69,650 60,197 54,384
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-17
<PAGE> 114
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOREIGN UNREALIZED
PREFERRED STOCK COMMON STOCK RETAINED CURRENCY GAIN (LOSS)
--------------- --------------- ADDITIONAL EARNINGS TRANSLATION ON MARKETABLE
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT SECURITIES TOTAL
------ ------ ------ ------ ---------- --------- ----------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994.................... -- $-- 42,042 $420 $251,575 $(142,946) $(16,709) $(3,432) $ 88,908
Exercise of stock
options................. -- -- 754 7 3,695 -- -- -- 3,702
Translation adjustments... -- -- -- -- -- -- (5,915) -- (5,915)
Issuance of common stock
in connection with
acquisitions............ -- -- 1,073 11 11,069 -- -- -- 11,080
Net unrealized gain on
marketable securities... -- -- -- -- -- -- -- 3,662 3,662
Tax benefit of stock
options exercised....... -- -- -- -- 1,300 -- -- -- 1,300
Cash dividends ($.19 per
share).................. -- -- -- -- -- (7,902) -- -- (7,902)
Effect of 1995 quarterly
stock distributions..... -- -- 1,761 18 22,315 (22,333) -- -- --
Net income................ -- -- -- -- -- 67,337 -- -- 67,337
--- -- ------ ---- -------- --------- -------- ------- --------
BALANCE AT DECEMBER 31,
1995.................... -- -- 45,630 456 289,954 (105,844) (22,624) 230 162,172
Exercise of stock
options................. -- -- 1,302 13 10,154 -- -- -- 10,167
Translation adjustments... -- -- -- -- -- -- (4,623) -- (4,623)
Issuance of preferred
stock................... 50 1 -- -- 47,391 -- -- -- 47,392
Issuance of common stock
in connection with
acquisitions............ -- -- 536 5 6,840 -- -- -- 6,845
Issuance of common stock.. -- -- 1,068 11 12,087 -- -- -- 12,098
Net unrealized gain on
marketable securities... -- -- -- -- -- -- -- (230) (230)
Tax benefit of stock
options exercised....... -- -- -- -- 1,600 -- -- -- 1,600
Cash dividends ($.15 per
share).................. -- -- -- -- -- (6,999) -- -- (6,999)
Net income................ -- -- -- -- -- 86,928 -- -- 86,928
--- -- ------ ---- -------- --------- -------- ------- --------
BALANCE AT DECEMBER 31,
1996.................... 50 1 48,536 485 368,026 (25,915) (27,247) -- 315,350
Exercise of stock
options................. -- -- 1,863 19 20,479 -- -- -- 20,498
Translation adjustments... -- -- -- -- -- -- (14,137) -- (14,137)
Expiration of put
option.................. -- -- 1,598 16 24,614 (533) -- -- 24,097
Issuance of common stock:
In connection with
acquisitions.......... 2 -- 2,454 24 180,685 -- -- -- 180,709
Conversion of debt...... -- -- 10,052 101 161,258 -- -- -- 161,359
In settlement of
litigation............ -- -- 812 8 9,992 -- -- -- 10,000
Conversion of preferred
shares.................. (50) -- 5,797 58 (58) -- -- -- --
Cash dividends ($.21 per
share).................. -- -- -- -- -- (15,472) -- -- (15,472)
Stock dividends........... -- -- 320 3 1,872 (1,875) -- -- --
Net income................ -- -- -- -- -- 113,924 -- -- 113,924
--- -- ------ ---- -------- --------- -------- ------- --------
BALANCE AT DECEMBER 31,
1997.................... 2 $1 71,432 $714 $766,868 $ 70,129 $(41,384) $ -- $796,328
=== == ====== ==== ======== ========= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-18
<PAGE> 115
ICN PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 113,924 $ 86,928 $ 67,337
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 28,753 17,936 13,814
Provision for losses on accounts receivable......... 4,021 4,345 (1,262)
Provision for inventory obsolescence................ 3,342 106 (2,310)
Translation and exchange (gains) losses, net........ 12,790 2,282 (9,484)
Deferred income..................................... (5,072) (1,644) --
Loss (gain) on sale of fixed assets................. (1,184) 982 10
Deferred income taxes............................... (35,376) 358 (1,820)
Other non-cash gains................................ (2,047) (387) (331)
Minority interest................................... 19,383 18,939 15,915
Change in assets and liabilities, net of effects of
acquired companies:
Accounts and notes receivable.................... (154,433) (181,726) 524
Inventories...................................... (6,227) 43,306 (33,950)
Prepaid expenses and other assets................ 3,936 (11,618) (11,461)
Proceeds from license and royalty fees........... -- -- 23,000
Other liabilities................................ (4,839) (11,153) 20,940
Trade payables and accrued liabilities........... 30,665 13,683 5,410
Income taxes payable............................. 1,679 (7,885) (7,006)
--------- --------- --------
Net cash provided by (used in) operating
activities.................................. 9,315 (25,548) 79,326
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................ (100,397) (26,216) (49,685)
Proceeds from sale of fixed assets.................. 3,051 6,954 64
Proceeds from sale of marketable securities......... 40,826 27,663 6,204
Decrease in restricted cash......................... 3 -- 887
Cash acquired in connection with acquisitions....... 1,250 859 --
Acquisition of foreign license rights, product lines
and businesses................................... (44,829) (51,222) (4,495)
--------- --------- --------
Net cash used in investing activities.......... (100,096) (41,962) (47,025)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in notes payable............ (14,395) (10,908) 268
Proceeds from issuance of long-term debt............ 284,051 20,975 284
Payments on long-term debt.......................... (17,555) (13,984) (52,623)
Proceeds from issuance of preferred stock........... -- 47,392 --
Proceeds from issuance of common stock.............. -- 32,842 5,753
Proceeds from issuance of stock put right........... 1,707 3,195 --
Proceeds from exercise of stock options............. 20,498 10,167 3,702
Dividends paid...................................... (11,631) (6,999) (7,902)
--------- --------- --------
Net cash provided by (used in) financing
activities.................................. 262,675 82,680 (50,518)
--------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents......................................... (1,364) 102 (65)
--------- --------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 170,530 15,272 (18,282)
Cash and cash equivalents at beginning of year........ 39,366 24,094 42,376
--------- --------- --------
Cash and cash equivalents at end of year.............. $ 209,896 $ 39,366 $ 24,094
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-19
<PAGE> 116
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BACKGROUND
ICN Pharmaceuticals, Inc. and Subsidiaries ("the Company") was formed in
November 1994, as a result of the merger of ICN Pharmaceuticals, Inc. ("ICN"),
SPI Pharmaceuticals, Inc. ("SPI"), Viratek, Inc. ("Viratek") and ICN
Biomedicals, Inc. ("Biomedicals") (collectively, the "Predecessor Companies"),
in a transaction accounted for using the purchase method of accounting (the
"Merger"). The Company is a multinational pharmaceutical company that develops,
manufactures, distributes and sells pharmaceutical, research, and diagnostic
products and provides radiation monitoring services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and all of its majority-owned
subsidiaries. Investments in 20% through 50% owned affiliated companies are
included under the equity method where the Company exercises significant
influence over operating and financial affairs. Investments in less than 20%
owned companies are recorded at cost. The accompanying consolidated financial
statements reflect the elimination of all significant intercompany account
balances and transactions.
Cash and Cash Equivalents: Cash and cash equivalents at December 31, 1997
and 1996 includes $22,221,000 and $28,687,000, respectively, of certificates of
deposit which have maturities of three months or less. For purposes of the
consolidated statements of cash flows, the Company considers highly-liquid
investments purchased with a maturity of three months or less to be cash
equivalents. The carrying amount of these assets approximates fair value due to
the short-term maturity of these instruments.
Marketable Securities: In 1995, the Company classified its investment in
corporate bond securities, with maturities ranging from 1999 to 2003, as
available for sale. Changes in market values were reflected as unrealized gains
and losses, calculated on the specific identification method, in stockholders'
equity. The contractual maturity value of these securities was $26,700,000.
During 1996, the Company sold $26,663,000 of corporate bond securities for a
total of $26,952,000 resulting in a realized gain of $289,000.
Inventories: Inventories, which include material, direct labor and factory
overhead, are stated at the lower of cost or market. Cost is determined on a
first-in, first-out ("FIFO") basis.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost. The Company primarily uses the straight-line method for depreciating
property, plant and equipment over their estimated useful lives. Buildings and
related improvements are depreciated from 7-50 years, machinery and equipment
from 3-30 years, furniture and fixtures from 3-15 years and leasehold
improvements and capital leases are amortized over their useful lives, limited
to the life of the related lease.
The Company follows the policy of capitalizing expenditures that materially
increase the lives of the related assets and charges maintenance and repairs to
expense. Upon sale or retirement, the costs and related accumulated depreciation
or amortization are eliminated from the respective accounts and the resulting
gain or loss is included in income.
The Company capitalizes interest on borrowed funds during construction
periods as part of the cost of the related asset.
Goodwill and Intangibles: The difference between the purchase price and
the fair value of net assets acquired at the date of acquisition is included in
the accompanying consolidated balance
F-20
<PAGE> 117
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sheets as goodwill and intangibles. Intangible assets also include acquired
product rights. Goodwill and intangibles amortization periods range from 5 to 23
years depending upon the nature of the business or products acquired.
Accumulated amortization at December 31, 1997 and 1996 was $18,145,000 and
$14,945,000, respectively. The Company periodically evaluates the carrying value
of goodwill and intangibles including the related amortization periods. The
Company determines whether there has been impairment by comparing the
anticipated undiscounted future operating income of the acquired entity or
product line with the carrying value of the goodwill. Based on its review, the
Company does not believe that any impairment of its goodwill and intangibles has
occurred.
Notes Payable: The Company classifies various borrowings with initial
terms of one year or less as notes payable. The weighted average interest rate
on short-term borrowings outstanding at December 31, 1997 and 1996 was
approximately 18% and 17%, respectively.
Revenue Recognition: Revenues and related cost of sales are recorded at
the time of shipment or as services are performed.
Foreign Currency Translation: The assets and liabilities of the Company's
foreign operations, except those in highly inflationary economies, are
translated at the end of period exchange rates. Revenues and expenses are
translated at the average exchange rates prevailing during the period. The
effects of unrealized exchange rate fluctuations on translating foreign currency
assets and liabilities into U.S. dollars are accumulated in stockholders'
equity. The monetary assets and liabilities of foreign subsidiaries in highly
inflationary economies are remeasured into U.S. dollars at the end of period
exchange rates and non-monetary assets and liabilities at historical exchange
rates. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 52, Foreign Currency Translation, the Company has included in earnings all
foreign exchange gains and losses arising from foreign currency transactions and
the effects of foreign exchange rate fluctuations on subsidiaries operating in
highly inflationary economies. The recorded (gains) losses from foreign exchange
translation and transactions for 1997, 1996 and 1995, were $12,790,000,
$2,282,000 and $(9,484,000), respectively.
Income Taxes: Income taxes are calculated in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or tax returns. A valuation allowance is
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. In estimating future tax consequences, SFAS No. 109
generally considers all expected future events other than an enactment of
changes in the tax law or rates.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Per Share Information: In 1997, the Financial Accounting Standards Board
issued SFAS No. 128, Earnings Per Share. SFAS No. 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is similar to the previously reported fully diluted earnings
per share. The Company has adopted SFAS No. 128 in 1997, and earnings per share
amounts for all periods prior to 1997 have been restated to comply with its
requirements.
F-21
<PAGE> 118
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, the Company's Board of Directors declared quarterly cash
distributions and dividends for each quarter, totaling $.213 per share. During
1996, the Company's Board of Directors declared quarterly cash distributions for
the first, second and third quarters totaling $.154 per share. For the fourth
quarter of 1996, the Company's Board of Directors declared a cash distribution
of $.051 per share in January 1997.
Stock Split and Stock Distributions: In February 1998, the Company's Board
of Directors approved a three-for-two stock split (in the form of a dividend)
which became effective March 16, 1998. In addition, during 1995, the Company
issued quarterly stock distributions which totaled 5.6%. Common share and per
common share amounts for all periods presented have been restated to reflect the
stock split and the stock distributions.
Stock-Based Compensation: The Company has adopted the disclosure-only
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 defines a fair value based method of accounting for an employee stock
option. Fair value of the stock option is determined considering factors such as
the exercise price, the expected life of the option, the current price of the
underlying stock and its volatility, expected dividends on the stock, and the
risk-free interest rate for the expected term of the option. Under the fair
value based method, compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the service period. Pro forma
disclosures for entities that elect to continue to measure compensation cost
under the intrinsic value method provided by Accounting Principles Board No. 25
must include the effects of all awards granted in fiscal years that begin after
December 15, 1994.
Reclassifications: Certain prior year items have been reclassified to
conform with the current year presentation, with no effect on previously
reported net income or stockholders' equity.
3. ACQUISITIONS
Wuxi ICN Pharmaceuticals -- Effective January 1, 1997, ICN China, Inc. (a
wholly-owned subsidiary of the Company), commenced operations of a
pharmaceutical company under a joint venture agreement with Wuxi Pharmaceutical
Corporation ("Wuxi"), a Chinese state-owned company. Under the agreement, a
limited liability company (the "Chinese Joint Venture Entity") was established
to produce and sell pharmaceutical products. The Chinese Joint Venture Entity is
75% owned by ICN China and 25% owned by Wuxi. Wuxi is a supplier of injectable
antibiotics. Wuxi agreed to contribute its existing operation, with an
approximate net book value of $6,000,000, to the Chinese Joint Venture Entity
and ICN China agreed to contribute a total of $24,000,000 in cash over three
years, primarily for the construction of a new pharmaceutical production plant
and the purchase of related machinery and equipment. The Company contributed
approximately $3,600,000 to the joint venture during 1997.
AO Tomsk Chemical Pharmaceutical Plant -- Effective October 1, 1997, the
Company acquired a 75% interest in AO Tomsk Chemical Pharmaceutical Plant
("Tomsk"), a pharmaceutical company located in Tomsk, Russia, for approximately
$3,000,000 in cash. Tomsk makes and distributes a wide range of pharmaceuticals,
including antiseptics, analgesics, antibiotics and herbal liquids and extracts.
Under the terms of the agreement, the Company will invest approximately
$8,000,000 over the next two years.
Marbiopharm -- Effective October 1, 1997, the Company acquired a 72%
interest in Marbiopharm, a pharmaceutical company located in Yoshkar-Ola,
Russia, for approximately $3,500,000 in cash. Marbiopharm manufactures, sells
and distributes pharmaceutical products in Russia.
Polfa Rzeszow, S.A. -- Effective October 1, 1997, the Company acquired an
80% interest in Polfa Rzeszow, S.A. ("Polfa"), a pharmaceutical company located
in Rzeszow, Poland, for
F-22
<PAGE> 119
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $33,700,000 in cash and approximately 48,000 shares of common
stock of the Company valued at $1,709,000. Polfa makes and distributes a wide
range of pharmaceuticals, including anti-depressants, anti-fungals,
anti-infectives, pain relievers, anti-allergy, cardiovasculars and nutritionals.
Under the terms of the agreement, the Company will invest approximately
$20,000,000 over the next two years, primarily for the construction of a new
pharmaceutical production plant, at which time the Company will own
approximately 90% of Polfa.
Acquired Product Rights -- Effective July 1, 1997, the Company purchased
the worldwide rights to seven products and the non-U.S. rights to two other
products (with an option to purchase the U.S. rights to these products) from F.
Hoffmann-La Roche Ltd. ("Roche"), for aggregate consideration of $90,000,000.
The consideration was paid in a combination of 2,400,000 shares of the Company's
common stock, valued at $40,000,000, and 2,000 shares of the Company's Series C
Convertible Preferred Stock, valued at $50,000,000 (together, the "Roche
Shares"). Each share of the Company's Series C Convertible Preferred Stock was
convertible into 1,500 shares of the Company's common stock. In conjunction with
the issuance of the Roche Shares, the Company guaranteed Roche a price initially
at $17.17 per common share, increasing at a rate of 6% per year for the
three-year guarantee period. Should Roche sell the common shares at any time
during the guarantee period, the agreement entitled the Company to any of the
proceeds realized by Roche in excess of the guaranteed price. Effective October
1, 1997, as a result of the rise in the per share market price of the Company's
common stock since the initial acquisition from Roche, the Company exercised its
option to acquire the U.S. rights to the two products noted above, plus two
other worldwide product rights, for aggregate consideration of $89,008,000,
which was paid with cash owed to the Company by Roche from the sale of the Roche
Shares. The aggregate cost of the acquired product rights of $183,193,000
(including acquisition costs) is included in goodwill and intangibles in the
accompanying consolidated balance sheets at December 31, 1997.
The following table presents unaudited consolidated pro forma financial
information for the twelve months ended December 31, 1997 and 1996, as though
the acquisitions made in 1997 had occurred on January 1, 1996 (in thousands,
except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales............................................ $896,689 $819,978
Income before provision for income taxes
and minority interest.............................. $148,455 $153,520
Net income........................................... $140,940 $121,333
Basic earnings per share............................. $ 2.25 $ 2.21
</TABLE>
The unaudited pro forma financial information is presented for information
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions taken place on January 1, 1996. In
addition, the pro forma results are not intended to be a projection of the
future results and do not reflect any synergies that might be achieved from the
combined operations.
All acquisitions have been accounted for as purchases; operations of the
companies and businesses acquired have been included in the accompanying
consolidated financial statements from their respective dates of acquisition.
The excess of the purchase price over the fair value of net assets acquired is
included in goodwill and intangibles and is being amortized on a straight-line
basis over 10 to 20 years based upon the nature of the business or products
acquired.
F-23
<PAGE> 120
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the purchase price allocation of the 1997 acquisitions is as
follows (in thousands):
<TABLE>
<S> <C>
Current assets (excluding cash of $1,250)................... $ 62,980
Property, plant and equipment............................... 52,664
Other non-current assets.................................... 1,607
Goodwill and intangibles.................................... 194,967
Current liabilities......................................... (38,898)
Long-term liabilities....................................... (20,399)
Minority interest........................................... (24,357)
--------
Total purchase price........................................ $228,564
========
</TABLE>
The purchase price allocations are preliminary, pending completion of the
Company's evaluation of the fair values of the net assets acquired.
Humacao Plant -- The Company also purchased from Roche a GMP-standard
manufacturing plant in Humacao, Puerto Rico (the "Plant") for $55,000,000. The
purchase of the Plant is under a sale/leaseback arrangement, whereby Roche will
lease the Plant from the Company under a two year lease with lease payments
totaling $4,000,000 annually. Approximately $6,000,000 of the purchase price was
offset against amounts due from Roche under the lease and related agreements,
and the remainder was paid in cash. Roche will continue to use the Plant for the
manufacture of pharmaceutical products during the term of the lease. The Company
also entered into a toll manufacturing agreement under which it will produce
pharmaceutical products for Roche for a one-year period after the expiration of
the lease.
Velefarm -- In October 1997, the Company acquired a 42.6% interest in
Velefarm, a major distributor of pharmaceutical products located in Belgrade,
Yugoslavia, for an investment of approximately $13,224,000. Under the terms of
the agreement, the Company exchanged accounts receivable due from Velefarm (as
agent for the Yugoslavian government) for the 42.6% interest. ICN Yugoslavia
recorded sales to Velefarm of approximately $140,700,000 and $44,800,000 for the
years ended December 31, 1997 and 1996, respectively, of which approximately
$30,200,000 of 1997 sales were subsequent to the Company's investment. The
Company's investment in Velefarm has been recorded under the equity method of
accounting.
4. RELATED PARTY TRANSACTIONS
In August 1996, the Company loaned the Chairman and CEO $428,000 in regards
to tax matters relating to the exercise of stock options. This loan along with
accrued interest was repaid in November 1996. In June 1996, the Company made a
short-term loan to the Chairman and CEO in the amount of $3,500,000 for certain
personal obligations. During August 1996, this amount was repaid to the Company.
In connection with this transaction, the Company guaranteed $3,600,000 of debt
of the Chairman with a third party bank. In addition to the guarantee, the
Company deposited $3,600,000 with this bank as collateral to the Chairman's
debt. This deposit is recorded as a long-term asset on the consolidated balance
sheet. The Chairman has provided collateral to the Company's guarantee in the
form of a right to the proceeds of the exercise of stock options in the amount
of 150,000 options with an exercise price of $15.17 and the rights to a
$4,000,000 life insurance policy provided by the Company. In the event of any
default on the debt to the bank, the Company has recourse that is limited to the
collateral described above. Both the transaction and the sufficiency of the
collateral for the guarantee were approved by the Board of Directors.
F-24
<PAGE> 121
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1997, the Company made a short-term advance of $327,000 to the Chairman
and CEO, which was repaid, with interest, in 1997.
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially expose the Company to concentrations
of credit risk, as defined by SFAS No. 105, consist primarily of cash deposits
and marketable securities. The Company places its cash and cash equivalents with
respected financial institutions and limits the amount of credit exposure to any
one financial institution. (See also Note 14.) At December 31, 1997, the
Company's cash and cash equivalents include $178,536,000 held in time deposits,
money market funds, and municipal debt securities through seven major financial
institutions.
6. INCOME TAXES
Pretax income (loss) from continuing operations before minority interest
for each of the years ended December 31, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Domestic........................................... $(21,886) $ 5,039 $ 7,145
Foreign............................................ 127,457 94,013 79,104
-------- ------- -------
$105,571 $99,052 $86,249
======== ======= =======
</TABLE>
The income tax (benefit) provision for each of the years ended December 31,
consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current
Federal.......................................... $ -- $(9,469) $ --
State............................................ 200 68 425
Foreign.......................................... 7,440 2,228 4,392
-------- ------- -------
7,640 (7,173) 4,817
Deferred
Federal.......................................... (31,375) -- (1,820)
Foreign.......................................... (4,001) 358 --
-------- ------- -------
(35,376) 358 (1,820)
-------- ------- -------
$(27,736) $(6,815) $ 2,997
======== ======= =======
</TABLE>
The current federal tax provision has not been reduced for the tax benefit
associated with the exercise of employee stock options of $-0-, $1,600,000, and
$1,300,000 in 1997, 1996 and 1995, respectively, which were credited directly to
additional capital.
In connection with the Merger, the Company acquired approximately
$226,000,000 of net operating loss carryforwards ("NOLs"). Included in the total
acquired NOLs were $191,000,000 of domestic NOLs and $35,000,000 of foreign
NOLs. Internal Revenue Service Code Section 382 imposes an annual limitation on
the availability of NOLs that can be used to reduce taxable income after certain
substantial ownership changes of a corporation. Consequently, the Company's
annual limitation on utilization of the acquired domestic NOLs is approximately
$33,000,000 per year.
F-25
<PAGE> 122
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the utilization of the NOLs described above, the Company
recognized during 1995 a $27,000,000 tax benefit of an additional $76,000,000 of
acquired NOLs and other deferred tax assets through a reduction in the Company's
deferred tax asset valuation allowance. This reduction resulted in a $24,000,000
reduction in goodwill and intangibles acquired in connection with the Merger and
a $3,000,000 reduction in deferred income tax expense. In 1997, the provision
for income taxes reflects a deferred tax benefit of $35,376,000 resulting from
the recognition of certain deferred tax assets and the reduction of the related
valuation allowance. During 1997, the Company acquired certain product rights
from Roche, and in early 1998 it acquired certain products from SmithKline
Beecham plc. These new products are expected to generate future taxable income
that provided a basis for reducing the Company's valuation allowance for
deferred tax assets in 1997. Ultimate realization of the deferred tax assets is
dependent upon the Company generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that the net deferred tax assets
will be realized. The amount of the deferred tax assets considered realizable,
however, could be reduced in the future if estimates of future taxable income
during the carryforward period are reduced.
At December 31, 1997, the Company has domestic and foreign NOLs of
approximately $209,000,000 and $25,000,000, respectively, expiring in varying
amounts from 1998 to 2012.
The primary components of the Company's net deferred tax asset at December
31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
NOL carryforward.......................................... $78,356 $71,019
Inventory and other reserves.............................. 6,605 11,011
Tax credit carryover...................................... 1,226 554
Deferred income........................................... 4,415 4,848
Long-term debt............................................ 4,984 4,745
Other..................................................... 781 855
Valuation allowance....................................... (23,077) (55,769)
------- -------
Total deferred tax asset.................................. 73,290 37,263
Deferred tax liabilities:
Property, plant and equipment............................. (196) (223)
Inventory................................................. (1,770) (1,770)
Other..................................................... (1,614) (936)
------- -------
Total deferred tax liability.............................. (3,580) (2,929)
------- -------
Net deferred tax asset.................................... $69,710 $34,334
======= =======
</TABLE>
F-26
<PAGE> 123
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's effective tax rate differs from the applicable U.S. statutory
federal income tax rate due to the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................................. 35% 35% 35%
Foreign source income taxed at lower effective rates........ (28) (31) (24)
Utilization of foreign NOL.................................. -- -- (1)
Recognition of fully reserved deferred tax assets........... (33) -- (4)
Favorable audit settlement.................................. -- (5) (2)
State income taxes, net of federal income taxes benefit..... -- -- (1)
Domestic NOL loss carryback................................. -- (5) --
Other, net.................................................. -- (1) --
--- --- ---
Effective rate.............................................. (26)% (7)% 3%
=== === ===
</TABLE>
During 1996, no U.S. income or foreign withholding taxes were provided on
the undistributed earnings of the Company's foreign subsidiaries with the
exception of the Company's Panamanian subsidiary, Alpha Pharmaceuticals, since
management intends to reinvest those undistributed earnings in the foreign
operations. Included in consolidated retained earnings at December 31, 1997, is
approximately $290,000,000 of accumulated earnings of foreign operations that
would be subject to U.S. income or foreign withholding taxes, if and when
repatriated.
The Internal Revenue Service has concluded its examination of the Company's
tax years ended November 30, 1991, 1990, 1989 and 1988, which resulted in a
reduction in net operating loss carryforwards of $13,000,000 (pretax) and a
corresponding decrease in the pretax valuation allowance.
F-27
<PAGE> 124
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Income:
Net income............................................... $113,924 $86,928 $67,337
Dividends and accretion on preferred stock............... (5,651) (2,199) --
-------- ------- -------
Numerator for basic earnings per share -- income
available to common stockholders...................... 108,273 84,729 67,337
Effect of dilutive securities:
8 1/2% Convertible Subordinated Notes................. 9,328 7,520 10,759
5 5/8% Swiss Franc Exchangeable Certificates.......... 123 (738) --
5 1/2% Swiss Franc Exchangeable Certificates.......... 37 (345) --
Other dilutive securities............................. -- 21 201
-------- ------- -------
Numerator for diluted earnings per share -- income
available to common stockholders after assumed
conversions........................................... $117,761 $91,187 $78,297
======== ======= =======
Shares:
Denominator for basic earnings per share -- weighted-
average shares outstanding............................ 55,965 48,341 44,562
Effect of dilutive securities:
Employee stock options................................ 3,033 1,596 1,373
Series C Preferred Stock.............................. 1,266 -- --
8 1/2% Convertible Subordinated Notes................. 6,744 7,800 7,800
5 5/8% Swiss Franc Exchangeable Certificates.......... 1,811 1,377 --
5 1/2% Swiss Franc Exchangeable Certificates.......... 831 831 --
Other dilutive securities............................. -- 252 649
-------- ------- -------
Dilutive potential common shares......................... 13,685 11,856 9,822
-------- ------- -------
Denominator for diluted earnings per share -- adjusted
weighted-average shares and assumed conversions....... 69,650 60,197 54,384
======== ======= =======
Basic earnings per share................................... $ 1.93 $ 1.75 $ 1.51
======== ======= =======
Diluted earnings per share................................. $ 1.69 $ 1.51 $ 1.44
======== ======= =======
</TABLE>
All common share and per common share amounts have been adjusted to reflect
the three-for-two stock split which became effective March 16, 1998.
Income available to common stockholders, for purposes of computing basic
earnings per share, reflects adjustments for cumulative preferred dividends and
an embedded dividend arising from the discounted conversion terms of the Series
B Preferred Stock. The Company's Series B Convertible Preferred Stock is not
reflected in the computation of diluted earnings per share as such securities
are antidilutive. As of December 31, 1997, the 2,249 outstanding shares of
Series B Preferred Stock are convertible into approximately 82,500 shares of the
Company's common stock. All shares of the Company's Series C Convertible
Preferred Stock, issued in July 1997, were converted into common stock during
1997 and the adjustment to the number of shares outstanding represents the
additional
F-28
<PAGE> 125
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares that would have been outstanding had the Series C Preferred Stock been
converted to common stock at the time of issuance.
8. DETAIL OF CERTAIN ACCOUNTS
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
RECEIVABLES, NET:
Trade accounts receivable................................. $254,376 $257,619
Other receivables......................................... 18,118 9,782
-------- --------
272,494 267,401
Allowance for doubtful accounts........................... (11,999) (8,870)
-------- --------
$260,495 $258,531
======== ========
INVENTORIES, NET:
Raw materials and supplies................................ $ 65,937 $ 48,656
Work-in-process........................................... 16,745 14,625
Finished goods............................................ 75,782 67,845
-------- --------
158,464 131,126
Allowance for inventory obsolescence...................... (11,476) (10,153)
-------- --------
$146,988 $120,973
======== ========
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Advances to inventory suppliers........................... $ 16,415 $ 14,335
Tax receivable............................................ -- 6,100
Other..................................................... 6,977 4,544
-------- --------
$ 23,392 $ 24,979
======== ========
PROPERTY, PLANT AND EQUIPMENT, NET:
Land...................................................... $ 20,531 $ 17,708
Buildings................................................. 127,577 84,054
Machinery and equipment................................... 145,640 91,602
Furniture and fixtures.................................... 20,273 18,819
Leasehold improvements.................................... 3,426 3,019
-------- --------
317,447 215,202
Accumulated depreciation and amortization................. (53,112) (46,420)
Construction in progress.................................. 96,378 65,427
-------- --------
$360,713 $234,209
======== ========
</TABLE>
F-29
<PAGE> 126
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the third quarter of 1994, ICN Yugoslavia commenced a construction
and modernization program at its pharmaceutical complex outside Belgrade,
Yugoslavia. At December 31, 1997 and 1996, construction in progress primarily
relates to costs incurred to date for these facilities and includes capitalized
interest of $5,419,000 in 1997 and $3,770,000 in 1996.
<TABLE>
<CAPTION>
1997 1996
---- -------
(IN THOUSANDS)
<S> <C> <C>
ACCRUED LIABILITIES:
Payroll and related items................................. $16,423 $18,149
Interest.................................................. 11,683 3,687
Legal settlement.......................................... -- 10,000
Other..................................................... 39,777 23,547
------- -------
$67,883 $55,383
======= =======
</TABLE>
9. DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Convertible debt:
8 1/2% Convertible Subordinated Notes due 1999, converted in
1997...................................................... $ -- $114,980
Swiss Franc Subordinated Bonds due 1988-2001, converted in
1997...................................................... -- 11,149
Swiss Franc Guaranteed Bonds with an effective interest rate
of 8.5%, maturing in 2002 (net of unamortized discount of
$88 and $261 in 1997 and 1996, respectively).............. 6,056 7,536
-------- --------
6,056 133,665
Other Debt:
9 1/4% Senior Notes due 2005................................ 275,000 --
Hungarian mortgages, with interest at rates ranging from
LIBOR + 0.9% to LIBOR + 1.0%; interest and principal due
in varying amounts through 2001........................... 5,258 6,625
U.S. mortgages with variable interest at rates ranging from
7.1% to 8.9% interest and principal payable monthly
through 2022.............................................. 11,925 13,098
Polish mortgage note with interest at a variable rate
(effectively 26% at December 31, 1997); interest and
principal payable monthly through December 2002........... 8,604 --
U.S. capital leases with interest at rates ranging from 4.9%
to 6.1% payable monthly through 2000...................... 1,651 2,589
Hungarian loans in U.S. dollars and various foreign
currencies, with interest at rates ranging from LIBOR +
0.5% to 21.6%, maturing at various dates through 2002..... 24,563 24,328
Other long-term debt due in U.S. dollars and various foreign
currencies, with interest at rates ranging from 5.5% to
9.4%...................................................... 1,390 2,145
-------- --------
334,447 182,450
Less current portion........................................ 19,359 5,961
-------- --------
Total long-term debt.............................. $315,088 $176,489
======== ========
</TABLE>
F-30
<PAGE> 127
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1997, the Company completed an underwritten public offering of
$275,000,000 of its 9 1/4% Senior Notes Due 2005 (the "Senior Notes") for net
proceeds of $265,646,000. The Senior Notes are general unsecured obligations of
the Company which rank pari passu in right of payment with all unsecured senior
indebtedness, and are senior to all subordinated indebtedness of the Company.
The Senior Notes mature on August 15, 2005, and are redeemable in cash at the
option of the Company, in whole or in part, on or after August 15, 2001, at
specified redemption prices. Upon a change of control (as defined in the related
indenture), the Company will be required to offer to repurchase the Senior Notes
at a purchase price equal to 101% of the principal amount thereof, plus accrued
interest thereon to the date of repurchase. Interest on the Senior Notes is
payable semi-annually. The indenture governing the Senior Notes includes certain
covenants which may restrict the incurrence of additional indebtedness, the
payment of dividends and other restricted payments, the creation of certain
liens, the sale of assets, or the Company's ability to consolidate or merge with
another entity, subject to certain qualifications and exceptions. The fair value
of the Senior Notes was approximately $292,188,000 at December 31, 1997.
In November 1994, the Company completed an underwritten public offering in
the principal amount of $115,000,000 of 8 1/2% Convertible Subordinated Notes
Due 1999 (the "Convertible Notes"). During 1997, $114,919,000 of the Convertible
Notes were converted into 7,793,939 shares of the Company's common stock and the
remainder was redeemed for cash.
In October 1986, Xr Capital Holding ("Xr Capital"), a trust established by
ICN, completed an underwritten public offering in Switzerland of Swiss francs
100,000,000 principal amount of 5 5/8% Swiss Franc Exchangeable Certificates
(the "Xr Certificates"). The net proceeds of the offering were used by Xr
Capital to purchase Swiss Franc Subordinated Bonds of the Company due 1988-2001
and SFr. 45,700,000 principal amount of cumulative 5.4% Italian Electrical
Agency Bonds ("Agency Bonds") due 2001. During 1997, SFr. 66,510,000 of the Xr
Certificates were exchanged for 2,246,868 shares of the Company's common stock
and the remainder, SFr. 180,000, was redeemed for cash. In addition, Agency
Bonds with a value of approximately $38,779,000, previously held in trust for
the payment of debt service on the Xr Certificates, became available to the
Company and were sold during 1997.
In 1987, Bio Capital Holding ("Bio Capital"), a trust established by ICN
and Biomedicals, completed a public offering in Switzerland of SFr. 70,000,000
principal amount of 5 1/2% Swiss Franc Exchangeable Certificates ("Old
Certificates"). The Bio Capital debt is senior, uncollateralized indebtedness of
the Company. At the option of the certificate holder, the Old Certificates are
exchangeable into shares of the Company's common stock. Net proceeds were used
by Bio Capital to purchase SFr. 70,000,000 face amount of zero coupon Swiss
Franc Debt Notes due 2002 of the Kingdom of Denmark (the "Danish Bonds") for
SFr. 33,772,000 and 15 series of zero coupon Swiss Franc Guaranteed Bonds of the
Company (the "Zero Coupon Guaranteed Bonds") for SFr. 32,440,000 which are
guaranteed by the Company. Each series of the Zero Coupon Guaranteed Bonds are
in an aggregate principal amount of SFr. 3,850,000 maturing February of each
year through 2002. The Company has no obligation with respect to the payment of
the principal amount of the Old Certificates since they will be paid upon
maturity by the Danish bonds. During 1990, Biomedicals offered to exchange, to
all certificate holders, the Old Certificates for newly issued certificates
("New Certificates"), the terms of which remain the same except that 106.48
shares per SFr. 5,000 principal certificate can be exchanged at $31.43 using a
fixed exchange rate of SFr. 1.49 to U.S. $1.00. Substantially all of the
outstanding Old Certificates were exchanged for New Certificates (together
referred to as "Bio Certificates"). Currently, the face value of the outstanding
Bio Certificates, SFr. 39,615,000, is convertible into approximately 827,000
shares of the Company's common stock at the exchange prices of $31.43 and $54.17
using fixed exchange rates of SFr. 1.49
F-31
<PAGE> 128
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and SFr. 1.54 to U.S. $1.00 for New and Old Certificates, respectively. The fair
value of the Zero Coupon Guaranteed Bonds was approximately $6,143,000 at
December 31, 1997.
The Company has the option to redeem the Bio Certificates in the event that
the market price of the Company's common stock meets certain conditions. In
March 1998, the Company met the conditions for redemption of the New
Certificates and announced its intent to redeem all of the New Certificates for
cash at a redemption price of 100% plus accrued interest. The holders of the New
Certificates may elect to exchange the New Certificates for shares of the
Company's common stock until April 9, 1998, at which time any New Certificates
not exchanged will be redeemed for cash. Through March 5, 1998, holders of SFr.
2,400,000 principal amount of the New Certificates elected to exchange the
certificates for 51,104 shares of the Company's common stock. Upon completion of
the exchange or redemption of the New Certificates, the Danish Bonds become
available to the Company.
The Company has mortgage notes payable totaling $26,663,000 payable in U.S.
dollars, Deutsche marks, Dutch guilders and Hungarian forints, collateralized by
certain real property of the Company, having a net book value of $36,968,000 at
December 31, 1997. The Company also has Hungarian loans totaling $12,144,000
payable in U.S. dollars, Deutsche marks, and Hungarian forints, collateralized
by certain personal property of the Company (principally inventories) having a
net book value of $18,691,000 at December 31, 1997.
Aggregate annual maturities of long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
1998........................................... $ 19,359
1999........................................... 13,610
2000........................................... 7,398
2001........................................... 6,380
2002........................................... 2,654
Thereafter..................................... 285,046
--------
Total................................ $334,447
========
</TABLE>
The fair value of the Company's debt is estimated based on quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities. The carrying amount of all
short-term and variable interest rate borrowings approximates fair value.
The Company has short and long-term lines of credit, classified in notes
payable, aggregating $32,727,000, under which borrowings of $10,598,000 were
outstanding at December 31, 1997. The lines of credit provide for short-term
borrowings and for the issuance of letters of credit, and bear interest at
variable rates based upon LIBOR or other indices. Certain of the lines of credit
also include covenants restricting the payment of dividends, the issuance of new
indebtedness, and the repurchase of the Company's common stock and requiring the
maintenance of certain financial ratios. In February 1998, the aggregate amount
of the lines of credit was increased to approximately $46,027,000.
10. PREFERRED STOCK
In October 1996, the Company issued 50,000 shares of Series B Convertible
Preferred Stock, for net proceeds of $47,392,000, in a private placement. The
Series B Convertible Preferred Stock has a liquidation preference of $1,000 per
share and is convertible at the option of the holder into common stock based on
a conversion price calculated using the average daily low for the five
F-32
<PAGE> 129
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
trading days preceding the conversion date and applying a discount of 13%. The
Series B Convertible Preferred Stock has a 6% annual dividend that is cumulative
and payable quarterly. The Company has the option to pay the dividend in either
cash or common stock of the Company. The Series B Convertible Preferred Stock is
mandatorily convertible into common stock on the fifth anniversary of its
issuance. However, this provision is subject to extension under certain
circumstances. Dividends paid in common stock are based on the fair value of
common stock at the time of declaration. During 1997, 47,951 shares of the
Series B Convertible Preferred Stock were converted into a total of 2,797,820
shares of the Company's common stock.
In August 1997, the Company issued 2,000 shares of its Series C Convertible
Preferred Stock, having a value of $50,000,000, to Roche in connection with the
acquisition of the rights to certain products. The Series C Preferred Stock has
no dividend rights, but has a liquidation preference of $25,000 per share. Each
share was convertible at the option of the holder, initially into 1,500 shares
of the Company's common stock (subject to certain antidilution adjustments).
During 1997, all of the Series C Convertible Preferred Stock was converted into
3,000,000 shares of the Company's common stock.
11. COMMON STOCK
Prior to the Merger, each of the Predecessor Companies had their own stock
option plans. Upon consummation of the Merger, the Company assumed all options
outstanding under the existing stock option plans. The existing stock option
plans were exchanged for shares of the Company. Each option of SPI common stock,
ICN common stock, Viratek common stock and Biomedicals common stock was
exchanged for 1.5, 0.768, 0.749 and 0.296 options of the Company common stock,
respectively. Subsequent to the Merger, no new grants are being issued under
these Plans.
The 1994 Stock Option Plan was adopted on January 26, 1995 and subsequently
approved by shareholders. This plan provides for the granting of options to
purchase a maximum of 4,854,000 shares of the Company's common stock. Under the
plan each nonemployee director is granted 22,500 options on the day following
the annual meeting of stockholders.
Under the terms of all stock option plans, the option price may not be less
than the fair market value at the date of the grant and may not have a term
exceeding 10 years. Option grants vest ratably over a four year period from the
date of the grant. The options granted are reserved for issuance to officers,
directors, key employees, scientific advisors and consultants. The Company has
adopted the disclosure only provisions of SFAS No. 123. Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant date for awards in 1997, 1996 and 1995 consistent
with the provisions of SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net income......................................... $110,426 $85,035 $66,467
Earnings per share -- basic........................ 1.87 1.71 1.49
Earnings per share -- diluted...................... 1.64 1.48 1.42
</TABLE>
F-33
<PAGE> 130
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The schedule below reflects the number of outstanding and exercisable
shares as of December 31, 1997 segregated by price range (in thousands, except
per share data):
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE AVERAGE
RANGE OF OF EXERCISE OF EXERCISE REMAINING
EXERCISE PRICES SHARES PRICE SHARES PRICE LIFE (YEARS)
- --------------- ------ -------- ------ -------- ------------
<S> <C> <C> <C> <C> <C>
$ 2.53 to $11.31 3,375 $ 8.52 2,755 $ 8.13 5.2
$11.36 to $14.75 3,074 13.33 1,000 12.67 8.4
$14.83 to $29.09 2,471 17.55 1,888 18.18 5.2
----- -----
8,920 5,643
===== =====
</TABLE>
The pro forma amounts were estimated using the Black-Scholes option-pricing
model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Weighted-average expected life (years)..................... 5.0 6.5 6.5
Expected volatility........................................ 46% 60% 60%
Annual dividend per share.................................. $0.24 $0.21 $0.21
Risk-free interest rate.................................... 6.33% 6.25% 6.25%
Weighted-average fair value of options granted............. $6.00 $9.49 $6.84
</TABLE>
Because the determination of the fair value of all options granted includes
the factors described in the preceding paragraph and, because additional option
grants are expected to be made each year, the above pro forma disclosures are
not likely to be representative of the pro forma effect on reported net income
for future years.
F-34
<PAGE> 131
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth information relating to stock option plans
during the years ended December 31, 1997, 1996 and 1995 (in thousands, except
per share data):
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF OPTION
SHARES PRICE
------ --------
<S> <C> <C>
Shares under option, December 31, 1994...................... 9,498 $11.77
Granted................................................ 932
Exercised.............................................. (773) $ 5.35
Canceled............................................... (288)
------
Shares under option, December 31, 1995.................... 9,369 $11.24
Granted................................................ 798
Exercised.............................................. (1,302) $ 8.01
Canceled............................................... (150)
------
Shares under option, December 31, 1996.................... 8,715 $12.09
Granted................................................ 2,267
Exercised.............................................. (1,870) $11.03
Canceled............................................... (192)
------
Shares under option, December 31, 1997.................... 8,920 $12.68
======
Exercisable at December 31, 1995.......................... 5,222
======
Exercisable at December 31, 1996.......................... 5,660
======
Exercisable at December 31, 1997.......................... 5,643
======
Options available for grant at December 31, 1996.......... 2,576
======
Options available for grant at December 31, 1997.......... 500
======
</TABLE>
In 1997, long-term debt of the Company having an aggregate carrying value
of $124,060,000 was converted into 10,052,000 shares of the Company's common
stock. In addition, the Company issued 812,000 shares of its common stock,
having a value of $10,000,000, in settlement of litigation. The Company also
issued 129,665 shares of its common stock, having a value of $1,875,000, in
payment of a portion of the 6% annual dividend on the Series B Convertible
Preferred Stock.
In January 1996, the Company sold approximately 600,000 shares of its
common stock to a foreign bank for net proceeds of $6,000,000. The proceeds were
used by the Company for the acquisition of GlyDerm, a Michigan based skin care
company, and several smaller acquisitions.
In 1996, the Company acquired the net assets of the Siemens Dosimetry
Service Division of Siemens Medical Systems, Inc. ("Siemens"), for 1,447,250
shares of the Company's common stock (the "Siemens Shares") plus other
consideration. On December 23, 1996 Siemens sold the Siemens Shares to certain
accounts over which an investment company exercises investment authority
(collectively, the "Purchasers"), for $13.00 per share. In conjunction with and
conditioned upon the consummation of the sale of the Siemens Shares, the Company
entered into an agreement (the "Put Agreement") with the Purchasers pursuant to
which the Company sold 150,000 additional shares of common stock for $1,950,000
(together with the Siemens Shares, the "Purchaser Shares") and sold the
Purchasers, for $3,200,000, the right to put (the "Put Right") 1,597,250 shares
of common stock, valued at $23,120,000 at December 31, 1996, to the Company at
$20 per
F-35
<PAGE> 132
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share on January 10, 2000. The Put Agreement also entitled the Company to a
portion of any proceeds from the sale of the Purchaser Shares in excess of the
$20 per share put price. In 1997 the Purchaser sold substantially all shares
subject to the Put Right and the Put Right expired entirely; the $23,120,000
value of the Purchaser Shares was added to the Company's stockholders' equity.
In addition, the Company received a cash payment from the Purchasers, which was
also added to stockholders' equity.
In connection with the Merger, the Company adopted a Stockholder Rights
Plan to protect stockholders' rights in the event of a proposed or actual
acquisition of 15% or more of the outstanding shares of the Company's common
stock. As part of this plan, each share of the Company's common stock carries a
right to purchase one one-hundredth ( 1/100) of a share of Series A Preferred
Stock (the "Rights"), par value $.01 per share, of the Company at a price of
$125 per one one-hundredth of a share, subject to adjustment, which becomes
exercisable only upon the occurrence of certain events. The Rights are subject
to redemption at the option of the Board of Directors at a price of $.01 per
right until the occurrence of certain events. The Rights expire on November 1,
2004.
12. COMMITMENTS AND CONTINGENCIES
Litigation: In a Consolidated Amended Class Action Complaint for
Violations of Federal Securities Laws (the "Securities Complaint") (the "1995
Actions"), plaintiffs allege that Defendants made various deceptive and untrue
statements of material fact and omitted material facts regarding the Company's
1994 hepatitis C NDA in connection with: (i) the Merger of ICN, SPI, Viratek and
Biomedicals in November 1994 and the issuance of convertible debentures in
connection therewith; and (ii) information provided to the public. Plaintiffs
also allege that the Chairman of the Company traded on inside information
relating to the 1994 hepatitis C NDA. The Securities Complaint asserts claims
for alleged violations of Sections 11 and 15 of the Securities Act of 1933,
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. Plaintiffs motion seeking the certification of (i) a
class of persons who purchased ICN securities from November 10, 1994 through
February 17, 1995; and (ii) a subclass consisting of persons who owned SPI
and/or Biomedicals common stock prior to the Merger was granted. On July 23,
1997, plaintiffs and defendants entered into a Memorandum of Agreement to Settle
Action, whereby the parties agreed to settle the 1995 Actions for $15,000,000 in
cash. The settlement was approved by the Court on February 24, 1998 and the case
is now at an end.
Four lawsuits have been filed with respect to the Merger in the Court of
Chancery in the State of Delaware (the "1994 Actions"). Three of these lawsuits
were filed by stockholders of SPI and, in one lawsuit, of Viratek against ICN,
SPI, Viratek (in the one lawsuit) and certain directors and officers of ICN, SPI
and/or Viratek (including the Chairman) and purport to be class actions on
behalf of all persons who held shares of SPI and Viratek common stock. The
fourth lawsuit was filed by a stockholder of Viratek against ICN, Viratek and
certain directors and officers of ICN, SPI and Viratek (including the Chairman)
and purports to be a class action on behalf of all persons who held shares of
Viratek common stock. These suits allege that the consideration provided to the
public stockholders of SPI and/or Viratek in the Merger was unfair and
inadequate, and that the defendants breached their fiduciary duties in approving
the Merger and otherwise. The 1994 Actions have been dormant since their
commencement and it is expected that they will be dismissed as a result of the
settlement of the 1995 Actions.
Investigations: Pursuant to an Order Directing Private Investigation and
Designating Officers to Take Testimony, entitled In the Matter of ICN
Pharmaceuticals, Inc., (P-177) (the "Order"), a private investigation is being
conducted by the SEC with respect to certain matters pertaining to the
F-36
<PAGE> 133
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
status and disposition of the 1994 hepatitis C NDA. As set forth in the Order,
the investigation concerns whether, during the period June 1994 through February
1995, the Company, persons or entities associated with it and others, in the
offer and sale or in connection with the purchase and sale of Company
securities, engaged in possible violations of Section 17(a) of the Securities
Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder, by having possibly: (i) made false or misleading statements or
omitted material facts with respect to the status and disposition of the 1994
hepatitis C NDA; or (ii) purchased or sold ICN common stock while in possession
of material, non-public information concerning the status and disposition of the
1994 hepatitis C NDA; or (iii) conveyed material, non-public information
concerning the status and disposition of the 1994 hepatitis C NDA, to other
persons who may have purchased or sold ICN stock. The Company has cooperated
with the Commission in its investigation. On January 13, 1998, the Company
received a letter from the SEC's Philadelphia Office (the "District Office")
stating the District Office's intention to recommend to the Commission that it
authorize the institution of a civil action against the Company and Milan Panic.
As set forth in the letter, the District Office seeks the authority to commence
a civil action to enjoin the Company from future violations of Section 10(b) of
the Exchange Act and Rule 10b-5 thereunder and to impose a civil penalty of up
to $500,000 on the Company. In regard to Mr. Panic, the District Office seeks
the authority to begin a civil action (i) to enjoin Mr. Panic from future
violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder; (ii) for disgorgement of approximately $390,000;
(iii) for prejudgment interest; (iv) for a civil penalty pursuant to Section 21A
of the Exchange Act that cannot exceed three times any amount disgorged and (v)
for an officer and director bar pursuant to Section 21 of the Exchange Act. On
January 30, 1998, the Company and Mr. Panic filed submissions with the
Commission urging that it reject the District Office's request.
The Company has received Subpoenas (the "Subpoenas") from a Grand Jury in
the United States District Court, Central District of California requesting the
production of documents covering a broad range of matters over various time
periods. In March 1998, the Company was advised that the office of the United
States Attorney for the Central District of California, is considering the
Company, Mr. Panic and a former officer of the Company targets of the
investigation. The Company was also advised that certain current and former
officers of the Company are considered subjects of the investigation. The
Company has and continues to cooperate in the Grand Jury investigation. A number
of current and former employees of the Company have been interviewed by the
government in connection with the investigation.
The Company is a party to a number of other pending or threatened lawsuits.
In the opinion of management, the ultimate resolution of these other matters
will not have a material effect on the Company's consolidated financial
position, results of operations, or liquidity.
Product Liability Insurance: The Company could be exposed to possible
claims for personal injury resulting from allegedly defective products. While to
date no material adverse claim for personal injury resulting from allegedly
defective products has been successfully maintained against the Company, a
substantial claim, if successful, could have a material adverse effect on the
Company.
Benefits Plans: The Company has a defined contribution plan that provides
all U.S. employees the opportunity to defer a portion of their compensation for
payout at a subsequent date. The Company can voluntarily make matching
contributions on behalf of participating and eligible employees. The Company's
expense related to such defined contribution plan was not material in 1997, 1996
and 1995.
In connection with the Merger, the Company assumed deferred compensation
agreements with certain officers and certain key employees of the Predecessor
Companies, with benefits commenc-
F-37
<PAGE> 134
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ing at death or retirement. As of December 31, 1997, the present value of the
deferred compensation benefits to be paid has been accrued in the amount of
$2,894,000. Interest accrues on the outstanding balance at rates ranging from
9.4% to 12.6%. No new contributions are being made; however, interest continues
to accrue on the present value of the benefits expected to be paid.
Environmental Issues In Hungary: In connection with the acquisition of
Alkaloida, an environmental remediation fund (the "Fund") of approximately
$7,200,000 was established by the government from the proceeds that the Company
tendered. This Fund will be used to remediate a waste disposal site adjacent to
Alkaloida, contaminated by past plant operations, by 1998. In 1997, ownership of
the waste disposal site was transferred to the Hungarian government and the
Company was released from all future liability associated with the site.
Other: Milan Panic, the Company's Chairman of the Board and Chief
Executive Officer, is employed under a contract expiring December 31, 1998 that
provides for, among other things, certain health and retirement benefits. The
contract is automatically extended at the end of each year for successive one
year periods unless either the Company or Mr. Panic terminates the contract upon
six months prior written notice. Mr. Panic, at his option, may provide
consulting services upon his retirement for $120,000 per year for life, subject
to annual cost-of-living adjustments from the base year of 1967, and will be
entitled when serving as a consultant to participate in the Company's medical
and dental plans. Including such cost-of-living adjustments, the annual cost of
such consulting services is currently estimated to be in excess of $535,000. The
consulting fee shall not at any time exceed the annual compensation as adjusted,
paid to Mr. Panic. Upon Mr. Panic's retirement, the consulting fee shall not be
subject to further cost-of-living adjustments.
The Company has employment agreements with six key executives which contain
"change in control" benefits. Upon a "change in control" of the Company as
defined in the contract, the employee shall receive severance benefits equal to
three times salary and other benefits.
13. BUSINESS SEGMENTS AND GEOGRAPHIC DATA
The Company is a multinational pharmaceutical company that develops,
manufactures, distributes and sells pharmaceutical, research, and diagnostic
products and provides radiation monitoring services. The Company operates in two
business segments: the Pharmaceutical group and the Biomedical group. The
Pharmaceutical group produces and markets pharmaceutical products principally in
the United States, Mexico, Canada and Europe. The Biomedical group markets
research products and related services, immunodiagnostic reagents and
instrumentation, and provides radiation monitoring services.
The Company's largest selling product, ribavirin, accounts for
approximately 3% of total Company sales for 1997 and is sold principally in the
United States for the treatment of respiratory syncytial virus ("RSV") in
infants. In July 1995, the Company entered into a licensing agreement with a
subsidiary of Schering-Plough Corporation ("Schering-Plough") to license
ribavirin as a treatment for chronic hepatitis C in combination with alpha
interferon. Under an agreement, Schering-Plough is responsible for all clinical
developments worldwide.
The principal markets for the Company's products are Yugoslavia, the United
States, and Russia, which represented approximately 30%, 22%, and 18% of the
Company's net sales for 1997. Operations in Yugoslavia are subject to business
risks described in Note 14. Approximately 78%, 80%, and 75% of the Company's net
sales for the years ended December 31, 1997, 1996, and 1995 were generated from
operations outside the U.S. Foreign operations are subject to certain risks
inherent in conducting business abroad, including possible nationalization or
expropriation, price
F-38
<PAGE> 135
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and exchange controls, limitations on foreign participation in local
enterprises, health-care regulation and other restrictive governmental actions.
Changes in the relative values of currencies take place from time to time and
may materially affect the Company's results of operations. Their effects on the
Company's future operations are not predictable. The Company does not currently
provide a hedge on its foreign currency exposure and, in certain countries in
which the Company operates, no effective hedging program is available. At
December 31, 1997, the Company had net monetary asset positions in Yugoslavia,
Russia, and Mexico of approximately $60,000,000, $28,475,000, and $6,719,000
which would be subject to a loss if a devaluation were to occur.
The following tables set forth certain information of the Company by
business segment and geographic areas for 1997, 1996 and 1995 (in thousands):
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
NET SALES:
Pharmaceutical............................... $ 681,287 $549,753 $446,566
Biomedical................................... 70,915 64,327 61,339
---------- -------- --------
Total................................ $ 752,202 $614,080 $507,905
========== ======== ========
OPERATING INCOME (LOSS):
Pharmaceutical............................... $ 181,710 $155,344 $129,753
Biomedical................................... 5,148 4,985 5,707
Corporate.................................... (61,560) (46,216) (42,294)
---------- -------- --------
Total................................ $ 125,298 $114,113 $ 93,166
========== ======== ========
IDENTIFIABLE ASSETS:
Pharmaceutical............................... $1,133,943 $600,019 $373,027
Biomedical................................... 74,334 78,095 51,407
Corporate.................................... 283,468 100,537 93,864
---------- -------- --------
Total................................ $1,491,745 $778,651 $518,298
========== ======== ========
DEPRECIATION AND AMORTIZATION:
Pharmaceutical............................... $ 18,772 $ 11,305 $ 9,549
Biomedical................................... 4,535 2,718 2,221
Corporate.................................... 5,446 3,913 2,044
---------- -------- --------
Total................................ $ 28,753 $ 17,936 $ 13,814
========== ======== ========
CAPITAL EXPENDITURES(1):
Pharmaceutical............................... $ 96,635 $ 15,785 $ 56,363
Biomedical................................... 3,160 5,230 2,680
Corporate.................................... 6,602 8,317 450
---------- -------- --------
Total................................ $ 106,397 $ 29,332 $ 59,493
========== ======== ========
</TABLE>
- ---------------
(1) Includes noncash capital expenditures of $6,000, $3,116, and $9,808 for
1997, 1996, and 1995, respectively.
F-39
<PAGE> 136
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC DATA
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
NET SALES:
United States................................ $ 162,610 $121,782 $124,865
Canada....................................... 20,824 18,953 18,765
---------- -------- --------
North America............................. 183,434 140,735 143,630
Latin America (principally Mexico)........... 61,869 49,444 43,684
Western Europe............................... 52,413 59,294 58,170
Yugoslavia................................... 225,530 267,166 234,661
Russia....................................... 134,688 66,788 20,300
Hungary...................................... 59,980 21,461 --
Poland....................................... 13,070 -- --
---------- -------- --------
Eastern Europe............................ 433,268 355,415 254,961
Asia, Africa, and Australia.................. 21,218 9,192 7,460
---------- -------- --------
Total................................ $ 752,202 $614,080 $507,905
========== ======== ========
OPERATING INCOME (LOSS):
United States................................ $ 60,188 $ 52,461 $ 64,810
Canada....................................... 7,423 1,399 4,501
---------- -------- --------
North America............................. 67,611 53,860 69,311
Latin America (principally Mexico)........... 16,167 11,246 8,757
Western Europe............................... 1,761 607 4,712
Yugoslavia................................... 60,235 70,616 46,296
Russia....................................... 28,982 22,021 6,179
Hungary...................................... 10,256 1,964 --
Poland....................................... 2,695 -- --
---------- -------- --------
Eastern Europe............................ 102,168 94,601 52,475
Asia, Africa, and Australia.................. (849) 15 205
Corporate.................................... (61,560) (46,216) (42,294)
---------- -------- --------
Total................................ $ 125,298 $114,113 $ 93,166
========== ======== ========
IDENTIFIABLE ASSETS:
United States................................ $ 377,315 $105,670 $ 57,070
Canada....................................... 11,282 7,433 8,865
---------- -------- --------
North America............................. 388,597 113,103 65,935
Latin America (principally Mexico)........... 30,191 30,691 23,823
Western Europe............................... 48,086 56,578 57,950
Yugoslavia................................... 421,731 342,983 262,272
Russia....................................... 145,162 54,990 12,668
Hungary...................................... 79,632 77,245 --
Poland....................................... 68,066 -- --
---------- -------- --------
Eastern Europe............................ 714,591 475,218 274,940
Asia, Africa, and Australia.................. 26,812 2,524 1,786
Corporate.................................... 283,468 100,537 93,864
---------- -------- --------
Total................................ $1,491,745 $778,651 $518,298
========== ======== ========
</TABLE>
F-40
<PAGE> 137
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. ICN YUGOSLAVIA
The summary balance sheets of ICN Yugoslavia as of December 31, 1997 and
1996, and the summary statements of income before provision for income taxes and
minority interest for the years ended December 31, 1997, 1996 and 1995, are
presented below.
ICN YUGOSLAVIA SUMMARY BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash........................................................ $ 31,701 $ 27,074
Accounts receivable, net.................................... 73,115 158,292
Notes receivable............................................ 145,431 --
Inventories, net............................................ 43,549 53,016
Other current assets........................................ 11,255 11,452
Other long-term assets.................................... 126,424 104,983
-------- --------
$431,475 $354,817
======== ========
Current liabilities......................................... $ 55,070 $ 38,386
Minority interest and long-term liabilities................. 94,455 76,344
Stockholders' equity........................................ 281,950 240,087
-------- --------
$431,475 $354,817
======== ========
</TABLE>
ICN YUGOSLAVIA SUMMARY STATEMENTS OF INCOME
BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales....................................... $225,530 $267,166 $234,661
Cost of sales................................... 117,210 157,981 116,748
-------- -------- --------
Gross profit.................................... 108,320 109,185 117,913
Operating expenses.............................. 48,085 38,569 71,617
-------- -------- --------
Income from operations.......................... 60,235 70,616 46,296
Interest income................................. (10,893) (2,132) (4,087)
Interest expense................................ 107 1,478 3,610
Translation and exchange (gains) losses, net.... 12,602 4,290 (12,063)
-------- -------- --------
Income before provision for income taxes
and minority interest.................... $ 58,419 $ 66,980 $ 58,836
======== ======== ========
</TABLE>
Business environment: ICN Yugoslavia, a 75% owned subsidiary, operates in
a business environment that is subject to significant economic volatility and
political instability. The current trend in Yugoslavia is toward unfavorable
economic conditions that include continuing liquidity problems, inflationary
pressures, unemployment, a weakened banking system and a high trade deficit. The
future of the economic and political environment of Yugoslavia is uncertain and
could
F-41
<PAGE> 138
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deteriorate to the point that a material adverse impact on the Company's
financial position and results of operations could occur.
Liquidity Problems: In an effort by the Central Bank of Yugoslavia to
control inflation through tight monetary controls, Yugoslavia is now
experiencing severe liquidity problems. This has resulted in longer collection
periods for ICN Yugoslavia's receivables. Most of ICN Yugoslavia's customers are
slow to pay due to delays of health care payments by the government. This has
also resulted in ICN Yugoslavia being unable to make timely payments on its
payables. Under the current credit terms with the Yugoslavian government,
discussed below, the government is obligated to pay a minimum of $9,500,000 per
month on its outstanding obligations to the Company. The credit arrangement also
limits the total receivable from the government to $200,000,000 which could
limit sales in the future to an amount equal to cash collections from the
government. ICN Yugoslavia holds approximately U.S. $19,731,000 of cash in a
bank outside of Yugoslavia, originally intended to be used for future plant
expansion in Yugoslavia. These funds may be available for working capital
purposes if necessary.
Inflation and Monetary Exposure: ICN Yugoslavia operates in a highly
inflationary economy and uses the dollar as the functional currency rather than
the Yugoslavian dinar. Before the enactment of an economic stabilization program
in January 1994, the rate of inflation in Yugoslavia was over one billion
percent per year. The rate of inflation was dramatically reduced when, on
January 24, 1994, the Yugoslavian government enacted a "Stabilization Program"
designed to strengthen its currency. Throughout 1994, this program was
successful in reducing inflation to approximately 5% per year, increasing the
availability of hard currency, stabilizing the exchange rate of the dinar, and
improving the overall economy in Yugoslavia.
Throughout 1995, the effectiveness of the Stabilization Program weakened
and ICN Yugoslavia began experiencing a decline in the availability of hard
currency and inflation levels accelerated to an approximate annual rate of 90%
by the end of the year. In expectation of a devaluation late in 1995, ICN
Yugoslavia took action early in the fourth quarter of 1995 to reduce its
monetary exposure by shortening the payment terms on its receivables, reducing
sales levels, accelerating the purchase of inventory and accelerating the
purchase of building materials for its plant expansion. On November 24, 1995,
the dinar devalued from a rate of 1.4 dinars per U.S. $1 to a rate of 4.7 dinars
per U.S. $1. On this date, ICN Yugoslavia had a net monetary liability position
that resulted in a gain of $8,724,000.
Throughout 1996, the level of inflation in Yugoslavia was relatively
stable, with a Yugoslavian government reported inflation rate of 60%. During
that time the government exercised restraint on the amount of dinars in
circulation. The net monetary asset position of ICN Yugoslavia increased during
1996 due to rising accounts receivable balances resulting from higher sales and
a lengthening of the accounts receivable collection period. From a beginning
balance of $7,396,000 at December 31, 1995, the net monetary asset position of
ICN Yugoslavia rose to $134,000,000 at December 31, 1996.
During 1997, the Company reduced its monetary exposure by converting
certain dinar-denominated accounts receivable into notes receivable payable in
dinars, but fixed in dollar amounts. Additionally, the Company established
credit terms with the government whereby future receivables would be interest
bearing with one-year terms and would be payable in dinars, but fixed in dollar
amounts. As of December 31, 1997, ICN Yugoslavia had a net monetary asset
position of $60,000,000 which would be subject to foreign exchange loss if a
devaluation of the dinar were to occur.
F-42
<PAGE> 139
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As required by generally accepted accounting principles ("GAAP"), the
Company translates ICN Yugoslavia financial results at the dividend payment rate
established by the National Bank of Yugoslavia. To the extent that changes in
this rate lag behind the level of inflation, sales and expenses will, at times,
tend to be inflated. Future sales and expenses can increase substantially if the
timing of future devaluations falls significantly behind the level of inflation.
Potential Devaluation: The potential loss arising from a devaluation will
depend on the size of the devaluation and the magnitude of the net monetary
asset position at the time of the devaluation. The timing and the size of a
devaluation are strongly influenced by the amount of inflation and length of
time from the last devaluation. Since the last devaluation on November 24, 1995,
the cumulative level of inflation has been estimated at approximately 70%. If a
devaluation were to occur based on this level of inflation, and assuming the
Company's net monetary exposure of $60,000,000 at December 31, 1997, the Company
could incur a foreign exchange loss of approximately $24,000,000. The risk of
devaluation increases as time passes and inflation continues. However, the
Company is unable to predict either the exact magnitude or the timing of any
future devaluation.
Credit Risk: ICN Yugoslavia is subject to credit risk in that
approximately 80% or $162,200,000 of 1997 Yugoslavian domestic sales are to the
government or government funded entities. During 1997, other than the customer
discussed below there were no other customers that represented more than 10% of
total sales or accounts receivable.
During 1997, the Company reduced its monetary exposure by converting
dinar-denominated accounts receivable from various distributors into notes
receivable from the Yugoslavian government payable in dinars, but fixed in
dollar amounts. The first agreement was made early in the first quarter of 1997
with $50,000,000 accounts receivable converted into a one year note bearing
interest at LIBOR plus 1%. Approximately $47,000,000 from this first note was
refinanced in early 1998, with full payment including interest at LIBOR plus 1%
scheduled for 1998. A second agreement was arranged at the end of the first
quarter off 1997 whereby the Yugoslavian government agreed to purchase
$50,000,000 of drugs. The sales under this agreement were recorded as notes
receivable bearing interest at LIBOR plus 1% on the outstanding balance which
have payment guarantees fixed in dollar amounts. The second agreement also
allows the Company to offset certain payroll tax obligations against outstanding
accounts receivable balances. Subsequent to these two agreements, the Company
negotiated an arrangement with the Yugoslavian government under which ICN
Yugoslavia would commit to continue to provide products, in dollar-denominated
sales, in an amount up to $50,000,000 per calendar quarter for one year, and the
government would pay a minimum of $9,500,000 per month towards outstanding
accounts receivable. However, at no point in time can the amount due to ICN
Yugoslavia from the government exceed $200,000,000, including both accounts and
notes receivable. Receivables that arise from this agreement are interest
bearing with interest at LIBOR plus 1%. As of December 31, 1997, ICN Yugoslavia
has approximately $145,431,000 of notes receivable from the Yugoslavian
government under these credit terms. Additionally, sales of approximately
$140,700,000 under the above agreements were made to Velefarm, an affiliated
entity, acting as agent for the Yugoslavian government.
Sanctions and Politics: In December 1995, the United Nations Security
Council adopted a resolution that suspended economic sanctions that had been
imposed on the Federal Republic of Yugoslavia since May 1992. A substantial
majority of ICN Yugoslavia's business is conducted in the Federal Republic of
Yugoslavia.
Sanctions had contributed to an overall deteriorating business environment
in which ICN Yugoslavia operated. Sanctions also created restrictions on ICN
Yugoslavia's overseas investments and imposed administrative burdens in
obtaining raw materials outside of Yugoslavia.
F-43
<PAGE> 140
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company believes the suspension of sanctions continues to provide a
more favorable business environment; however, the beneficial effects of the
suspension will not take place immediately as the economy needs to adjust to new
opportunities. Additionally, Yugoslavia has not fully recovered the
international status it held before sanctions. The Yugoslavian government is
still negotiating to regain membership in the International Monetary Fund and
the World Bank.
Yugoslavia is subject to political instability. The elections that took
place in 1997 have not resulted in a change of political leadership that would
provide for a foundation of significant economic reforms. The Federal Republic
of Yugoslavia is comprised of two states, Serbia and the much smaller state of
Montenegro. Within Yugoslavia there exists significant political dissension and
unrest. The state of Montenegro has been active in seeking greater autonomy from
Serbia. Additionally, recent social unrest in the Serbian province of Kosovo
could lead to increased instability in the Balkans. United States diplomats have
warned that the Serbian actions and policies in Kosovo could lead to
reinstatement of economic sanctions on Yugoslavia.
Price Controls: ICN Yugoslavia is subject to price controls in Yugoslavia.
The size and frequency of government approved price increases is influenced by
local inflation, devaluations, cost of imported raw materials and demand for ICN
Yugoslavia products. During 1997 and 1996, ICN Yugoslavia received no price
increases due to relatively lower levels of inflation. As inflation rises, the
size and frequency of price increases are expected to increase. During the third
quarter of 1995, ICN Yugoslavia received a 30% price increase on its
pharmaceutical products. This was the first price increase the government had
allowed since the start of the Stabilization Program. Subsequent to the
devaluation on November 24, 1995, ICN Yugoslavia received an 80% price increase
on its pharmaceutical products. Price increases obtained by ICN Yugoslavia are
based on economic events preceding the price increase and not on expectations of
ongoing inflation. This lag in permitted price increases creates downward
pressure on the gross margins that ICN Yugoslavia receives on its products. When
necessary, ICN Yugoslavia will limit sales of products that have poor margins
until an acceptable price increase is received. The impact of an inability to
obtain adequate price increases in the future could have an adverse impact on
the Company as a result of declining gross profit margins or declining sales in
an effort to maintain existing gross margin levels.
Dividends: In 1992, ICN Yugoslavia paid a $10,000,000 dividend of which
the Company received 75% or $7,500,000. Yugoslavian law allows free distribution
of earnings whether to domestic (Yugoslavian) or international investors. Under
this law a dividend must be declared and paid immediately after year end.
Earnings that are not immediately paid as a dividend cannot be used for future
dividends. Additionally, ICN Yugoslavia is allowed to pay dividends out of
earnings calculated under local statutory tax basis rules, not earnings
calculated under GAAP. ICN Yugoslavia dividends are payable in dinars which must
be exchanged for dollars before the dividend is repatriated. During high levels
of inflation the dinar-denominated dividend could devalue substantially by the
time the dividend is exchanged for dollars. Under GAAP, ICN Yugoslavia had
accumulated earnings, which are not available for distributions, of
approximately $207,384,000 at December 31, 1997. However, additional
repatriation of cash could be declared from contributed capital for Yugoslavian
purposes of $360,000,000 at December 31, 1997, as provided for in the original
purchase agreement. In 1992, the Company made the decision to no longer
repatriate the earnings of ICN Yugoslavia and instead will use these earnings
for local operations, plant expansion, reduction of debt and additional
investment in Eastern Europe.
15. AGREEMENT WITH SCHERING-PLOUGH CORPORATION
On July 28, 1995, the Company entered into an Exclusive License and Supply
Agreement (the "Agreement") and a Stock Purchase Agreement with a subsidiary of
Schering-Plough to license the Company's proprietary antiviral drug ribavirin as
a treatment for chronic hepatitis C in combination
F-44
<PAGE> 141
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with Schering-Plough's alpha interferon. The Agreement provided the Company an
initial non-refundable payment by Schering-Plough of $23,000,000 and future
royalty payments to the Company for marketing of the drug, including certain
minimum royalty rates. Schering-Plough will have exclusive marketing rights for
ribavirin for hepatitis C worldwide, except that the Company will retain the
right to co-market in the countries of the European Economic Community. In
addition, Schering-Plough will purchase up to $42,000,000 in common stock of the
Company upon the achievement of certain regulatory milestones. Under the
Agreement, Schering-Plough is responsible for all clinical developments
worldwide.
The $23,000,000 non-refundable payment has been recorded by the Company as
prepaid royalty income of $10,000,000, a license fee of $8,000,000 and a
liability to Schering-Plough for certain cost sharing agreements of $5,000,000.
The prepaid royalty will be amortized to income based upon future sales of the
product and the license fee will be amortized on a straight-line basis to income
over the fifteen year exclusive period of the Agreement. At December 31, 1997,
the unamortized portion of these balances totals $12,614,000.
16. SUPPLEMENTAL CASH FLOWS DISCLOSURES
During 1997, noncash transactions included the conversion of $124,060,000
of long-term debt to 10,052,000 shares of common stock, the issuance of
5,400,000 shares of common stock valued at $179,008,000 in connection with the
acquisition of product rights from Roche, and the issuance of 812,000 shares of
common stock valued at $10,000,000 in settlement of litigation. In addition, the
Company received a 42.6% interest in Velefarm, a Yugoslavian distributor of
pharmaceutical products, in exchange for outstanding accounts receivable of
$13,224,000.
During 1996, a principal amount of SFr. 4,952,000 of the 3 1/4%
Subordinated Double Convertible Bonds due 1997 was converted into 6,190 shares
of Ciba-Geigy Ltd. common stock, reducing long term debt by $4,240,000 and other
assets by $3,988,000. In March 1996, the Company sold its instrument business
division to Titertek Instruments, Inc. ("Titertek"), an Alabama corporation, in
exchange for a $4,400,000 note receivable from Titertek, resulting in a deferred
gain of $2,000,000 (of which approximately $989,000 has been recognized at
December 31, 1997). Noncash transactions for 1996 also included the issuance of
common stock for the acquisition of the Siemens dosimetry business (1,447,250
shares), the Cappel Division of Organon Teknika Corporation (320,078 shares),
and the GlyDerm, Inc. dermatological business (216,000 shares). In addition,
during 1996 the Company entered into capital leases of approximately $2,973,000
for the purchase of computer equipment.
During 1995, the Company issued common stock dividends and distributions of
$29,187,000. There were none issued in 1996. Also during 1995, ICN Yugoslavia
exchanged, in a non-recourse transaction, accounts receivable for $10,900,000 of
inventories and $9,800,000 for construction materials for its plant expansion.
The following table sets forth the amounts of interest and income taxes
paid during 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest paid (net of amounts capitalized of $5,419,
$3,770 and $1,978 in 1997, 1996, and 1995,
respectively)..................................... $11,750 $20,477 $21,330
======= ======= =======
Income taxes paid................................... $ 4,543 $ 6,845 $ 6,915
======= ======= =======
</TABLE>
F-45
<PAGE> 142
ICN PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SUBSEQUENT EVENT
In February 1998, the Company acquired from SmithKline Beecham plc ("SKB")
the Asian, Australian and African rights to 39 prescription and over-the-counter
pharmaceutical products, including Actal, Breacol, Coracten, Eskornade, Fefol,
Gyno-Pevaryl, Maxolan, Nyal, Pevaryl, Ulcerin and Vylcim. The Company received
the product rights in exchange for $45,000,000 payable in a combination of
$22,500,000 in cash and 821 shares of the Company's Series D Convertible
Preferred Stock. Each share of the Series D Convertible Preferred Stock is
initially convertible into 750 shares of the Company's common stock (together,
the "SKB Shares"), subject to certain antidilution adjustments. Except under
certain circumstances, SKB has agreed not to sell the SKB Shares until November
4, 1999. The Company has agreed to pay SKB an additional amount in cash (or,
under certain circumstances, in shares of common stock) to the extent proceeds
received by SKB from the sale of the SKB Shares during a specified period ending
in December, 1999 and the then market value of the unsold SKB Shares do not
provide SKB with an average value of $46.00 per common share (including any
dividend paid on the SKB Shares). Alternatively, SKB is required to pay the
Company an amount, in cash or shares of the Company's common stock, to the
extent that such proceeds and market value provide SKB with an average per share
value in excess of $46.00 per common share (including any dividend paid on the
SKB Shares). The Company has also granted SKB certain registration rights
covering the common shares issuable upon conversion of the Series D Preferred
Stock.
F-46
<PAGE> 143
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. i
Incorporation of Certain Documents by
Reference........................... ii
Summary............................... 1
Risk Factors.......................... 12
Use of Proceeds....................... 21
Capitalization........................ 22
Selected Financial Data............... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
The Exchange Offer.................... 39
Business.............................. 47
Management............................ 61
Description of the New Notes.......... 65
Book Entry; Delivery and Form......... 86
Certain U.S. Federal Income Tax
Consequences........................ 88
Plan of Distribution.................. 90
Legal Matters......................... 90
Independent Public Accountants........ 90
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
----------------
PROSPECTUS
----------------
$200,000,000
LOGO
ICN PHARMACEUTICALS, INC.
OFFER TO EXCHANGE
ALL OUTSTANDING
8 3/4% SENIOR NOTES DUE 2008
FOR
8 3/4% SERIES B SENIOR NOTES DUE 2008
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 144
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action or proceeding, had no
cause to believe his or her conduct was unlawful. In the case of an action by or
in the right of the corporation, no indemnification may be made in respect to
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith. However, if the
director or officer is not successful in the defense of any action, suit or
proceeding as referred to above or in the defense of any claim, issue or matter
therein, he shall only be indemnified by the corporation as authorized in the
specific case upon a determination that indemnification is proper because he or
she met the applicable standard set forth above as determined by a majority of
the disinterested Board of Directors or by the stockholders.
The Registrant's bylaws provide indemnification to its officers and
directors against liability they may incur in their capacity as such, which
indemnification is similar to that provided by Section 145, unless a
determination is reasonably and promptly made by a majority of the disinterested
Board of Directors that the indemnitee acted in bad faith and in a manner that
the indemnitee did not believe to be in or not opposed to the best interests of
the Registrant, or, with respect to any criminal proceeding, that the indemnitee
believed or had reasonable cause to believe that his or her conduct was
unlawful.
The Registrant carries directors' and officers' liability insurance,
covering losses up to $5,000,000 (subject to a $500,000 deductible). The
Registrant, as a matter of policy, enters into indemnification agreements with
its directors and officers indemnifying them against liability they may incur in
their capacity as such. The indemnification agreements require no specific
standard of conduct for indemnification and make no distinction between civil
and criminal proceedings, except in proceedings where the dishonesty of an
indemnitee is alleged. Such indemnification is not available if an indemnitee is
adjudicated to have acted in a deliberately dishonest manner with actual
dishonest purpose and intent where such acts were material to the adjudicated
proceeding. Additionally, the indemnity agreements do not provide
indemnification for any claim against an indemnitee where the claim is based
upon the indemnitee obtaining personal advantage or profit to which he or she
was not legally entitled, the claim is for an accounting of profits made in
connection with a violation of Section 16(b) of the Securities Exchange Act of
1934, or similar state law provision, or the claim was brought about or
contributed to by the dishonesty of the indemnitee.
II-1
<PAGE> 145
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the directors' duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividend and unlawful stock purchase and redemption), or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant has provided in its certificate of incorporation, as
amended, that its directors shall be exculpated from liability as provided under
Section 102(b)(7).
The foregoing summaries are necessarily subject to the complete text of the
Delaware General Corporation Law, the Registrant's Certificate of Incorporation
and the agreements referred to above and are qualified in their entirety by
reference thereto.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1 Purchase Agreement dated as of August 14, 1998, by and among
ICN and Schroder & Co. Inc.
3.1 Restated Certificate of Incorporation of Registrant
previously filed as Exhibit 3.1 to Registration Statement
No. 33-84534 on Form S-4, which is incorporated herein by
reference, as amended by the Certificate of Merger, dated
November 10, 1994, of ICN Pharmaceuticals, Inc., SPI
Pharmaceuticals, Inc. and Viratek, Inc. with and into ICN
Merger Corp. previously filed as Exhibit 4.1 to Registration
Statement No. 333-08179 on Form S-3, which is incorporated
herein by reference.
3.2 Bylaws of the Registrant previously filed as Exhibit 3.2 to
Registration Statement No. 33-84534 on Form S-4, which is
incorporated herein by reference.
4.1 Indenture between ICN Pharmaceuticals, Inc. and American
Stock Transfer and Trust Company, as trustee, relating to
$115,000,000 8 1/2% Convertible Subordinated Notes due 1999
(incorporated by reference to the Company's Annual Report on
Form 10-K for the Year ended December 31, 1996).
4.2 Indenture, dated as of August 20, 1998, by and among ICN and
United States Trust Company of New York.
4.3 Registration Rights Agreement, dated as of August 20, 1998,
by and among ICN and Schroder & Co. Inc.
4.4 Form of Old Note (included in Exhibit 4.2).
4.5 Form of New Note (included in Exhibit 4.2).
4.6 Form of letter of transmittal and notice of guaranteed
delivery.
5.1 Opinion of Proskauer Rose LLP.
12.1 Statement re computation of ratios.
15.1 Awareness letter of Independent Accountants regarding
Unaudited Interim Financial Information.
21.1 List of Subsidiaries (incorporated herein by reference to
Exhibit 21 to the Company's Annual Report on Form 10-K for
the Year ended December 31, 1997).
23.1 Consent of PricewaterhouseCoopers LLP.
</TABLE>
II-2
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
23.2 Consent of Proskauer Rose LLP (contained in opinion filed as
Exhibit 5.1).
24 Power of Attorney (included on pages II-5 and II-6).
25 Statement of eligibility of trustee.
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) To file, during any period in which officers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(d) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(e) That every prospectus (i) that is filed pursuant to paragraph (d)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415 (Section 230.415 of this chapter),
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(f) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(g) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 15, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in
II-3
<PAGE> 147
the Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(h) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(i) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE> 148
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Costa Mesa, State of California, on the 18th day of
September, 1998.
ICN PHARMACEUTICALS, INC.
By: /s/ MILAN PANIC
------------------------------------
Milan Panic,
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: September 18, 1998 ICN PHARMACEUTICALS, INC.
By: /s/ MILAN PANIC
------------------------------------
Milan Panic,
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MILAN PANIC Chairman of the Board and September 18, 1998
- ----------------------------------------------------- Chief Executive Officer
Milan Panic
* Executive Vice President, September 18, 1998
- ----------------------------------------------------- Chief Financial Officer
John E. Giordani and Corporate Controller
* Director September 18, 1998
- -----------------------------------------------------
Norman Barker, Jr.
* Director September 18, 1998
- -----------------------------------------------------
Senator Birch E. Bayh
* Director September 18, 1998
- -----------------------------------------------------
Alan F. Charles
* Director September 18, 1998
- -----------------------------------------------------
Roger Guillemin, M.D., Ph.D.
* President, Director September 18, 1998
- -----------------------------------------------------
Adam Jerney
</TABLE>
II-5
<PAGE> 149
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director September 18, 1998
- -----------------------------------------------------
Andrei Kozyrev, Ph.D
* Director September 18, 1998
- -----------------------------------------------------
Weldon B. Jolley, Ph.D.
* Director September 18, 1998
- -----------------------------------------------------
Jean-Francois Kurz
* Director September 18, 1998
- -----------------------------------------------------
Thomas H. Lenagh
* Director September 18, 1998
- -----------------------------------------------------
Charles T. Manatt
* Director September 18, 1998
- -----------------------------------------------------
Stephen D. Moses
* Director September 18, 1998
- -----------------------------------------------------
Michael Smith, Ph.D.
* Director September 18, 1998
- -----------------------------------------------------
Roberts A. Smith, Ph.D.
* Director September 18, 1998
- -----------------------------------------------------
Richard W. Starr
</TABLE>
*By: /s/ DAVID C. WATT
- ------------------------------------
David C. Watt
Attorney-in-fact
II-6
<PAGE> 150
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
1.1 Purchase Agreement dated as of August 14, 1998, by and among
ICN and Schroder & Co. Inc..................................
3.1 Restated Certificate of Incorporation of Registrant
previously filed as Exhibit 3.1 to Registration Statement
No. 33-84534 on Form S-4, which is incorporated herein by
reference, as amended by the Certificate of Merger, dated
November 10, 1994, of ICN Pharmaceuticals, Inc., SPI
Pharmaceuticals, Inc. and Viratek, Inc. with and into ICN
Merger Corp. previously filed as Exhibit 4.1 to Registration
Statement No. 333-08179 on Form S-3, which is incorporated
herein by reference.........................................
3.2 Bylaws of the Registrant previously filed as Exhibit 3.2 to
Registration Statement No. 33-84534 on Form S-4, which is
incorporated herein by reference............................
4.1 Indenture between ICN Pharmaceuticals, Inc. and American
Stock Transfer and Trust Company, as trustee, relating to
$115,000,000 8 1/2% Convertible Subordinated Notes due 1999
(incorporated by reference to the Company's Annual Report on
Form 10-K for the Year ended December 31, 1996).............
4.2 Indenture, dated as of August 20, 1998, by and among ICN and
United States Trust Company of New York.....................
4.3 Registration Rights Agreement, dated as of August 20, 1998,
by and among ICN and Schroder & Co. Inc.....................
4.4 Form of Old Note (included in Exhibit 4.2)..................
4.5 Form of New Note (included in Exhibit 4.2)..................
4.6 Form of letter of transmittal and notice of guaranteed
delivery....................................................
5.1 Opinion of Proskauer Rose LLP...............................
12.1 Statement re computation of ratios..........................
15.1 Awareness letter of Independent Accountants regarding
Unaudited Interim Financial Information.....................
21.1 List of Subsidiaries (incorporated herein by reference to
Exhibit 21 to the Company's Annual Report on Form 10-K for
the Year ended December 31, 1997)...........................
23.1 Consent of PricewaterhouseCoopers LLP.......................
23.2 Consent of Proskauer Rose LLP (contained in opinion filed as
Exhibit 5.1)................................................
24 Power of Attorney (included on pages II-5 and II-6).........
25 Statement of eligibility of trustee.........................
</TABLE>
<PAGE> 1
EXHIBIT 1.1
ICN PHARMACEUTICALS, INC.
$200,000,000 AGGREGATE PRINCIPAL AMOUNT OF
8 3/4 % SENIOR NOTES DUE 2008
------------------
PURCHASE AGREEMENT
New York, New York
August 14, 1998
SCHRODER & CO. INC.
WARBURG DILLON READ LLC
c/o Schroder & Co. Inc.
Equitable Center
787 Seventh Avenue
New York, New York 10019-6016
Ladies and Gentlemen:
ICN Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to you (the "Initial Purchasers") $200,000,000 aggregate
principal amount of 8 3/4 % Senior Notes due 2008 (the "Notes"), to be issued
pursuant to the provisions of an Indenture (the "Indenture") to be entered into
between the Company and United States Trust Company of New York, as trustee (the
"Trustee").
The Notes will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
exemptions therefrom provided by Section 4(2) of the Securities Act and Rule
144A promulgated thereunder.
In connection with the offering and sale of the Notes (the
"Offering"), the Company has prepared a preliminary offering memorandum
(including the documents incorporated by reference therein, the "Preliminary
Offering Memorandum") and will prepare a final offering memorandum (including
the documents incorporated by reference therein, the "Final Offering Memorandum"
and, together with the Preliminary Offering Memorandum, each a "Memorandum")
setting forth or including a description of the terms of the Notes, the terms of
the Offering, a description of the Company and any material developments
relating
<PAGE> 2
-2-
to the Company occurring after the date of the most recent financial statements
included therein.
You and your direct and indirect transferees will be entitled to
the benefits of a registration rights agreement to be entered into between the
Company and the Initial Purchasers substantially in the form attached hereto as
Exhibit A (the "Registration Rights Agreement"), pursuant to which the Company
will agree to use its best efforts to file and have declared effective a
registration statement (an "Exchange Offer Registration Statement") with the
Securities and Exchange Commission (the "Commission") registering the offer and
sale of the Notes, the Private Exchange Notes or the Exchange Notes (each as
defined in the Registration Rights Agreement) under the Securities Act. This
Agreement, the Notes, the Indenture and the Registration Rights Agreement are
referred to herein as the "Offering Documents."
This is to confirm the agreement concerning the purchase by you
of the Notes from the Company.
1. The Company represents and warrants to and agrees with you
that:
(a) The Preliminary Offering Memorandum, as of its date, did not
contain any untrue statement of a material fact or omit to state a
material fact (except for pricing terms and other financial terms
intentionally left blank) necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, and the Final Offering Memorandum, as of its date did not,
and as of the Delivery Date (as defined below) will not, contain any
untrue statement of a material fact or omit to state a material fact
necessary, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties set forth
in this Section 1(a) do not apply to statements or omissions contained
in any Memorandum made in reliance upon and in conformity with
information relating to the Initial Purchasers furnished by the Initial
Purchasers to the Company in writing expressly for use in either
Memorandum or any amendment or supplement thereto.
(b) Neither the Company nor any of the Subsidiaries (as defined
below) has sustained, since the date of the most recent financial
statements included in the Final Offering Memorandum, any loss or
interference with its business from fire, explosion, flood or other
calamity,
<PAGE> 3
-3-
whether or not covered by insurance, or from any labor dispute or court
or governmental action, order or decree, which loss or interference is
material to the Company and the Subsidiaries, taken as a whole. Since
the respective dates as of which information is given in the Final
Offering Memorandum there has not been any change in the capital stock
or short-term debt (other than in the ordinary course of business) or
long-term debt of the Company or any of the Subsidiaries, or any change
or development which could reasonably be expected to have a material
adverse effect upon the business, operations, assets, condition
(financial or otherwise) or prospects of the Company and the
Subsidiaries, taken as a whole, or an adverse effect on the ability of
the Company to perform its obligations under the Offering Documents (a
"Material Adverse Effect"), otherwise than as set forth or contemplated
in the Final Offering Memorandum.
(c) The Company and the Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case, free and clear of
all liens, adverse claims, encumbrances, security interests
(collectively, "Liens") and defects except those that are described or
contemplated by the Final Offering Memorandum or those that do not
materially affect the value of such property and do not materially
interfere with the use made or proposed to be made (as described in the
Final Offering Memorandum) of such property by the Company and the
Subsidiaries. Any real property and buildings held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do
not materially interfere with the use made or proposed to be made (as
described in the Final Offering Memorandum) of such real property and
buildings by the Company and the Subsidiaries.
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with all necessary corporate power and authority to own its
properties and to conduct its business as described in the Final
Offering Memorandum. The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
property, or conducts any business, so as to require such qualification
(except where
<PAGE> 4
-4-
the failure to so qualify, singly or in the aggregate with all other
such failures, would not have a Material Adverse Effect) and each such
jurisdiction is listed on Schedule II hereto. Each of the Company's
subsidiaries (the "Subsidiaries") is listed on Schedule I hereto. Except
as described in the Final Offering Memorandum and on Schedule I hereto,
each of the Subsidiaries is wholly owned directly or indirectly by the
Company. Each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with all necessary corporate power and
authority to own its properties and conduct its business as described in
the Final Offering Memorandum.
(e) The Company had at the date indicated in the Final Offering
Memorandum the capitalization set forth in the column entitled "Actual"
under the caption "Capitalization" as set forth in the Final Offering
Memorandum and, based on the assumptions stated in the Final Offering
Memorandum, the Company would have had on the date indicated the
adjusted capitalization as set forth in the column entitled "Pro Forma"
under the caption "Capitalization" as set forth in the Final Offering
Memorandum. Except as described in the Final Offering Memorandum, all of
the issued and outstanding shares of capital stock of each Subsidiary
have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned by the Company free and clear of all Liens.
There are no outstanding options, warrants or other rights to acquire,
or instruments convertible into or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock of any
Subsidiary.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The Indenture has been duly authorized by the Company and,
when executed and delivered by the Company on the Delivery Date
(assuming due authorization, execution and delivery by the Trustee),
will be a legally valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except
that (i) the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
or other similar laws relating to or affecting creditors' rights
generally and (ii) the availability of equitable remedies may be limited
by equitable principles
<PAGE> 5
-5-
of general applicability (regardless of whether in a proceeding in
equity or at law). The Indenture will conform in all material respects
to the description thereof in the Final Offering Memorandum.
(h) The Notes have been duly and validly authorized by the
Company, and, when executed and authenticated in accordance with the
terms of the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, will be
legally valid and binding obligations of the Company, entitled to the
benefits of the Indenture and enforceable against the Company in
accordance with their terms, except that (i) the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws relating to or
affecting creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability (regardless of whether considered in a proceeding in
equity or at law). The Notes will conform in all material respects to
the description thereof contained in the Final Offering Memorandum.
(i) The Exchange Notes and the Private Exchange Notes have been
duly and validly authorized by the Company, and, when executed,
authenticated and delivered in accordance with the terms of the
Indenture and the Registration Rights Agreement, will be legally valid
and binding obligations of the Company, entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except that (i) the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws relating to or affecting
creditors' rights generally and (ii) the availability of equitable
remedies may be limited by equitable principles of general applicability
(regardless of whether considered in a proceeding in equity or at law).
(j) The Registration Rights Agreement has been duly and validly
authorized by the Company and, when executed and delivered by the
Company on the Delivery Date (assuming due authorization, execution and
delivery by, and enforceability against, the Initial Purchasers), will
be a legally valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except that (i) the
enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganiza-
<PAGE> 6
-6-
tion, moratorium, fraudulent transfer or other similar laws relating to
or affecting creditors' rights generally, (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability (regardless of whether considered in a proceeding in
equity or at law) and (iii) rights to indemnity may be limited by state
or federal laws relating to securities or by policies underlying such
laws. The Registration Rights Agreement will conform in all material
respects to the description thereof contained in the Final Offering
Memorandum.
(k) The execution, delivery and performance by the Company of
the Offering Documents and the consummation of the transactions
contemplated thereby will not (i) conflict with, or result in a breach
or violation of, any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, license, permit,
loan agreement, lease or other material agreement or instrument to which
the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties or assets is bound or is
subject, (ii) violate any provision of the certificate of incorporation
or the by-laws or similar organizational documents of the Company or any
of the Subsidiaries or any material statute or any material order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries or any of their
properties or assets, or (iii) result in or require the creation or
imposition of any Lien, upon or with respect to any of the properties of
the Company or any of the Subsidiaries, except as permitted by the terms
of the Indenture. No consent, approval, authorization, order,
registration or qualification of or with any court or governmental
agency or body is required for the issue and sale of the Notes, except
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the offer and sale of the Notes.
(l) Except as described in the Final Offering Memorandum, there
are no legal or governmental proceedings pending to which the Company or
any of the Subsidiaries is a party or of which any of their respective
properties or assets is the subject which, if determined adversely,
would singly or in the aggregate have a Material Adverse Effect. To the
Company's best knowledge, except as described in the Final Offering
Memorandum, no such proceed-
<PAGE> 7
-7-
ings are threatened or contemplated by any governmental agency or body
or any other person.
(m) The Company and the Subsidiaries have all material licenses,
permits and other approvals or authorizations of and from governmental
agencies and bodies ("Permits") as are necessary under applicable law to
own their respective properties and to conduct their respective
businesses in the manner now being conducted as described in the Final
Offering Memorandum. The Company and the Subsidiaries have fulfilled and
performed in all material respects all of their respective obligations
with respect to such material Permits, and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or
termination thereof or result in any other material impairment of the
rights of the holder of any such material Permits.
(n) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company, are independent public accountants
under rule 101 of AICPA's Code of Professional Conduct and its
interpretation and rulings.
(o) The consolidated financial statements of the Company and the
Subsidiaries included or incorporated by reference in the Final Offering
Memorandum present fairly the financial condition, the results of
operations and the cash flows of the Company and the Subsidiaries as of
the dates and for the periods therein specified in conformity with
generally accepted accounting principles consistently applied throughout
the periods involved, except as otherwise stated therein.
(p) There is no presently existing dispute or controversy
between the Company or any of the Subsidiaries and any of their
respective employees which has had or is likely to have, and the Company
has no reason to believe that the relationship of the Company and the
Subsidiaries with their unions or employees is likely to have, a
Material Adverse Effect.
(q) The Company and the Subsidiaries own or possess adequate
patents, patent rights, inventions, trademarks, service marks, trade
names and copyrights necessary to conduct their business as presently
conducted as described in the Final Offering Memorandum. Neither the
Company nor any of the Subsidiaries has received any notice of
infringement of or conflict with asserted rights of others
<PAGE> 8
-8-
with respect to any material patent, patent rights, inventions,
trademarks, service marks, trade names or copyrights which could
reasonably be expected to have a Material Adverse Effect.
(r) Neither the Company nor any of the Subsidiaries is in
violation of any provision of their respective certificate of
incorporation or by-laws. The Company and each of the Subsidiaries is in
compliance with all laws, rules, regulations, orders, judgments, writs
and decrees applicable to them other than those which, singly or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(s) No default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, license, permit, loan agreement,
lease or other agreement or instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their
respective properties or assets is bound or is subject, which default,
singly or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(t) The Company and the Subsidiaries have timely filed all
federal income and other material tax returns and notices. The Company
has no knowledge of any tax deficiencies which would have a Material
Adverse Effect. The Company and its Subsidiaries have paid all federal,
state, local and foreign taxes of any nature which are shown on its
returns to be due, in each case except as may be set forth or adequately
reserved for in the financial statements included in the Final Offering
Memorandum in accordance with GAAP. The amounts currently set up as
provisions for taxes or otherwise by the Company and the Subsidiaries on
their books and records are sufficient for the payment of all their
unpaid federal, foreign, state, county and local taxes accrued through
the dates as of which they relate, and for which the Company and the
Subsidiaries may be liable in their own right, or as a transferee of the
assets of, or as successor to any other corporation, association,
partnership, joint venture or other entity.
(u) Since the date as of which information is given in the
Preliminary Offering Memorandum through the date
<PAGE> 9
-9-
hereof, and except as may otherwise be disclosed in the Final Offering
Memorandum, neither the Company nor any of the Subsidiaries has sold or
otherwise disposed of any capital stock of the Company or the
Subsidiaries, directly or indirectly.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(w) The Company, immediately before and after the consummation
of the Offering and the other transactions contemplated in the Final
Offering Memorandum, will be Solvent. As used herein, the term "Solvent"
means, with respect to any such entity on a particular date (i) the fair
market value of the assets of such entity is greater than the total
amount of liabilities (including contingent liabilities) of such entity,
(ii) the present fair saleable value of the assets of such entity is
greater than the amount that will be required to pay the probable
liabilities of such entity on its debts as they become absolute and
matured, (iii) such entity is able to realize upon its assets and pay
its debts and other liabilities, including contingent obligations, as
they mature and (iv) such entity does not have an unreasonably small
capital.
(x) Neither the Company nor any of its affiliates (as defined in
Rule 501(b) of Regulation D under the Securities Act, an "Affiliate")
has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or will be
integrated with the sale of the Notes in a manner that would require the
registration under the Securities Act of the Notes or (ii) engaged in
any form of general solicitation or general advertising in connection
with the offering of the Notes (as those terms are used in Regulation D
under
<PAGE> 10
-10-
the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(y) Neither the Company nor any of the Subsidiaries is, or will
be after giving effect to the Offering and the application of the
proceeds therefrom and the other transactions contemplated by the
Offering Documents, an "investment company" or an entity "controlled" by
an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act").
(z) Assuming the representations and warranties of the Initial
Purchasers are true and correct, it is not necessary in connection with
the offer, sale and delivery of the Notes to the Initial Purchasers in
the manner contemplated by this Agreement to register the Notes under
the Securities Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended.
(aa) The Company and the Subsidiaries (i) are in compliance with
all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would
not individually or in the aggregate result in a Material Adverse
Effect.
(bb) When the Notes are issued and delivered pursuant to this
Agreement, the Notes will not be of the same class (within the meaning
of Rule 144A under the Securities Act) as securities of the Company
which are listed on a national securities exchange registered under
Section 6 of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission promulgated thereunder
(collectively, the "Exchange Act"), or quoted in a U.S. automated
interdealer quotation system.
<PAGE> 11
-11-
(cc) The Company and each of the Subsidiaries maintains insurance
covering their properties, operations, personnel and businesses. Such
insurance insures against such losses and risks as are adequate in
accordance with customary industry practice to protect the Company and
the Subsidiaries and their businesses. All such insurance is outstanding
and in force on the date hereof and will be outstanding and in force on
the Delivery Date.
2. On the basis of the representations and warranties contained
in this Agreement, and subject to the terms and conditions herein set forth, the
Company agrees to issue and sell to the Initial Purchasers, and the Initial
Purchasers acting severally and not jointly, agree to purchase from the Company,
$200,000,000 aggregate principal amount of the Notes in the respective amounts
set forth opposite their respective names on Schedule III attached hereto at a
purchase price of 95.526% of the principal amount thereof.
3. Certificates in definitive form for the Notes to be purchased
by you hereunder shall be delivered by or on behalf of the Company to you for
your account against payment by you of the purchase price therefor by wire
transfer of immediately available funds to an account specified by the Company
by written notice to the Initial Purchasers (given at least two business days
prior to the Delivery Date), for the purchase price of the Notes being sold by
the Company in New York, New York, at 9:30 A.M., New York City time, on August
20, 1998, or at such other time, date and place as you and the Company may agree
upon in writing, such time and date being herein called the "Delivery Date."
Certificates for the Notes so to be delivered will be in good
delivery form, and in such denominations and registered in such names as you may
request not less than 48 hours prior to the Delivery Date. Such certificates
will be made available for checking and packaging in New York, New York, at
least 24 hours prior to the Delivery Date.
4. The Initial Purchasers propose to offer the Notes for resale
only to certain investors (as further described in subparagraph (a) of this
Paragraph 4) upon the terms and conditions set forth in this Agreement and the
Final Offering Memorandum initially at the purchase price set forth on the cover
page of the Final Offering Memorandum. Each of the Initial Purchasers hereby
represent and warrants (as to itself), and agrees with, the Company that:
<PAGE> 12
-12-
(a) It is an institutional "accredited investor" (as defined in
501(a)(1), (2), (3) or (7) under the Securities Act) and will offer or
sell the Notes only (i) inside the United States, to persons who it
reasonably believes are "qualified institutional buyers" within the
meaning of Rule 144A in transactions meeting the requirements of Rule
144A and (ii) pursuant to offers and sales that occur outside the United
States within the meaning of Regulation S under the Securities Act; and
(b) It has not and will not offer or sell the Notes by any form
of general solicitation or general advertising, including but not
limited to, the methods described in Rule 502(c) under the Securities
Act.
5. In consideration of the agreements of the Initial Purchasers
contained in this Agreement, the Company covenants and agrees as follows:
(a) The Company will furnish to you, without charge, as many
copies of the Final Offering Memorandum and any supplements and
amendments thereto as you may reasonably request.
(b) Before amending or supplementing the Final Offering
Memorandum subsequent to the execution of this Agreement, the Company
will furnish to you a copy of each such proposed amendment or supplement
and will not use any such proposed amendment or supplement to which you
reasonably object.
(c) If, at any time prior to the completion of the distribution
of the Notes to persons that are not your affiliates (as determined by
you), any event occurs as a result of which the Final Offering
Memorandum as then amended or supplemented would include any untrue
statement of a material fact, or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Final Offering
Memorandum to comply with applicable law, the Company will notify you
thereof and will prepare, at the expense of the Company, an amendment or
supplement to the Final Offering Memorandum that corrects such statement
or omission or effects such compliance.
<PAGE> 13
-13-
(d) The Company will endeavor to qualify the Notes for offer and
sale under the securities or Blue Sky laws of such jurisdictions in the
United States as you shall reasonably request; provided, however, that
the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer
in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. The Company will
file such statements and reports as may be required by the laws of each
jurisdiction in which the Notes have been qualified as above provided.
The Company will also supply you with such information as is necessary
for the determination of the legality of the Notes in such jurisdictions
as you may request.
(e) The Company will not, and will not permit any of its
Affiliates to, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the
Securities Act) which could be integrated with the sale of the Notes in
a manner which would require the registration under the Securities Act
of the Notes.
(f) Except following the effectiveness of the Exchange Offer
Registration Statement, the Company will not solicit any offer to buy or
offer to sell the Notes by means of any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
(g) While any of the Notes remain outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, the Company will make available, upon request, to any
holder or beneficial owner of outstanding Notes the information
specified in Rule 144A(d)(4) under the Securities Act, unless the
Company is then subject to Section 13 or 15(d) of the Exchange Act.
(h) The Company will use its best efforts to permit the Notes to
be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the PORTAL Market and to permit the Notes to
be eligi-
<PAGE> 14
-14-
ble for clearance and settlement through the Depository Trust Company.
(i) For a period of five years following the Delivery Date, the
Company will furnish to the Initial Purchasers copies of any annual
reports, quarterly reports and current reports filed with the Commission
on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be
designated by the Commission, and such other documents, reports and
information as shall be furnished by the Company to the Trustee or to
the holders of the Notes pursuant to the Indenture.
(j) The Company will not, and will not permit any of its
Affiliates to, resell any Notes that have been acquired by any of them.
(k) The Company will use the proceeds from the sale of the Notes
in the manner set forth in the Final Offering Memorandum and in a manner
that will not result in the Company becoming an investment company
within the meaning of the Investment Company Act, and the rules and
regulations of the Commission thereunder.
(l) The Company will not, and will cause each of the
Subsidiaries incorporated in or principally conducting its business
within the United States of America not to, offer, sell, contract to
sell or grant any option to purchase or otherwise transfer or dispose of
any debt security, or any security convertible into or in exchange for,
any such debt security of the Company or any such Subsidiary (other than
(x) any private loan, credit or financing agreement with a bank or
similar institution and (y) the Notes, the Exchange Notes and the
Private Exchange Notes), for a period of 180 days after the date of this
Agreement, without your prior written consent.
6. The Company covenants and agrees that the Company will pay or
cause to be paid: (i) the fees, disbursements and expenses of counsel and
accountants for the Company and the Trustee and its counsel, and all other
expenses, in connection with the preparation and printing of each Memorandum and
amendments and supplements thereto and the furnishing of copies thereof,
including charges for mailing, air freight and delivery and counting and
packaging thereof to the Initial Purchasers and dealers; (ii) all expenses in
connection with the qualification of the Notes for offering and sale under state
securities laws as provided in Section 5(d) hereof, including
<PAGE> 15
-15-
disbursements and expenses for counsel for the Initial Purchasers in connection
with such qualification and in connection with Blue Sky surveys; (iii) any fees
charged by rating agencies for the rating of the Notes; (iv) the costs and
expenses in connection with the preparation and delivery of the Notes; and (v)
all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section 6,
including the fees, if any, incurred in connection with the admission of the
Notes for trading in any appropriate market systems, the cost of the Company's
personnel and other internal costs, the cost of printing and engraving the
certificates representing the Notes and all expenses and property, excise and
similar taxes incident to the sale and delivery of the Notes to be sold by the
Company to the Initial Purchasers hereunder.
7. Your obligations hereunder shall be subject, in your
discretion, to the following additional conditions:
(a) The representations and warranties of the Company contained
in this Agreement shall be true and correct as of the date hereof and as
of the Delivery Date. The Company shall have performed in all material
respects all covenants and agreements and satisfied in all material
respects all conditions on its part to be performed or satisfied
hereunder at or prior to the Delivery Date.
(b) The sale of the Notes by the Company hereunder shall not be
enjoined (temporarily or permanently) on the Delivery Date.
(c) Subsequent to the date as of which information is given in
the Final Offering Memorandum, except in each case as described in or as
contemplated by the Final Offering Memorandum, the Company and the
Subsidiaries shall not have incurred any liabilities or obligations,
direct or contingent that are material to the Company and the
Subsidiaries taken as a whole or entered into any transactions that are
material to the business, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries taken as a
whole.
(d) Subsequent to the date of this Agreement and prior to the
Delivery Date, there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the
<PAGE> 16
-16-
Company's securities, including the Notes, by any "nationally recognized
statistical rating organization" as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act.
(e) You shall have received on the Delivery Date a certificate
of the Company dated the Delivery Date and signed by its Chief Executive
Officer, President or any Vice President and by the Chief Financial
Officer, to the effect set forth in clauses (a), (b), (c) and (d) above.
(f) (i) Proskauer Rose LLP, special counsel to the Company,
shall have furnished to you their written opinion, dated the Delivery
Date, in substantially the form attached hereto as Exhibit B, and (ii)
David C. Watt, Esq., General Counsel of the Company, shall have
furnished to you his written opinion, dated the Delivery Date, in
substantially the form attached hereto as Exhibit C.
(g) Cahill Gordon & Reindel, counsel to the Initial Purchasers,
shall have furnished to the Initial Purchasers a written opinion, dated
the Delivery Date, in form and substance satisfactory to you, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon the matters covered by
such opinion.
(h) You shall have received on each of the date hereof and the
Delivery Date a letter, dated the date hereof or the Delivery Date, as
the case may be, in form and substance reasonably satisfactory to you,
from PricewaterhouseCoopers LLP, the Company's independent public
accountants.
(i) (i) Since the date of this Agreement, neither the Company
nor any of the Subsidiaries shall have sustained any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree which could reasonably
be expected to have a Material Adverse Effect; and (ii) since the
respective dates as of which information is given in the Final Offering
Memorandum, there shall not have been any change in the capital stock or
short-term debt (other than in the ordinary course of business) or
long-term debt of the Company or any of the Subsidiaries nor any change
which could reasonably be expected to have a Material Adverse Effect
otherwise than as set forth or
<PAGE> 17
-17-
contemplated in the Final Offering Memorandum, the effect of which, in
any such case described in clause (i) or (ii), is in your judgment so
material and adverse as to make it impracticable or inadvisable to
proceed with the Offering or the delivery of the Notes on the terms and
in the manner contemplated in the Final Offering Memorandum.
(j) Subsequent to the execution and delivery of this Agreement,
(i) there shall have been no declaration of war by the Government of the
United States, (ii) there shall not have occurred any material adverse
change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any
outbreak or material escalation of hostilities or other calamity or
crisis, the effect of which is such as to make it, in the judgment of
the Initial Purchasers, impracticable to market the Notes or to enforce
contracts for the resale of Notes and (iii) no event shall have occurred
resulting in (A) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market
being suspended or limited or minimum or maximum prices being generally
established on such exchange or market, or (B) additional material
governmental restrictions, not in force on the date of this Agreement,
being imposed upon trading in securities generally by such exchange or
by order of the Commission or any court or other governmental authority
or (C) a general banking moratorium being declared by either Federal or
New York authorities.
(k) The Company shall have furnished or caused to be furnished
to you at the Delivery Date any additional certificates signed by
officers of the Company, satisfactory to you as to such matters as you
may reasonably request.
(l) The Company and the Initial Purchasers shall have entered
into the Registration Rights Agreement.
8. (a) The Company agrees to indemnify and hold harmless the
Initial Purchasers against any losses, claims, damages or liabilities
("Losses"), to which any Initial Purchaser may become subject, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such Losses (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Memorandum, or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a
<PAGE> 18
-18-
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and will reimburse the
Initial Purchasers for any legal or other expenses reasonably incurred by the
Initial Purchasers in connection with investigating, preparing to defend,
defending or appearing as a third-party witness in connection with any such
action or claim; provided, however, that the Company shall not be liable to the
Initial Purchasers in any such case to the extent that any such Loss arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission relating to the Initial Purchasers made in any Memorandum,
or such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Initial Purchasers
expressly for use therein; provided, however, that the foregoing indemnity with
respect to the Preliminary Offering Memorandum shall not inure to the benefit of
the Initial Purchasers if the person asserting such losses, claims, damages or
liabilities purchased Notes if (x) it is established in the related proceeding
that the Initial Purchasers failed to send or give a copy of the Final Offering
Memorandum to such person with or prior to the written confirmation of such sale
(provided that the Company has complied with its obligations under Section 5(a)
hereof) and (y) the untrue statement or omission or alleged untrue statement or
omission was completely corrected in the Final Offering Memorandum and the Final
Offering Memorandum does not contain any other untrue statement or omission or
alleged untrue statement or omission that was the subject matter of the related
proceeding.
(b) In addition to any obligations of the Company under Section
8(a), the Company agrees that it shall perform its indemnification obligations
under Section 8(a) (as modified by the last paragraph of this Section 8(b)),
with respect to counsel fees and expenses and other expenses reasonably incurred
by making payments within 60 days to the Initial Purchasers in the amount of the
statements of the Initial Purchasers' counsel or other statements which shall be
forwarded by the Initial Purchasers, and that it shall make such payments
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the obligation to reimburse the Initial Purchasers for such
expenses and the possibility that such payments might later be held to have been
improper by a court and a court orders return of such payments.
The indemnity agreement in Section 8(a) shall be in addition to
any liability which the Company may otherwise have and shall extend upon the
same terms and conditions to each
<PAGE> 19
-19-
person, if any, who controls any of the Initial Purchasers within the meaning of
the Securities Act or the Exchange Act, and to the officers, directors,
partners, employees, representatives and agents of the Initial Purchasers or any
such control person.
(c) The Initial Purchasers agree, severally and not jointly, to
indemnify and hold harmless the Company against any Losses to which the Company
may become subject, under the Securities Act, the Exchange Act, any federal or
state statutory law or regulation, at common law or otherwise, insofar as such
Losses (or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Memorandum, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in any Memorandum or such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Initial Purchasers relating to the Initial Purchasers expressly for use
therein, and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating, preparing
to defend, defending or appearing as a third-party witness in connection with
any such action or claim.
The indemnity agreement in this Section 8(c) shall be in addition
to any liability which the Initial Purchasers may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
the Company within the meaning of the Securities Act or the Exchange Act, and to
the officers, directors, partners, employees, representatives and agents of the
Company or any such control person.
(d) Promptly after receipt by an indemnified party under Section
8(a) or 8(c) of notice of the commencement of any action (including any
governmental investigation), such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party under Section 8(a) or 8(c)
except to the extent it was unaware of such action and has been prejudiced in
any material respect by such failure or from any liability which it may
<PAGE> 20
-20-
have to any indemnified party otherwise than under such Section 8(a) or 8(c). In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. If, however, (i)
the indemnifying party has not authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party or (ii) an
indemnified party shall have reasonably concluded that representation of such
indemnified party and the indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct due to actual
or potential differing interests between them and the indemnified party so
notifies the indemnifying party, then the indemnified party shall be entitled to
employ counsel different from counsel for the indemnifying party at the expense
of the indemnifying party and the indemnifying party shall not have the right to
assume the defense of such indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses or more than one counsel (in addition to
local counsel) for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same set of allegations or circumstances. The counsel with respect to which
fees and expenses shall be so reimbursed shall be designated in writing by the
Initial Purchasers in the case of parties indemnified pursuant to Section 8(a)
and by the Company in the case of parties indemnified pursuant to Section 8(c).
The Company shall not be liable for any settlement of any such
action or proceeding effected without its prior written consent (not to be
unreasonably withheld) and if settled with its written consent or if there is a
final judgment for the plaintiff, the Company agrees to indemnify and hold
harmless the Initial Purchasers and each other person referred to in Section
8(b) to the extent provided herein. Without limiting the generality of the
foregoing, no indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any such indemnified party is or
<PAGE> 21
-21-
has been threatened to be made a party and to which the indemnity herein is
applicable; provided, however, that an indemnifying party may effect such a
settlement without the consent of the indemnified party if such settlement
includes an unconditional release of such indemnified party from all liability
for claims that are the subject matter of such proceeding or the indemnifying
party indemnifies the indemnified party in writing and posts a bond for an
amount equal to the maximum liability for all such claims as contemplated above.
(e) In the event that the indemnity provided by Section 8(a) or
8(c) is unavailable or insufficient to hold harmless an indemnified party for
any reason, the Company and the Initial Purchasers shall contribute to the
aggregate Losses to which they may be subject as an indemnifying party hereunder
(after contribution from others) in such proportion so that the Initial
Purchasers are responsible for the portion represented by the percentage that
the total discounts and commissions paid to the Initial Purchasers appearing on
the cover page of the Final Offering Memorandum bears to the total proceeds to
the Company (net of discounts and commissions of the Initial Purchasers)
appearing thereon and the Company is responsible for the remaining portion;
provided, however, that, in any such case, (x) the Initial Purchasers shall not
be required to contribute any amount in excess of the Initial Purchasers'
discount and commission applicable to the Notes and (y) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to a contribution from any person who was not
guilty of such fraudulent misrepresentation. The amount paid or payable by the
Initial Purchasers as result of this Section 8(e) shall be deemed to include any
legal or other expenses reasonably incurred by the Initial Purchasers in
connection with investigating, preparing to defend or defending any such claim.
9. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Initial Purchasers, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of the Initial Purchasers or any controlling person of the Initial
Purchasers, the Company or an officer or director or controlling person of the
Company and shall survive delivery of and payment for the Notes.
10. The obligations of the Initial Purchasers hereunder may be
terminated by the Initial Purchasers by notice
<PAGE> 22
-22-
given to and received by the Company prior to delivery of and payment for the
Notes, if, prior to that time, any of the events described in Section 7(d),
7(i), or 7(j) shall have occurred or if the Initial Purchasers shall decline to
purchase the Notes for any other reason permitted under this Agreement.
11. If (a) the Company shall fail to tender the Notes for
delivery to the Initial Purchasers (other than by reason of a default by the
Initial Purchasers) or (b) the Initial Purchasers shall decline to purchase the
Notes for any reason permitted under this Agreement (except the termination of
this Agreement pursuant to Section 10 due solely to the occurrence of an event
enumerated in Section 7(j)), the Company shall reimburse the Initial Purchasers
for the reasonable fees and expenses of their counsel and for such other
reasonable out-of-pocket expenses as shall have been incurred by it in
connection with this Agreement and the proposed purchase of the Notes, and upon
demand the Company shall pay the full amount thereof to the Initial Purchasers.
12. All statements, requests, notices and agreements hereunder
shall be in writing or by written telecommunication, and shall be sufficient in
all respects if delivered or sent by registered mail, if to the Initial
Purchasers, to Schroder & Co. Inc. at 787 Seventh Avenue, New York, New York
10019, Attention: High Yield Department; and if to the Company to 3300 Hyland
Avenue, Costa Mesa, California 92626, Attention:
Chief Executive Officer.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, you, the Company and, to the extent provided in Section 8 hereof,
controlling persons, officers, directors, partners, employees, representatives
and agents referred to in Section 8, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Notes from the Initial Purchasers shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without giving effect to
principles of conflicts of law).
16. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each
<PAGE> 23
-23-
of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same instrument.
<PAGE> 24
If the foregoing is in accordance with your understanding, please
sign and return to us a counterpart hereof, and upon the acceptance hereof by
you, this letter and such acceptance hereof shall constitute a binding agreement
between you and the Company.
Very truly yours,
ICN PHARMACEUTICALS, INC.
By:
------------------------------
Name:
Title:
Accepted as of the date hereof:
SCHRODER & CO. INC.
WARBURG DILLON READ LLC
By: SCHRODER & CO. INC.
By: /s/ [SIG]
--------------------------
Name:
Title:
<PAGE> 25
If the foregoing is in accordance with your understanding, please
sign and return to us a counterpart hereof, and upon the acceptance hereof by
you, this letter and such acceptance hereof shall constitute a binding agreement
between you and the Company.
Very truly yours,
ICN PHARMACEUTICALS, INC.
By: /s/ DAVID C. WATT
-------------------------------
Name: David C. Watt
Title: Executive Vice President
Accepted as of the date hereof:
SCHRODER & CO. INC.
WARBURG DILLON READ LLC
By: SCHRODER & CO. INC.
By:
--------------------------
Name:
Title:
<PAGE> 26
SCHEDULE I
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction Percentage
Name of Incorporation Ownership
- ---- ---------------- ---------
<S> <C> <C>
ICN Canada, Limited Canada 100%
Alpha Pharmaceutical, Inc. Panama 100%
ICN Farmaceutica, S.A. Mexico 100%
Laboratorios Grossman, S.A. Mexico 100%
ICN Pharmaceuticals, Holland, B.V. Netherlands 100%
ICN Biomedicals, Inc. Delaware 100%
ICN Yugoslavia Yugoslavia 75%
ICN Biomedicals GmbH-Eschwege Germany 100%
ICN Pharmaceuticals Australasia Pty Ltd. Australia 100%
ICN Pharmaceuticals K.K. Japan 100%
ICN Biomedicals B.V. Netherlands 100%
ICN Biomedicals California, Inc. California, U.S.A. 100%
ICN Iberica Spain 100%
Labsystems Benelux B.V. Netherlands 100%
Labsystems Benelux N.V. Belgium 100%
ICN Biomedicals, Ltd. Scotland 100%
ICN Biomedicals, GmbH Germany 100%
ICN Pharmaceuticals France S.A. France 100%
ICN Biomedicals S.R.L. Italy 95%
ICN Biomedicals N.V./S.A. Belgium 100%
ICN Oktyabr Russia 90%
ICN Polypharm Russia 89%
ICN Leksredstva Russia 95%
ICN Alkaloida Hungary 60%
Wuxi ICN Pharmaceuticals China 75%
ICN Puerto Rico, Inc. Puerto Rico 100%
Polfa Rzeszow, S.A. Poland 80%
AO Tomsk Chemical Pharmaceutical Plant Russia 75%
Marbiopharm Russia 72%
</TABLE>
<PAGE> 27
SCHEDULE II
ICN Pharmaceuticals, Inc.
Delaware (jurisdiction of incorporation)
California
New York
Ohio
ICN Biomedicals, Inc.
Delaware (jurisdiction of incorporation)
Alabama
ICN Pharmaceuticals California, Inc.
California (jurisdiction of incorporation)
ICN Biomedicals California, Inc.
California (jurisdiction of incorporation)
<PAGE> 28
SCHEDULE III
<TABLE>
<CAPTION>
Principal Amount
Initial Purchaser of Notes
- ----------------- ----------------
<S> <C>
Schroder & Co. Inc. ...................................... $140,000,000
Warburg Dillon Read LLC................................... 60,000,000
------------
Total...................................... $200,000,000
============
</TABLE>
<PAGE> 29
Exhibit B to
Purchase Agreement
Opinion of Proskauer Rose LLP(1)
1. Assuming that the Indenture has been duly and validly
authorized, executed and delivered by each of the Company and the Trustee, the
Indenture is a legally valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except that (i) the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability (regardless of whether in a
proceeding in equity or at law).
2. Assuming that the Notes have been duly and validly authorized
and executed by the Company and assuming due authentication of the Notes by the
Trustee, when the Notes are delivered to and paid for by the Initial Purchasers
in accordance with the terms of the Purchase Agreement, the Notes will be
legally valid and binding obligations of the Company, entitled to the benefits
of the Indenture and enforceable against the Company in accordance with their
terms, except that (i) the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (ii) the availability of equitable
remedies may be limited by equitable principles of general applicability
(regardless of whether considered in a proceeding in equity or at law).
3. Assuming that the Exchange Notes and the Private Exchange
Notes have been duly and validly authorized by the Company, when the Exchange
Notes and the Private Exchange Notes, if applicable, are executed, authenticated
and delivered in accordance with the terms of the Indenture and the Registration
Rights Agreement, the Exchange Notes and the Private Exchange Notes, if
applicable, will be legally valid and binding obligations of the Company,
entitled to the benefits of the In-
- ----------
(1) Capitalized terms not defined herein have the meanings given to them in the
Purchase Agreement.
<PAGE> 30
-2-
denture and enforceable against the Company in accordance with their terms,
except that (i) the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (ii) the availability of equitable
remedies may be limited by equitable principles of general applicability
(regardless of whether considered in a proceeding in equity or at law).
4. Assuming that the Registration Rights Agreement has been duly
and validly authorized, executed and delivered by the parties thereto, the
Registration Rights Agreement is a legally valid and binding agreement of the
Company, enforceable against it in accordance with its terms, except that (i)
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability (regardless of whether considered
in a proceeding in equity or at law) and (iii) rights to indemnity may be
limited by state or federal laws relating to securities or by policies
underlying such laws.
5. The Notes and the Registration Rights Agreement conform in all
material respects to the descriptions thereof in the Final Offering Memorandum
under the captions "Description of the Notes" and "Registration Rights,"
respectively.
6. No consent, approval, authorization, order, registration or
qualification of or with any Federal or New York court or Federal or New York
governmental agency or body is required for the issue and sale of the Notes,
except such consents, approvals, authorizations, registrations or qualifications
as may be required under New York state securities or Blue Sky laws in
connection with the offer and sale of the Notes.
7. Assuming that the proceeds of the Offering will be applied as
described in the Final Offering Memorandum under the caption "Use of Proceeds,"
consummation of the Offering will not violate Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System.
8. Neither the Company nor any of the Subsidiaries is, or will be
after the Offering, an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
<PAGE> 31
-3-
9. Assuming the representations and warranties of the Initial
Purchasers and the Company contained in the Purchase Agreement are true and
correct, and assuming compliance by the Initial Purchasers and the Company with
their covenants contained in the Purchase Agreement, it is not necessary in
connection with the offer, sale and delivery of the Notes to the Initial
Purchasers in the manner contemplated by the Purchase Agreement to register the
Notes under the Securities Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended, it being understood that no opinion is
expressed as to any subsequent resale of any Notes.
Such counsel shall also state that such counsel has participated
in conferences with officers and other representatives of the Company,
representatives of the Initial Purchasers and representatives of the independent
public accountants of the Company at which the contents of the Memorandum and
related matters were discussed. Such counsel may further state that, although
such counsel made certain inquiries and investigations in connection with the
preparation of the Memorandum such counsel did not independently verify the
accuracy or completeness of the statements made in the Memorandum and, as such,
cannot and does not assume responsibility for or pass on the accuracy or
completeness of such statements. Subject to the foregoing, such counsel shall
state that such counsel's work in connection with the Memorandum and the offer
and sale of Notes pursuant to the Purchase Agreement did not disclose any
information that would cause such counsel to believe that the Final Offering
Memorandum, as of its date or as of the Delivery Date, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need not make any comment with respect to the financial statements and
the notes thereto and the other financial and statistical information or data
included in the Final Offering Memorandum).
<PAGE> 32
Exhibit C to
Purchase Agreement
Opinion of David C. Watt, Esq.(1)
1. The Company is validly existing as a corporation in good
standing under the laws of the State of Delaware, with all necessary corporate
power and authority to own its properties and to conduct its business as
described in the Memorandum. Based solely upon the certificates of public
officials the Company has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
jurisdiction listed in Schedule II to the Purchase Agreement.
2. All of the issued and outstanding shares of capital stock of
each Subsidiary have been duly and validly authorized and issued, are fully paid
and nonassessable and to such counsel's knowledge are owned by the Company free
and clear of all Liens.
3. The Company has the corporate power and authority to enter
into, and perform its obligations under, the Offering Documents.
4. The Purchase Agreement has been duly and validly authorized,
executed and delivered by the Company.
5. The Indenture has been duly and validly authorized, executed
and delivered by the Company.
6. The Notes have been duly and validly authorized and executed
by the Company.
7. The Exchange Notes and the Private Exchange Notes have been
duly and validly authorized by the Company.
8. The Registration Rights Agreement has been duly and validly
authorized, executed and delivered by the Company.
- ----------
(1) Capitalized terms not defined herein have the meanings given to them in the
Purchase Agreement.
<PAGE> 33
-2-
9. The execution, delivery and performance by the Company of the
Offering Documents and the consummation of the transactions contemplated thereby
will not (i) violate any provision of the certificate of incorporation or the
by-laws of the Company or any of the Subsidiaries, (ii) conflict with, or result
in a breach or violation of, any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, license, permit, loan
agreement, lease or other agreement or instrument known to such counsel to which
the Company or any of the Subsidiaries is a party or by which any of them or any
of their respective properties or assets is bound or is subject, except to the
extent any such conflict, breach, violation or default, singly or in the
aggregate with all other such conflicts, breaches, violations and defaults,
would not have a Material Adverse Effect, (iii) violate any order known to such
counsel or any statute, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or any of the Subsidiaries or any
of their properties or assets or (iv) result in or require the creation or
imposition of any Lien, pursuant to any agreement or instrument known to such
counsel or pursuant to any statute, rule or regulation, upon or with respect to
any of the properties of the Company or any of the Subsidiaries, except pursuant
to the terms of the Indenture.
10. Other than as set forth in the Memorandum there are no
pending legal or governmental proceedings known to such counsel to which the
Company or any of the Subsidiaries is a party or of which any of their
respective properties or assets is the subject which, if determined adversely,
would singly or in the aggregate have a Material Adverse Effect. To such
counsel's knowledge, other than as set forth in the Memorandum no such
proceedings are threatened or contemplated by any governmental agency or body or
any other person.
11. To such counsel's knowledge, neither the Company nor any of
the Subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any material patent, patent rights,
inventions, trademarks, service marks, trade names or copyrights.
Such counsel shall also state that such counsel has participated
in conferences with officers and other representatives of the Company,
representatives of the Initial Purchasers and representatives of the independent
public accountants of the Company at which the contents of the Memorandum and
related matters were discussed. Such counsel may further state that, although
such counsel made certain inquiries and investigations
<PAGE> 34
-3-
in connection with the preparation of the Memorandum, such counsel did not
independently verify the accuracy or completeness of the statements made in the
Memorandum and, as such, cannot and does not assume responsibility for or pass
on the accuracy or completeness of such statements. Subject to the foregoing,
such counsel shall state that such counsel's work in connection with the
Memorandum and the offer and sale of Notes pursuant to the Purchase Agreement
did not disclose any information that would cause such counsel to believe that
the Final Offering Memorandum, as of its date or as of the Delivery Date,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading (it being
understood that such counsel need not make any comment with respect to the
financial statements and the notes thereto and the other financial and
statistical information or data included in the Final Offering Memorandum).
<PAGE> 1
EXHIBIT 4.2
================================================================================
ICN PHARMACEUTICALS, INC.
and
UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee
----------
INDENTURE
Dated as of August 20, 1998
----------
up to $350,000,000
8 3/4% Senior Notes due 2008
Series B 8 3/4% Senior Notes due 2008
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1)................................................................. 7.10
(a)(2)................................................................. 7.10
(a)(3)................................................................. N.A.
(a)(4)................................................................. N.A.
(a)(5)................................................................. 7.08; 7.10
(b).................................................................... 7.08; 7.10; 10.02
(c).................................................................... N.A.
311(a).................................................................... 7.11
(b).................................................................... 7.11
(c).................................................................... N.A.
312(a).................................................................... 2.05
(b).................................................................... 10.03
(c).................................................................... 10.03
313(a).................................................................... 7.06
(b)(1)................................................................. N.A.
(b)(2)................................................................. 7.06
(c).................................................................... 7.06; 10.02
(d).................................................................... 7.06
314(a).................................................................... 4.06; 4.09; 10.02
(b).................................................................... N.A.
(c)(1)................................................................. 10.04
(c)(2)................................................................. 10.04
(c)(3)................................................................. N.A.
(d).................................................................... N.A.
(e).................................................................... 10.05
(f).................................................................... N.A.
315(a).................................................................... 7.01(b)
(b).................................................................... 7.05; 10.02
(c).................................................................... 7.01(a)
(d).................................................................... 7.01(c)
(e).................................................................... 6.11
316(a)(last sentence)..................................................... 2.09
(a)(1)(A).............................................................. 6.05
(a)(1)(B).............................................................. 6.04
(a)(2)................................................................. N.A.
(b).................................................................... 6.07
(c).................................................................... 9.04
317(a)(1)................................................................. 6.08
(a)(2)................................................................. 6.09
(b).................................................................... 2.04
318(a).................................................................... 10.01
(b).................................................................... N.A.
</TABLE>
- ----------
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture
<PAGE> 3
<TABLE>
<S> <C>
(c).................................................................... 10.01
</TABLE>
- ----------
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture
<PAGE> 4
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1.01. Definitions...................................................................1
SECTION 1.02. Incorporation by Reference of TIA.............................................19
SECTION 1.03. Rules of Construction.........................................................19
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating...............................................................20
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount......................21
SECTION 2.03. Registrar and Paying Agent....................................................22
SECTION 2.04. Paying Agent To Hold Assets in Trust..........................................23
SECTION 2.05. Noteholder Lists..............................................................23
SECTION 2.06. Transfer and Exchange.........................................................24
SECTION 2.07. Replacement Notes.............................................................25
SECTION 2.08. Outstanding Notes.............................................................25
SECTION 2.09. Treasury Notes................................................................25
SECTION 2.10. Temporary Notes...............................................................26
SECTION 2.11. Cancellation..................................................................26
SECTION 2.12. Defaulted Interest............................................................27
SECTION 2.13. CUSIP Number..................................................................27
SECTION 2.14. Deposit of Monies.............................................................28
SECTION 2.15. Restrictive Legends...........................................................28
SECTION 2.16. Book-Entry Provisions for Global Security.....................................30
SECTION 2.17. Special Transfer Provisions...................................................31
SECTION 2.18. Liquidated Damages Under Registration Rights Agreement........................34
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee............................................................34
SECTION 3.02. Selection of Notes To Be Redeemed.............................................34
SECTION 3.03. Notice of Redemption..........................................................35
SECTION 3.04. Effect of Notice of Redemption................................................36
SECTION 3.05. Deposit of Redemption Price...................................................36
</TABLE>
-i-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 3.06. Notes Redeemed in Part........................................................37
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes..............................................................37
SECTION 4.02. Maintenance of Office or Agency...............................................37
SECTION 4.03. Corporate Existence...........................................................38
SECTION 4.04. Payment of Taxes and Other Claims.............................................38
SECTION 4.05. Maintenance of Properties and Insurance.......................................38
SECTION 4.06. Compliance Certificate; Notice of Default.....................................39
SECTION 4.07. Compliance with Laws..........................................................40
SECTION 4.08. Waiver of Stay, Extension or Usury Laws.......................................40
SECTION 4.09. Provision of Financial Statements and Information.............................40
SECTION 4.10. Limitation on Incurrence of Indebtedness......................................41
SECTION 4.11. Limitation on Restricted Payments.............................................44
SECTION 4.12. Limitation on Liens...........................................................46
SECTION 4.13. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries...................................................47
SECTION 4.14. Limitation on Transactions with Affiliates....................................48
SECTION 4.15. Change of Control.............................................................49
SECTION 4.16. Limitation on Asset Sales.....................................................51
SECTION 4.17. Limitation on Designation of Unrestricted Subsidiaries........................54
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets......................................55
SECTION 5.02. Successor Corporation Substituted.............................................57
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.............................................................57
SECTION 6.02. Acceleration..................................................................59
SECTION 6.03. Other Remedies................................................................60
</TABLE>
-ii-
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 6.04. Waiver of Past Defaults.......................................................60
SECTION 6.05. Control by Majority...........................................................61
SECTION 6.06. Limitation on Suits...........................................................61
SECTION 6.07. Rights of Holders To Receive Payment..........................................62
SECTION 6.08. Collection Suit by Trustee....................................................62
SECTION 6.09. Trustee May File Proofs of Claim..............................................63
SECTION 6.10. Priorities....................................................................63
SECTION 6.11. Undertaking for Costs.........................................................64
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.............................................................64
SECTION 7.02. Rights of Trustee.............................................................66
SECTION 7.03. Individual Rights of Trustee..................................................67
SECTION 7.04. Trustee's Disclaimer..........................................................67
SECTION 7.05. Notice of Default.............................................................68
SECTION 7.06. Reports by Trustee to Holders.................................................68
SECTION 7.07. Compensation and Indemnity....................................................69
SECTION 7.08. Replacement of Trustee........................................................70
SECTION 7.09. Successor Trustee by Merger, Etc..............................................71
SECTION 7.10. Eligibility; Disqualification.................................................71
SECTION 7.11. Preferential Collection of Claims Against Company.............................71
ARTICLE EIGHT
SATISFACTION AND DISCHARGE; DEFEASANCE
SECTION 8.01. Satisfaction and Discharge of Indenture.......................................72
SECTION 8.02. Defeasance or Covenant Defeasance.............................................73
SECTION 8.03. Application of Trust Money....................................................76
SECTION 8.04. Repayment to the Company......................................................76
SECTION 8.05. Reinstatement.................................................................77
SECTION 8.06. Acknowledgment of Discharge by Trustee........................................77
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders....................................................77
SECTION 9.02. With Consent of Holders.......................................................78
SECTION 9.03. Compliance with TIA...........................................................80
SECTION 9.04. Revocation and Effect of Consents.............................................80
SECTION 9.05. Notation on or Exchange of Notes..............................................81
</TABLE>
-iii-
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 9.06. Trustee To Sign Amendments, Etc...............................................81
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. TIA Controls..................................................................82
SECTION 10.02. Notices.......................................................................82
SECTION 10.03. Communications by Holders with Other Holders..................................83
SECTION 10.04. Certificate and Opinion as to Conditions Precedent............................83
SECTION 10.05. Statements Required in Certificate or Opinion.................................84
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar.....................................84
SECTION 10.07. Legal Holidays................................................................84
SECTION 10.08. Governing Law.................................................................84
SECTION 10.09. No Adverse Interpretation of Other Agreements.................................85
SECTION 10.10. No Recourse Against Others....................................................85
SECTION 10.11. Successors....................................................................85
SECTION 10.12. Duplicate Originals...........................................................85
SECTION 10.13. Severability..................................................................85
SECTION 10.14. Independence of Covenants.....................................................86
Signatures....................................................................................87
Exhibit A - Form of Initial Note............................................................A-1
Exhibit B - Form of Exchange Note...........................................................B-1
Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers Pursuant
to Regulation S..............................................................C-1
</TABLE>
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of this Indenture.
-iv-
<PAGE> 8
INDENTURE, dated as of August 20, 1998, between ICN Pharmaceuticals,
Inc., a Delaware corporation (the "Company"), and United States Trust Company of
New York, a New York banking corporation, as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 8 3/4%
Senior Notes due 2008 (the "Initial Notes") and Series B 8 3/4% Senior Notes due
2008 to be issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement (the "Exchange Notes" and, together with the Initial Notes, the
"Notes") and, to provide therefor, the Company has duly authorized the execution
and delivery of this Indenture. All things necessary to make the Notes, when
duly issued and executed by the Company, and authenticated and delivered
hereunder, the valid obligations of the Company, and to make this Indenture a
valid and binding agreement of the Company, have been done.
Each party hereto agrees as follows for the benefit of the other party
and for the equal and ratable benefit of the Holders of the Notes:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person,
Indebtedness of any other Person (the "Acquired Person") existing at the time
the Acquired Person merges with or into, or becomes a Restricted Subsidiary of,
such specified Person, including Indebtedness incurred in connection with, or in
contemplation of, the Acquired Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person; provided, however, that
Indebtedness of such Acquired Person which is redeemed, defeased, retired or
otherwise repaid at the time of or immediately upon consummation of the
transactions by which such Acquired Person merges with or into or becomes a
Restricted Subsidiary of such specified Person shall not be Acquired Debt.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes of this
definition,
<PAGE> 9
-2-
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") of any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Agent Members" has the meaning provided in Section 2.16(a).
"Asset Sale" means (i) any sale, lease, conveyance or other disposition
by the Company or any Restricted Subsidiary of any assets (including by way of a
sale-and-leaseback) other than in the ordinary course of business, or (ii) the
issuance or sale of Capital Stock of any Restricted Subsidiary, in the case of
each of (i) and (ii), whether in a single transaction or a series of related
transactions, to any Person (other than to the Company or a Restricted
Subsidiary and other than directors' qualifying shares) for Net Proceeds in
excess of $1.0 million. Notwithstanding the foregoing, (a) the transfer of any
assets constituting an Investment by the Company or any Restricted Subsidiary
shall not be considered an Asset Sale if such Investment is permitted pursuant
to Section 4.11 and (b) exchanges of assets of the Company for assets of any
other Person in the ordinary course of business shall not constitute an Asset
Sale.
"Asset Sale Offer" has the meaning provided in Section 4.16(c).
"Asset Sale Offer Purchase Date" has the meaning provided in Section
4.16(d).
"Asset Sale Offer Trigger Date" has the meaning provided in Section
4.16(c).
"Authenticating Agent" has the meaning provided in Section 2.02.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state
or foreign law for the relief of debtors.
"Board of Directors" means, as to (a) any corporate Person, the board of
directors of such Person or any duly
<PAGE> 10
-3-
authorized committee thereof, (b) any partnership, limited liability company or
comparably organized Person which is ultimately controlled by a corporate
general partner, managing member or other corporation, the "Board of Directors"
of such corporation as specified in clause (a) of this definition and (c) any
partnership, limited liability company or comparably organized Person which is
ultimately controlled by individuals, such controlling individuals.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors.
"Business Day" means a day that is not a Legal Holiday.
"Capital Lease Obligation" of any Person means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease for property leased by such Person that would at such time be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, of
such Person, including any Preferred Stock.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Rating Services or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Rating Services or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
(or, with respect to foreign banks, similar instruments) maturing within one
year from the date of acquisition thereof issued by any bank organized under the
laws
<PAGE> 11
-4-
of the United States of America or any state thereof or the District of Columbia
or any member of the European Union or any United States branch of a foreign
bank having at the date of acquisition thereof combined capital and surplus of
not less than $200 million; (v) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications specified in clause
(iv) above; and (vi) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(i) through (v) above.
"Cash Flow" means, with respect to any period, Consolidated Net Income
for such period, plus, to the extent deducted in computing such Consolidated Net
Income: (i) extraordinary net losses, plus (ii) provision for taxes based on
income or profits and any provision for taxes utilized in computing the
extraordinary net losses under clause (i) hereof, plus (iii) Consolidated
Interest Expense, plus (iv) depreciation, amortization and all other non-cash
charges (including amortization of goodwill and other intangibles but excluding
any items that will require cash payments in the future for which an accrual or
reserve is made).
"Change of Control" means the occurrence of any of the following events
after the Issue Date: (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes (including by
merger, consolidation or otherwise) the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to
have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 50% or more of the voting power of the
total outstanding Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
nomination for election by the stockholders of the Company was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of such
Board of Directors of the Company then in office; (iii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the terms of this Indenture); or (iv) the sale or other
disposition
<PAGE> 12
-5-
(including by merger, consolidation or otherwise) of all or substantially all of
the Capital Stock or assets of the Company to any Person or group (as defined in
Rule 13d-5 of the Exchange Act) as an entirety or substantially as an entirety
in one transaction or a series of related transactions.
"Change of Control Offer" has the meaning provided in Section 4.15(a).
"Change of Control Purchase Date" has the meaning provided in Section
4.15(b).
"Commission" means the Securities and Exchange Commission, as from time
to time constituted or, if at any time after the execution of this Indenture
such Commission is not existing and performing the duties now assigned to it
under the TIA, then the body performing such duties at such time.
"Common Stock" of any Person means any and all shares, interests,
participations, or other equivalents (however designated) of such Person's
common stock whether now outstanding or issued after the Issue Date.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to this Indenture and
thereafter means such successor.
"Consolidated Cash Flow Coverage Ratio" means, for any period, the ratio
of (i) the aggregate amount of Cash Flow for such period, to (ii) Consolidated
Interest Expense for such period, each determined on a pro forma basis after
giving pro forma effect to (a) the incurrence of the Indebtedness giving rise to
the calculation of the Consolidated Cash Flow Coverage Ratio and (if applicable)
the application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such period; (b) the incurrence,
repayment or retirement of any other Indebtedness by the Company and its
Restricted Subsidiaries since the first day of such period as if such
Indebtedness was incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average balance of
such Indebtedness at the end of each month during such period); (c) in the case
of Acquired Debt, the related acquisition as if such acquisition had occurred at
the beginning of such period; and (d) any acquisition or disposition by the
Company and its Restricted Subsidiaries of any company or any
<PAGE> 13
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business or any assets out of the ordinary course of business, or any related
repayment of Indebtedness, in each case since the first day of such period,
assuming such acquisition or disposition had been consummated on the first day
of such period.
"Consolidated Interest Expense" means, with respect to any period, the
sum of (i) the interest expense of the Company and its Restricted Subsidiaries
for such period, including, without limitation, (a) amortization of debt
discount, (b) the net payments, if any, under interest rate contracts (including
amortization of discounts), (c) the interest portion of any deferred payment
obligation and (d) accrued interest, plus (ii) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued
by the Company and its Restricted Subsidiaries during such period, and all
capitalized interest of the Company and its Restricted Subsidiaries, plus (iii)
all dividends paid during such period by the Company and its Restricted
Subsidiaries with respect to any Disqualified Stock (other than by any
Restricted Subsidiary to the Company or any other Restricted Subsidiary and
other than any dividend paid in Capital Stock (other than Disqualified Stock)),
in each case, as determined on a consolidated basis in accordance with GAAP
consistently applied.
"Consolidated Net Income" means, with respect to any period, the net
income (or loss) of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently applied,
adjusted to the extent included in calculating such net income (or loss), by
excluding, without duplication, (i) all extraordinary gains and losses (less all
fees and expenses relating thereto), (ii) the portion of net income (or loss) of
the Company and its Restricted Subsidiaries allocable to interests in
unconsolidated Persons or Unrestricted Subsidiaries, except to the extent of the
amount of dividends or distributions actually paid to the Company or its
Restricted Subsidiaries by such other Person during such period, (iii) for
purposes of the covenant entitled "Limitation on Restricted Payments", net
income (or loss) of any Person combined with the Company or any of its
Restricted Subsidiaries on a "pooling-of-interests" basis attributable to any
period prior to the date of combination, (iv) net gains and losses (less all
fees and expenses relating thereto) in respect of disposition of assets
(including, without limitation, pursuant to sale and leaseback transactions)
other than in the ordinary course of business, or (v) the net income of any
Restricted Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income to the Company is not
<PAGE> 14
-7-
at the time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Worth" means, with respect to any Person at any date,
the sum of (i) the consolidated stockholders' equity of such Person less the
amount of such stockholders' equity attributable to Disqualified Stock of such
Person and its Subsidiaries (Restricted Subsidiaries, in the case of the
Company), as determined on a consolidated basis in accordance with GAAP
consistently applied and (ii) the amount of any Preferred Stock of such Person
not included in the stockholders' equity of such Person in accordance with GAAP,
which Preferred Stock does not constitute Disqualified Stock.
"covenant defeasance" has the meaning provided in Section 8.02(b).
"Currency Agreement Obligations" means the obligations of any person
under a foreign exchange contract, currency swap agreement or other similar
agreement or arrangement to protect such person against fluctuations in currency
values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event that is, or after the giving of notice or
passage of time or both would be, an Event of Default.
"Default Interest Payment Date" has the meaning provided in Section
2.12.
"defeasance" has the meaning provided in Section 8.02(a).
"Designation" has the meaning provided in Section 4.17(a).
"Designation Amount" has the meaning provided in Section 4.17(a).
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or
<PAGE> 15
-8-
other disposition of all or substantially all of such Person's assets.
"Disqualified Stock" means (i) any Preferred Stock of any Restricted
Subsidiary and (ii) that portion of any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof (other than upon a Change of Control of the
Company in circumstances where the Holders of the Notes would have similar
rights), in whole or in part on or prior to the stated maturity of the Notes.
"Dollars" and "$" means lawful money of the United States of America.
"DTC" means The Depository Trust Company, its nominees and successors.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.16(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" has the meaning provided in the preamble to this
Indenture.
"Existing Indebtedness" has the meaning provided in Section
4.10(b)(iii).
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"GAAP" means generally accepted accounting principles in the United
States set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved
<PAGE> 16
-9-
by a significant segment of the accounting profession in the United States of
America, which are applicable as of the Issue Date and consistently applied.
"Global Note" has the meaning provided in Section 2.01.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection or deposit in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"incur" has the meaning provided in Section 4.10(a).
"Indebtedness" means, with respect to any Person, without duplication,
and whether or not contingent, (i) all indebtedness of such Person for borrowed
money or which is evidenced by a note, bond, debenture or similar instrument,
(ii) all obligations of such Person to pay the deferred or unpaid purchase price
of property or services, which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such service, (iii) all Capital Lease Obligations
of such Person, (iv) all obligations of such Person in respect of letters of
credit or bankers' acceptances issued or created for the account of such Person,
(v) to the extent not otherwise included in this definition, all net obligations
of such Person under Interest Rate Agreement Obligations or Currency Agreement
Obligations of such Person, (vi) all liabilities of others of the kind described
in the preceding clause (i), (ii) or (iii) secured by any Lien on any property
owned by such Person; provided, however, if the obligations secured by a Lien
(other than a Permitted Lien not securing any liability that would itself
constitute Indebtedness) on any assets or property have not been assumed by such
Person in full or are not such Person's legal liability in full, the amount of
such Indebtedness for purposes of this definition shall be limited to the lesser
of the amount of Indebtedness secured by such Lien and the Fair Market Value of
the property subject to such Lien, (vii) all Disqualified Stock issued by such
Person and all Preferred Stock issued by a Subsidiary of such Person, and (viii)
to the extent not otherwise included, any guarantee by such Person of any other
Person's indebtedness or other obligations described
<PAGE> 17
-10-
in clauses (i) through (vii) above. "Indebtedness" of the Company and the
Restricted Subsidiaries shall not include current trade payables incurred in the
ordinary course of business and payable in accordance with customary practices,
and non-interest bearing installment obligations and accrued liabilities
incurred in the ordinary course of business which are not more than 90 days past
due. The principal amount outstanding of any Indebtedness issued with original
issue discount is the accreted value of such Indebtedness. Notwithstanding the
foregoing, Indebtedness shall not include Indebtedness arising from the honoring
by a bank or other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business; provided that such Indebtedness is extinguished within 3 Business Days
of the incurrence thereof.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Independent Director" means a director of the Company other than a
director (i) who (apart from being a director of the Company or any Subsidiary
of the Company) is an employee, associate or Affiliate of the Company or a
Subsidiary of the Company, or (ii) who is a director, employee, associate or
Affiliate of another party (other than the Company or any of its Subsidiaries)
to the transaction in question.
"Initial Notes" has the meaning provided in the preamble to this
Indenture.
"Initial Purchasers" means Schroder & Co. Inc. and Warburg Dillon Read
LLC.
"interest" on the Notes means interest (including Liquidated Damages) on
the Notes.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Interest Rate Agreement Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
<PAGE> 18
-11-
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, to the date hereof and from time to time hereafter.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any other Person. "Investment" shall exclude travel and similar advances to
officers and employees of the Company in the ordinary course of business and
extensions of trade credit by the Company and its Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the
Company or such Restricted Subsidiary, as the case may be. For the purposes of
Section 4.11, (i) "Investment" shall include and be valued at the Fair Market
Value of the net assets of any Restricted Subsidiary (to the extent of the
Company's equity interest in such Restricted Subsidiary) at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the Fair Market Value of the net assets of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and
(ii) the amount of any Investment shall be the original cost of such Investment
plus the cost of all additional Investments by the Company or any of its
Restricted Subsidiaries, without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such Investment,
reduced by the payment of dividends or distributions in connection with such
Investment or any other amounts received in respect of such Investment;
provided, however, that no such payment of dividends or distributions or receipt
of any such other amounts shall reduce the amount of any Investment if such
payment of dividends or distributions or receipt of any such amounts would be
included in Consolidated Net Income. If the Company or any Restricted Subsidiary
of the Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the Fair Market Value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
<PAGE> 19
-12-
"Issue Date" means August 20, 1998, the date the Notes are originally
issued under this Indenture.
"Legal Holiday" has the meaning provided in Section 10.07.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages owing under the
Registration Rights Agreement.
"Maturity Date" means November 15, 2008.
"Net Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate cash or Cash Equivalent proceeds received by such Person and/or its
Affiliates in respect of such Asset Sale, which amount is equal to the excess,
if any, of (i) the cash or Cash Equivalents received by such Person and/or its
Affiliates (including any cash payments received by way of deferred payment
pursuant to, or monetization of, a note or installment receivable or otherwise,
but only as and when received) in connection with such Asset Sale, over (ii) the
sum of (a) the amount of any Indebtedness that is secured by such asset and
which is required to be repaid by such Person in connection with such Asset
Sale, plus (b) all fees, commissions and other expenses incurred by such Person
in connection with such Asset Sale, plus (c) provision for taxes, including
income taxes, directly attributable to the Asset Sale or to required prepayments
or repayments of Indebtedness with the proceeds of such Asset Sale, plus (d) if
such Person is a Restricted Subsidiary, any dividends or distributions payable
to holders of minority interests in such Restricted Subsidiary from the proceeds
of such Asset Sale, plus (e) appropriate amounts to be provided by the Company
or any Restricted Subsidiary as a reserve against any liabilities associated
with such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale; provided that upon the
<PAGE> 20
-13-
release of any such reserves, such amounts shall constitute "Net Proceeds"
hereunder.
"Non-U.S. Person" means a person who is not a U.S. person, as defined in
Regulation S.
"Notes" means the Initial Notes and the Exchange Notes treated as a
single class of securities, as amended or supplemented from time to time in
accordance with the terms hereof, that are issued pursuant to this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offering" means the offering of $200,000,000 aggregate principal amount
of Notes being offered pursuant to the Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum dated August 14,
1998 of the Company relating to the offering of the Notes.
"Officer" means, with respect to any Person, the Chairman of the Board
of Directors, the Chief Executive Officer, the President, any Vice President,
the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of
such Person, or any other officer designated by the Board of Directors serving
in a similar capacity.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of such Person and otherwise complying with the requirements
of Sections 10.04 and 10.05, as they relate to the making of an Officers'
Certificate.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of Sections
10.04 and 10.05, as they relate to the giving of an Opinion of Counsel.
"Paying Agent" has the meaning provided in Section 2.03.
<PAGE> 21
-14-
"Permitted Indebtedness" has the meaning provided in Section 4.10(b).
"Permitted Investments" means (i) any Investment in the Company or any
Restricted Subsidiary; provided, that the primary business of such Restricted
Subsidiary is a Related Business; (ii) any investment in cash or Cash
Equivalents; (iii) any Investment in a Person (an "Acquired Person") the primary
business of which is a Related Business if, as a result of such Investment, (a)
the Acquired Person becomes a Restricted Subsidiary, or (b) the Acquired Person
either (1) is merged, consolidated or amalgamated with or into the Company or
one of its Restricted Subsidiaries and the Company or such Restricted Subsidiary
is the Surviving Person, or (2) transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or one of its Restricted
Subsidiaries; (iv) Investments in accounts and notes receivable acquired in the
ordinary course of business; (v) any notes, obligations or other securities
received in connection with an Asset Sale that complies with Section 4.16 or any
other disposition not constituting an "Asset Sale"; (vi) Interest Rate Agreement
Obligations and Currency Agreement Obligations permitted pursuant to Section
4.10(b)(v); (vii) investments in or acquisitions of Capital Stock or similar
interests in Persons (other than Affiliates of the Company) received in the
bankruptcy or reorganization of or by such Person or any exchange of such
investment with the issuer thereof or taken in settlement of or other resolution
of claims or disputes and (viii) other Investments not to exceed $50 million
which, shall be reinstated to the extent of any net cash proceeds, dividends,
repayments of loans or other transfers of cash or assets received by the Company
or any Restricted Subsidiary as a return of or on such Investment.
"Permitted Liens" means (i) Liens on assets or property of the Company
that secure Senior Bank Debt of the Company and Liens on assets or property of a
Restricted Subsidiary that secure Indebtedness of a Restricted Subsidiary; (ii)
Liens securing Indebtedness of a Person existing at the time that such Person is
merged into or consolidated with the Company or a Restricted Subsidiary;
provided, however, that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of such Person; (iii) Liens on property acquired by the Company or a Restricted
Subsidiary; provided, however, that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any other property; (iv)
Liens in respect of Interest Rate Agreement Obligations and Currency Agreement
Obligations permitted under this Indenture; (v) Liens in favor of
<PAGE> 22
-15-
the Company or any Restricted Subsidiary; (vi) Liens existing or created on the
Issue Date; and (vii) Liens securing the Notes.
"Permitted Payments" has the meaning provided in Section 4.11(b).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock" as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over Capital Stock of any other class of such Person.
"principal" of any Indebtedness (including the Notes) means the
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.15.
"Purchase Money Obligation" means any Indebtedness which is incurred in
connection with the purchase, construction or improvement of assets and is
secured by a Lien on such assets related to the business of the Company or the
Restricted Subsidiaries, and any additions and accessions thereto, which are
purchased, constructed or improved by the Company or any Restricted Subsidiary.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Record Date" means the Record Dates specified in the Notes; provided,
however, that if any such date is a Legal Holiday, the Record Date shall be the
first day immediately preceding such specified day that is not a Legal Holiday.
<PAGE> 23
-16-
"Redemption Date," when used with respect to any Note to be redeemed,
means the date fixed for such redemption pursuant to this Indenture and the
Notes.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price fixed for such redemption pursuant to this Indenture and the
Notes.
"Redesignation" has the meaning provided in Section 4.17(b).
"refinancing" has the meaning provided in Section 4.10(b)(vii).
"Refinancing Indebtedness" has the meaning provided in Section
4.10(b)(vii).
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights Agreement
dated on or about the Issue Date between the Company and the Initial Purchaser
for the benefit of themselves and the Holders as the same may be amended from
time to time in accordance with the terms thereof.
"Regulation S" means Regulation S under the Securities Act.
"Related Business" means any business that is reasonably related to or
complementary to the businesses conducted by the Company and the Restricted
Subsidiaries on the Issue Date.
"Required Filing Dates" has the meaning provided in Section 4.09(a).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) any dividend or other distribution
declared or paid on any Capital Stock of the Company (other than (A) dividends
or distributions payable solely in Capital Stock (other than Disqualified Stock)
of the Company, or (B) dividends or distributions payable to the Company or any
Restricted Subsidiary); (ii) any payment to purchase, redeem or otherwise
acquire or retire for value any Capital Stock of the Company; (iii) any payment
to purchase, redeem, defease or otherwise acquire or retire for value, prior to
any
<PAGE> 24
-17-
scheduled maturity, repayment or sinking fund payment, any subordinated
Indebtedness other than a purchase, redemption, defeasance or other acquisition
or retirement for value that is paid for with the proceeds of Refinancing
Indebtedness that is permitted under Section 4.10(b)(vii); or (iv) any
Restricted Investment.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means each direct or indirect Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Bank Debt" means Indebtedness incurred under any credit facility
entered into between the Company, any Restricted Subsidiary and bank lenders at
any time, as the same may be amended, modified, renewed, refunded, replaced or
refinanced from time to time, including (i) any related notes, letters of
credit, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time, and (ii) any notes, guarantees,
collateral documents, instruments and agreements executed in connection with any
such amendment, modification, renewal, refunding, replacement or refinancing.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding voting power of the Voting Stock of which is owned or controlled,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries thereof, or
(ii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner, or (iii) any other Person (other than a corporation
or limited partnership) in which such Person or one or more other Subsidiaries
of such Person, or such Person and one or more other Subsidiaries thereof,
directly or indirectly, has more than 50% of the outstanding partnership or
similar interests or has the power, by
<PAGE> 25
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contract or otherwise, to direct or cause the direction of the policies,
management and affairs thereof.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as
otherwise provided in Section 9.03.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer this Indenture or any part thereof, or in
the case of a successor trustee, an officer assigned to the department, division
or group performing the corporation trust work of such successor and assigned to
administer this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated
as such pursuant to and in compliance with Section 4.17 and not redesignated a
Restricted Subsidiary in compliance with such covenant.
"U.S. Government Obligations" mean direct obligations of, and
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"Voting Stock" of a Person means Capital Stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes
<PAGE> 26
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shall have or might have voting power by reason of the happening of any
contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such provision
is incorporated by reference in, and made a part of, this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder or a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
1. a term has the meaning assigned to it;
2. an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP as in effect on the date hereof;
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3. "or" is not exclusive;
4. words in the singular include the plural, and words in the plural
include the singular;
5. a reference to a Section or Article shall be to a Section or Article
of this Indenture;
6. "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision; and
7. any reference to a statute, law or regulation means that statute, law
or regulation as amended and in effect from time to time and includes any
successor statute, law or regulation; provided, however, that any reference
to the Bankruptcy Law shall mean the Bankruptcy Law as applicable to the
relevant case.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Initial Notes and the Trustee's certificate of authentication
relating thereto shall be substantially in the form of Exhibit A hereto. The
Exchange Notes and the Trustee's certificate of authentication relating thereto
shall be substantially in the form of Exhibit B hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
depository rule or usage. The Company and the Trustee shall approve the form of
the Notes and any notation, legend or endorsement on them. Each Note shall be
dated the date of its authentication.
The terms and provisions contained in the Notes, annexed hereto as
Exhibits A and B, shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered form,
substantially in the form set forth
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in Exhibit A (the "Global Note"), deposited with the Trustee, as custodian for
DTC, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and shall bear the legend set forth in Section 2.15(a) and
(b). The aggregate principal amount of the Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for DTC, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "Offshore
Physical Notes"), duly executed by the Company and authenticated by the Trustee
as hereinafter provided and shall bear the legend set forth in Section 2.15(a).
Notes offered and sold in reliance on Rule 144A may be issued, in the form of
permanent certificated Notes in registered form, in substantially the form set
forth in Exhibit A (the "U.S. Physical Notes"), duly executed by the Company and
authenticated by the Trustee as hereinafter provided and shall bear the legend
set forth in Section 2.15(a). The Offshore Physical Notes and the U.S. Physical
Notes are sometimes collectively herein referred to as the "Physical Notes."
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Notes for the Company by manual or facsimile
signature.
If an Officer or Assistant Secretary whose signature is on a Note was an
Officer or Assistant Secretary at the time of such execution but no longer holds
that office or position at the time the Trustee authenticates the Note, the Note
shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue in
the aggregate principal amount not to exceed $200,000,000 and (ii) Exchange
Notes from time to time for issue only in exchange for a like principal amount
of Initial
<PAGE> 29
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Notes, in each case upon a written order of the Company. In addition, the
Trustee shall authenticate Notes for original issue after the Issue Date in an
aggregate principal amount of up to $150,000,000 upon a written order of the
Company. Such orders shall specify the amount of Notes to be authenticated and
the date on which the Notes are to be authenticated, whether the Notes are to be
Initial Notes or Exchange Notes and whether the Notes are to be issued as
Physical Notes or a Global Note or such other information as the Trustee may
reasonably request. The aggregate principal amount of Notes outstanding at any
time may not exceed $350,000,000, except as provided in Section 2.07.
The Trustee may appoint an authenticating agent (the "Authenticating
Agent") reasonably acceptable to the Company to authenticate Notes. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with the
Company or with any Affiliate of the Company.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Note is registered as the owner of such Note
for the purpose of receiving payment of principal of and (subject to the
provisions of this Indenture and the Notes with respect to record dates)
interest on such Note, whether or not such Note is overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice of the contrary.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan in The City of New York, State of New York) where
(a) Notes may be presented or surrendered for registration of transfer or for
exchange ("Registrar"), (b) Notes may be presented or surrendered for payment
("Paying Agent") and (c) notices and demands to or upon the Company in respect
of the Notes and this Indenture may be served. The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company, upon
prior written notice to the Trustee, may have one or more co-Registrars
<PAGE> 30
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and one or more additional Paying Agents reasonably acceptable to the Trustee.
The term "Paying Agent" includes any additional Paying Agent. The Company may
act as its own Paying Agent, except that for the purposes of payments on the
Notes pursuant to Sections 4.15 and 4.16, neither the Company nor any Affiliate
of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Trustee, in advance, of the name and
address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of demands and notices in connection with the Notes, until
such time as the Trustee has resigned or a successor has been appointed. Any of
the Registrar, the Paying Agent or any other agent may resign upon 30 days'
notice to the Company.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, or interest on, the Notes (whether such assets have been
distributed to it by the Company or any other obligor on the Notes), and the
Company and the Paying Agent shall notify the Trustee of any Default by the
Company (or any other obligor on the Notes) in making any such payment. The
Company at any time may require a Paying Agent to distribute all assets held by
it to the Trustee and account for any assets disbursed and the Trustee may at
any time during the continuance of any payment Default, upon written request to
a Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of
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the names and addresses of the Holders. If the Trustee is not the Registrar, the
Company shall furnish or cause the Registrar to furnish to the Trustee before
each Record Date and at such other times as the Trustee may request in writing a
list as of such date and in such form as the Trustee may reasonably require of
the names and addresses of the Holders, which list may be conclusively relied
upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
When Notes are presented to the Registrar or a co-Registrar with a
request to register the transfer of such Notes or to exchange such Notes for an
equal principal amount of Notes of other authorized denominations, the Registrar
or co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; provided, however, that the Notes
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Company or the Registrar or co-Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing. To permit registrations of
transfer and exchanges, the Company shall execute and the Trustee shall
authenticate Notes at the Registrar's or co-Registrar's request. No service
charge shall be made for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchanges (without
transfer to another Person) pursuant to Sections 2.02, 2.10, 3.06, 4.15, 4.16 or
9.05, in which event the Company shall be responsible for the payment of such
taxes).
The Registrar or co-Registrar shall not be required to register the
transfer of or exchange of any Note (i) during a period beginning at the opening
of business on the day the Trustee receives notice of any redemption of Notes
and ending at the close of business on the day such notice of redemption is
mailed to the Holders, (ii) selected for redemption in whole or in part pursuant
to Article Three, except the unredeemed portion of any Note being redeemed in
part and (iii) during a Change of Control Offer or an Asset Sale Offer if such
Note is tendered pursuant to such Change of Control Offer or Asset Sale Offer
and not withdrawn.
Any Holder of the Global Note shall, by acceptance of such Global Note,
agree that transfers of beneficial interests in such Global Notes may be
effected only through a book-entry
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system maintained by the Holder of such Global Note (or its agent), and that
ownership of a beneficial interest in the Note shall be required to be reflected
in a book-entry system.
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder of a
Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note if the
Trustee's requirements are met. If required by the Trustee or the Company, such
Holder must provide an indemnity bond or other indemnity of reasonable tenor,
sufficient in the reasonable judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Note is replaced. Every replacement Note shall constitute an
additional obligation of the Company.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those canceled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.09, a Note does not cease to be outstanding
because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a mutilated
Note surrendered for replacement), it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Note is held by a
bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of
such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company) holds U.S. Legal Tender or U.S. Government Obligations
sufficient to pay all of the principal and interest due on the Notes payable on
that date and is not prohibited from paying such money to the Holders thereof
pursuant to the terms of this Indenture, then on and after that date such Notes
cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Notes.
In determining (x) whether the Holders of the required principal amount
of Notes have concurred in any direc-
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tion, waiver, consent or notice or (y) how much principal amount of Notes
remains outstanding after a redemption under Paragraph 6 of the Notes, Notes
owned by the Company or an Affiliate shall be considered as though they are not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent under
clause (x) above, only Notes which a Trust Officer of the Trustee actually knows
are so owned shall be so considered. The Company shall notify the Trustee, in
writing, when it or, to the Company's knowledge, any of its Affiliates purchases
or otherwise acquires Notes, of the aggregate principal amount of such Notes so
purchased or otherwise acquired.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes upon receipt of a written
order of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of temporary Notes to be authenticated and
the date on which the temporary Notes are to be authenticated. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company considers appropriate for temporary Notes and so indicates in
the Officers' Certificate. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate upon receipt of a written order of the
Company pursuant to Section 2.02 definitive Notes in exchange for temporary
Notes.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Company, shall dispose,
in its customary manner, of all Notes surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.07, the Company may not issue new
Notes to replace Notes that it has paid or delivered to the Trustee for
cancellation. If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation pursuant to this Section 2.11.
<PAGE> 34
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SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest to the Persons who are Holders on a subsequent special
record date, which special record date shall be the fifteenth day next preceding
the date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. The Company shall
notify the Trustee in writing of the amount of defaulted interest proposed to be
paid on each Note and the date of the proposed payment (a "Default Interest
Payment Date"), and at the same time the Company shall deposit with the Trustee
an amount of money equal to the aggregate amount proposed to be paid in respect
of such defaulted interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled to
such defaulted interest as provided in this Section; provided, however, that in
no event shall the Company deposit monies proposed to be paid in respect of
defaulted interest later than 11:00 a.m. of the proposed Default Interest
Payment Date. At least 15 days before the subsequent special record date, the
Company shall mail (or cause to be mailed) to each Holder, as of a recent date
selected by the Company, with a copy to the Trustee, a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest, and interest payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(i) shall be paid to
Holders as of the regular record date for the Interest Payment Date for which
interest has not been paid. Notwithstanding the foregoing, the Company may make
payment of any defaulted interest in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange.
SECTION 2.13. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number, and, if so,
the Trustee shall use the CUSIP number in notices of redemption or exchange as a
convenience to Holders; provided, however, that no representation is hereby
deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers
<PAGE> 35
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printed on the Notes. The Company shall promptly notify the Trustee of any
change in the CUSIP number.
SECTION 2.14. Deposit of Monies.
Prior to 11:00 a.m. New York City time on each Interest Payment Date,
Maturity Date, Redemption Date, Change of Control Purchase Date and Asset Sale
Offer Purchase Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control
Purchase Date and Asset Sale Offer Purchase Date, as the case may be, in a
timely manner which permits the Paying Agent to remit payment to the Holders on
such Interest Payment Date, Maturity Date, Redemption Date, Change of Control
Purchase Date and Asset Sale Offer Purchase Date, as the case may be.
SECTION 2.15. Restrictive Legends.
(a) Each Global Note and Physical Note that constitutes a Restricted
Security shall bear the following legend (the "Private Placement Legend") on the
face thereof until after the second anniversary of the Issue Date, unless
otherwise agreed by the Company and the Holder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT
WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY
RESELL OR OTHERWISE TRANSFER THIS SECURITY, EXCEPT (A) TO THE ISSUER OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) OUTSIDE
THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE ACT, (D)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
ACT (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT
<PAGE> 36
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AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON"
HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
EACH PURCHASER BY ITS PURCHASE OF THIS SECURITY SHALL BE DEEMED TO HAVE
REPRESENTED AND COVENANTED THAT EITHER (I) IT IS NOT ACQUIRING THE SECURITY
FOR OR ON BEHALF OF ANY PENSION OR WELFARE PLAN (AS DEFINED IN SECTION 3 OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 ("ERISA")) OR (II) IF
IT IS ACQUIRING THE SECURITY FOR OR ON BEHALF OF A PENSION OR WELFARE PLAN,
THE APPLICABLE CONDITIONS OF PROHIBITED TRANSACTION CLASS EXEMPTION 91-38,
90-1, 84-14 OR 95-60 ISSUED BY THE DEPARTMENT OF LABOR HAVE BEEN SATISFIED
OR THE PLAN IS A GOVERNMENTAL PLAN THAT IS NOT SUBJECT TO TITLE I OF ERISA
OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
(b) Each Global Note shall also bear the following legend on the face
thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF
THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR
DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS
<PAGE> 37
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WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.17 OF THE INDENTURE.
SECTION 2.16. Book-Entry Provisions for Global Security.
(a) The Global Note initially shall (i) be registered in the name of DTC
or the nominee of such DTC, (ii) be delivered to the Trustee as custodian for
such DTC and (iii) bear legends as set forth in Section 2.15.
Members of, or participants in, DTC ("Agent Members") shall have no
rights under this Indenture with respect to any Global Note held on their behalf
by DTC, or the Trustee as its custodian, or under the Global Note, and DTC may
be treated by the Company, the Trustee and any Agent as the absolute owner of
the Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any Agent from giving
effect to any written certification, proxy or other authorization furnished by
DTC or impair, as between DTC and its Agent Members, the operation of customary
practices governing the exercise of the rights of a Holder of any Note.
(b) Transfers of the Global Note shall be limited to transfers in whole,
but not in part, to DTC, its successors or their respective nominees. Interests
of beneficial owners in the Global Note may be transferred or exchanged for
Physical Notes in accordance with the rules and procedures of DTC and the
provisions of Section 2.17. In addition, Physical Notes shall be transferred to
all beneficial owners in exchange for their beneficial interests in the Global
Note if (i) DTC notifies the Company that it is unwilling or unable to continue
as DTC for the Global Note and a successor depository is not appointed by the
Company within 90 days of such notice or (ii) an Event of Default has occurred
and is continuing and the Registrar has received a written request from DTC to
issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in the Global Note to bene-
<PAGE> 38
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ficial owners pursuant to paragraph (b), the Registrar shall (if one or more
Physical Notes are to be issued) reflect on its books and records the date and a
decrease in the principal amount of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Notes of like tenor and amount.
(d) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to paragraph (b), the Global Note shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by DTC in exchange for its beneficial interest in the Global Note, an
equal aggregate principal amount of Physical Notes of authorized denominations.
(e) Any Physical Note constituting a Restricted Security delivered in
exchange for an interest in the Global Note pursuant to paragraph (b) or (c)
shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section
2.17, bear the legend regarding transfer restrictions applicable to the Physical
Notes set forth in Section 2.15.
(f) The Holder of the Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
SECTION 2.17. Special Transfer Provisions.
(a) Transfers to Non-U.S. Persons. The following provisions shall apply
with respect to the registration of any proposed transfer of a Note constituting
a Restricted Security to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note constituting a
Restricted Security, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after the second anniversary of
the Issue Date (provided, however, that neither the Company nor any
Affiliate of the Company has held any beneficial interest in such Note, or
portion thereof, at any time on or prior to the second anniversary of the
Issue Date) or (y) the proposed transferor has delivered to the Registrar
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a certificate substantially in the form of Exhibit C hereto; and
(ii) if the proposed transferor is an Agent Member holding a beneficial
interest in the Global Note, upon receipt by the Registrar of the
certificate, if any, required by paragraph (i) above and written
instructions given in accordance with the procedures of DTC and the
Registrar, then (x) the Registrar shall reflect on its books and records
the date and (if the transfer does not involve a transfer of outstanding
Physical Notes) a decrease in the principal amount of the Global Note in an
amount equal to the principal amount of the beneficial interest in the
Global Note to be transferred, and (y) the Company shall execute and the
Trustee shall authenticate and deliver one or more Physical Notes of like
tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with respect
to the registration of any proposed transfer of a Note constituting a Restricted
Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer is being
made by a proposed transferor who has checked the box provided for on the
form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Note for
its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the Notes to be
transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in the Global Note, upon receipt by the Registrar
of written instructions given in accordance with DTC's and the Regis-
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trar's procedures, the Registrar shall reflect on its books and records the
date and an increase in the principal amount of the Global Note in an
amount equal to the principal amount of the Physical Notes to be
transferred, and the Trustee shall cancel the Physical Notes so
transferred.
(c) Private Placement Legend. Upon the transfer, exchange or replacement
of Notes not bearing the Private Placement Legend, the Registrar shall deliver
Notes that do not bear the Private Placement Legend. Upon the transfer, exchange
or replacement of Notes bearing the Private Placement Legend, the Registrar
shall deliver only Notes that bear the Private Placement Legend unless (i) the
requested transfer is after the second anniversary of the Issue Date (provided,
however, that neither the Company nor any Affiliate of the Company has held any
beneficial interest in such Note, or portion thereof, at any time prior to or on
the second anniversary of the Issue Date), or (ii) there is delivered to the
Registrar an Opinion of Counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act.
(d) General. By its acceptance of any Note bearing the Private Placement
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.16 or this Section 2.17.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time during the
Registrar's normal business hours upon the giving of reasonable written notice
to the Registrar.
(e) Transfers of Notes Held by Affiliates. Any certificate (i)
evidencing a Note that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered in
respect thereof, for so long as such Note is held by such Affiliate, or (ii)
evidencing a Note that has been acquired from an Affiliate (other than by an
Affiliate) in a transaction or a chain of transactions not involving any public
offering, shall, until
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two years after the last date on which the Company or any Affiliate of the
Company was an owner of such Note, in each case, bear the legend in
substantially the form set forth in Section 2.15(a), unless otherwise agreed by
the Company (with written notice thereof to the Trustee).
SECTION 2.18. Liquidated Damages Under Registration Rights Agreement.
Under certain circumstances, the Company shall be obligated to pay
certain Liquidated Damages to the Holders, all as set forth in Section 4 of the
Registration Rights Agreement. The terms thereof are hereby incorporated herein
by reference.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 5 of the
Notes, it shall notify the Trustee and the Paying Agent in writing of the
Redemption Date and the principal amount of the Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.01 at
least 60 days before the Redemption Date (unless a shorter notice period shall
be satisfactory to the Trustee, as evidenced in a writing signed on behalf of
the Trustee), together with an Officers' Certificate stating that such
redemption shall comply with the conditions contained herein and in the Notes.
SECTION 3.02. Selection of Notes To Be Redeemed.
If fewer than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not listed on a national securities
exchange, on a pro rata basis or by lot or by such method as the Trustee shall
deem fair and appropriate. If the Notes are listed on any national securities
exchange, the Company shall notify the Trustee of the requirements of such
exchange in respect of any redemption. The Trustee shall make the selection from
the Notes outstanding and not previously called for redemption and
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shall promptly notify the Company in writing of the Notes selected for
redemption and, in the case of any Note selected for partial redemption, the
principal amount thereof to be redeemed. Notes in denominations of $1,000 may be
redeemed only in whole. The Trustee may select for redemption portions (equal to
$1,000 or any integral multiple thereof) of the principal of Notes that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date, the
Company shall mail or cause to be mailed a notice of redemption by first class
mail to each Holder whose Notes are to be redeemed, with a copy to the Trustee
and any Paying Agent. At the Company's request, the Trustee shall give the
notice of redemption in the Company's name and at the Company's expense. The
Company shall provide such notices of redemption to the Trustee at least five
Business Days before the intended mailing date.
Each notice for redemption shall identify (including the CUSIP number)
the Notes to be redeemed and shall state:
1. the Redemption Date;
2. the Redemption Price and the amount of accrued interest, if any, to
be paid;
3. the name and address of the Paying Agent;
4. the subparagraph of the Notes pursuant to which such redemption is
being made;
5. that Notes called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price plus accrued interest, if any;
6. that, unless the Company defaults in making the redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
Redemption Date, and the only remaining right of the Holders of such Notes
is to receive payment of the Redemption Price plus accrued interest, if
any, upon surrender to the Paying Agent of the Notes redeemed;
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7. if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the Redemption Date, and
upon surrender of such Note, a new Note or Notes in the aggregate principal
amount equal to the unredeemed portion thereof will be issued; and
8. if fewer than all the Notes are to be redeemed, the identification of
the particular Notes (or portion thereof) to be redeemed, as well as the
aggregate principal amount of Notes to be redeemed and the aggregate
principal amount of Notes to be outstanding after such partial redemption.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Notes called for redemption become due and payable on the Redemption Date and at
the Redemption Price plus accrued interest, if any. Upon surrender to the
Trustee or Paying Agent, such Notes called for redemption shall be paid at the
Redemption Price plus accrued interest thereon to the Redemption Date, but
installments of interest, the maturity of which is on or prior to the Redemption
Date, shall be payable to Holders of record at the close of business on the
relevant Record Dates referred to in the Notes.
SECTION 3.05. Deposit of Redemption Price.
On or before the Redemption Date and in accordance with Section 2.14
hereof, the Company shall deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the Redemption Price plus accrued interest, if any, of all
Notes to be redeemed on that date. The Paying Agent shall promptly return to the
Company any U.S. Legal Tender so deposited which is not required for that
purpose, except with respect to monies owed as obligations to the Trustee
pursuant to Article Seven.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price plus accrued interest,
if any, interest on the Notes to be redeemed will cease to accrue on and after
the applicable Redemption Date, whether or not such Notes are presented for
payment.
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SECTION 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is to be redeemed in part, the Trustee
shall authenticate for the Holder a new Note or Notes equal in principal amount
to the unredeemed portion of the Note surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
(a) The Company shall pay the principal of, premium, if any, and
interest on the Notes on the dates and in the manner provided in the Notes and
in this Indenture.
(b) An installment of principal of or interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
the Company or any of its Affiliates) holds, prior to 11:00 a.m. New York City
time on that date, U.S. Legal Tender designated for and sufficient to pay the
installment in full and is not prohibited from paying such money to the Holders
pursuant to the terms of this Indenture or the Notes.
(c) The Company shall pay, to the extent such payments are lawful,
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate borne by the Notes. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
(d) Notwithstanding anything to the contrary contained in this
Indenture, the Company may, to the extent it is required to do so by law, deduct
or withhold income or other similar taxes imposed by the United States of
America from principal or interest payments hereunder.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required under Section
2.03. The Company shall give prior written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the
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Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee set
forth in Section 10.02.
SECTION 4.03. Corporate Existence.
Except as otherwise permitted by Article Five or by Section 4.16, the
Company shall do or cause to be done, at its own cost and expense, all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate existence of each of the Subsidiaries in accordance with the
respective organizational documents of each such Subsidiary and the material
rights (charter and statutory) and franchises of the Company and each such
Subsidiary; provided, however, that the Company shall not be required to
preserve, with respect to itself, any material right or franchise and, with
respect to any Subsidiary, any such existence, material right or franchise, if
the Board of Directors of the Company shall determine in good faith that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and the Subsidiaries, taken as a whole.
SECTION 4.04. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any Subsidiary or
properties of it or any Subsidiary and (ii) all material lawful claims for
labor, materials and supplies that, if unpaid, might by law become a Lien upon
the property of it or any Subsidiary; provided, however, that the Company shall
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate negotiations or proceedings
properly instituted and diligently conducted for which adequate reserves, to the
extent required under GAAP, have been taken.
SECTION 4.05. Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each Restricted Subsidiary to,
maintain all properties used or useful in the conduct of its business in good
working order and condition (subject to ordinary wear and tear) and make all
necessary
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repairs, renewals, replacements, additions, betterments and improvements
thereto; provided, however, that nothing in this Section 4.05 shall prevent the
Company or any Restricted Subsidiary from discontinuing the operation and
maintenance of any of its properties, if such discontinuance is (i) in the
ordinary course of business pursuant to customary business terms or (ii) in the
good faith judgment of the Board of Directors or other governing body of the
Company or the Restricted Subsidiary, as the case may be, desirable in the
conduct of their respective businesses and is not disadvantageous in any
material respect to the Holders.
(b) The Company shall provide or cause to be provided, for itself and
each Restricted Subsidiary, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the good faith judgment of the
Company, are adequate and appropriate for the conduct of the business of the
Company and such Restricted Subsidiary in a prudent manner, with reputable
insurers or with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be customary, in the good faith judgment of the Company, for
companies similarly situated in the industry and owning like properties.
SECTION 4.06. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 105 days after the
end of the Company's fiscal year, a certificate signed by the Chairman of the
Board of Directors, the Chief Executive Officer, the President or any Vice
President and by the Chief Financial Officer, the Treasurer or any Assistant
Treasurer or the Secretary or any Assistant Secretary of the Company (provided,
however, that one of such signatories shall be the Company's principal executive
officer, principal financial officer or principal accounting officer), as to
such Officers' knowledge of the Company's compliance with all conditions and
covenants under this Indenture (without regard to any period of grace or
requirement of notice provided hereunder) and in the event any Default exists,
such Officers shall specify the nature of such Default.
(b) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, the Company
shall deliver to the Trustee, at its address set forth in Section 10.02, by
registered or certified mail or by facsimile transmission followed
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by hard copy by registered or certified mail an Officers' Certificate specifying
such event, notice or other action within five Business Days of its becoming
aware of such occurrence.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each Subsidiary to comply,
with all applicable statutes, rules, regulations, orders and restrictions of the
United States of America, all states and municipalities thereof, and of any
governmental department, commission, board, regulatory authority, bureau, agency
and instrumentality of the foregoing, in respect of the conduct of their
respective businesses and the ownership of their respective properties, except
for such noncompliances as would not singly or in the aggregate have a material
adverse effect on the financial condition, business or results of operations of
the Company and the Subsidiaries, taken as a whole.
SECTION 4.08. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.09. Provision of Financial Statements and Information.
(a) Whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, the Company will file with the Commission, so long as any
Notes are outstanding, the annual reports, quarterly reports and other periodic
reports which the Company would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) if the Company were so subject, and such
documents shall be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Company would have been
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required so to file such documents if the Company were so subject. Upon
qualification of this Indenture under the TIA, the Company shall also comply
with the provisions of TIA Section 314(a).
(b) The Company will also in any event (i) within 15 days of each
Required Filing Date, file with the Trustee, and supply the Trustee with copies
for delivery to the Holders of the Notes, the annual reports, quarterly reports
and other periodic reports which the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
the Company were subject to such Sections and (ii) if the Commission will not
accept the filing of such documents promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of such documents
to any prospective Holder of the Notes.
(c) If the Company is not subject to Section 13(a) or 15(d) of the
Exchange Act, the Company shall provide to any Holder or any beneficial owner of
Notes any information reasonably requested by such Holder or such beneficial
owner concerning the Company and its Subsidiaries (including financial
statements) necessary in order to permit such Holder or such beneficial owner to
sell or transfer Notes in compliance with Rule 144A under the Securities Act.
SECTION 4.10. Limitation on Incurrence of Indebtedness.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, create, incur, issue, assume or directly or indirectly guarantee
or in any other manner become directly or indirectly liable for ("incur") any
Indebtedness (including Acquired Debt), except that the Company may incur
Indebtedness (including Acquired Debt) if, at the time of, and immediately after
giving pro forma effect to, such incurrence of Indebtedness, the Consolidated
Cash Flow Coverage Ratio of the Company for the most recently ended four fiscal
quarters would be at least 3.0 to 1.0.
(b) The foregoing limitations will not apply to the incurrence of any of
the following (collectively, "Permitted Indebtedness"), each of which shall be
given independent effect:
(i) Senior Bank Debt of the Company or any of its Restricted
Subsidiaries, in an aggregate principal amount not to exceed at any time
outstanding the greater of (x) $50.0 million, and (y) the sum, at such
time, of
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(I) 85% of the consolidated book value of net accounts receivable and
current notes receivable of the Company and the Restricted Subsidiaries and
(II) 60% of the consolidated book value of inventory of the Company and the
Restricted Subsidiaries;
(ii) Indebtedness of the Company represented by the Notes issued in the
Offering and the Exchange Notes;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
covered by any other clause of this paragraph which is outstanding on the
Issue Date ("Existing Indebtedness");
(iv) Indebtedness owed by any Restricted Subsidiary to the Company or to
another Restricted Subsidiary, or owed by the Company to any Restricted
Subsidiary; provided, however, that any such Indebtedness shall at all
times be held by a Person which is either the Company or a Restricted
Subsidiary; provided, further, however, that upon either (a) the transfer
or other disposition of any such Indebtedness to a Person other than the
Company or another Restricted Subsidiary or (b) the sale, lease, transfer
or other disposition of shares of Capital Stock (including by consolidation
or merger) of any such Restricted Subsidiary to a Person other than the
Company or another Restricted Subsidiary resulting in such Restricted
Subsidiary ceasing to be a Restricted Subsidiary, the incurrence of such
Indebtedness shall be deemed to be an incurrence that must be permitted by
this covenant other than by virtue of this clause (iv);
(v) Indebtedness of the Company or any Restricted Subsidiary arising
with respect to Interest Rate Agreement Obligations and Currency Agreement
Obligations incurred for the purpose of fixing or hedging interest rate
risk or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the terms hereof to be outstanding or
with respect to any receivable or liability the payment of which is
determined by reference to a foreign currency;
(vi) Indebtedness represented by performance, completion, guarantee,
surety and similar bonds provided by the Company or any Restricted
Subsidiary in the ordinary course of business consistent with past
practice;
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(vii) Any Indebtedness incurred in connection with or given in exchange
for the renewal, extension, substitution, refunding, defeasance,
refinancing or replacement, in whole or in part (a "refinancing"), of any
Indebtedness incurred as permitted under the first paragraph of this
covenant or any Indebtedness described in clauses (ii) or (iii) above and
this clause (vii) ("Refinancing Indebtedness"); provided, however, that (a)
the principal amount of such Refinancing Indebtedness shall not exceed the
principal amount (or accreted amount, if less) of the Indebtedness so
refinanced (plus the premiums and reasonable expenses to be paid in
connection therewith); (b) if the Weighted Average Life to Maturity of the
Indebtedness being refinanced is equal to or greater than the Weighted
Average Life to Maturity of the Notes, the Refinancing Indebtedness shall
have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced; (c)
with respect to Refinancing Indebtedness that is subordinated to the Notes,
such Refinancing Indebtedness shall be at least as subordinated in right of
payment to the Notes as, the Indebtedness being refinanced; and (d) the
Company or the obligor on such Refinancing Indebtedness shall be the
obligor on the Indebtedness being refinanced;
(viii) Indebtedness incurred by the Company or any Restricted Subsidiary
constituting reimbursement obligations with respect to letters of credit
issued in the ordinary course of business, including, without limitation,
letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims or self-insurance;
(ix) Indebtedness of the Company or any Restricted Subsidiary arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, in each case incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
Guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided that the maximum liability in respect
of such Indebtedness shall not exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition; and
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(x) Indebtedness of the Company or any Restricted Subsidiary in addition
to that described in clauses (i) through (ix) above, and any renewals,
extensions, substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all such
Indebtedness incurred pursuant to this clause (x) does not exceed $35.0
million at any one time outstanding.
(c) For purposes of determining any particular amount of Indebtedness
under this Section 4.10, Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included.
(d) Indebtedness of any Person which is outstanding at the time such
Person becomes a Restricted Subsidiary or is merged with or into or consolidated
with the Company or a Restricted Subsidiary shall be deemed to have been
incurred at the time such Person becomes a Restricted Subsidiary or is merged
with or into or consolidated with the Company or a Restricted Subsidiary, and
Indebtedness which is assumed at the time of the acquisition of any asset shall
be deemed to have been incurred at the time of such acquisition.
SECTION 4.11. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, make any Restricted Payment, unless at
the time of and immediately after giving effect to the proposed Restricted
Payment (with the value of any such Restricted Payment, if other than cash, to
be determined reasonably and in good faith by the Board of Directors of the
Company):
(i) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(ii) the Company could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to Section 4.10(a); and
(iii) the aggregate amount of all Restricted Payments made after the
Issue Date shall not exceed the sum of:
(a) an amount equal to 50% of the Company's aggregate cumulative
Consolidated Net Income accrued on a cumulative basis during the period
(treated as one
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accounting period) beginning on the Issue Date and ending on the date of
such proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income for such period shall be a deficit, minus 100%
of such deficit); plus
(b) the aggregate amount of all net cash proceeds received since
the Issue Date by the Company from the issuance and sale (other than to
a Restricted Subsidiary) of, or equity contribution with respect to,
Capital Stock (other than Disqualified Stock) and the principal amount
of Indebtedness of the Company or any Restricted Subsidiary issued or
incurred on or after the Issue Date that has been converted into or
exchanged for Capital Stock (other than Disqualified Stock), in any such
case to the extent that such proceeds are not used to redeem,
repurchase, retire or otherwise acquire Capital Stock or any
Indebtedness of the Company or any Restricted Subsidiary pursuant to
clause (ii) of the next paragraph; plus
(c) the amount of the net reduction in Restricted Investments
resulting from (x) the payment of dividends or the repayment in cash of
the principal of loans or the cash return on any Restricted Investment,
in each case to the extent received by the Company or any Restricted
Subsidiary, (y) the release or extinguishment of any guarantee of
Indebtedness which guarantee constituted a Restricted Investment, and
(z) in the case of Investments in Unrestricted Subsidiaries, the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued as provided in the definition of "Investment"), such aggregate
amount of the net reduction in Restricted Investments not to exceed the
amount of Restricted Investments previously made by the Company or any
Restricted Subsidiary, which amount was included in the calculation of
the amount of Restricted Payments.
(b) Section 4.11(a) shall not prohibit so long as no Default or Event of
Default is continuing, the following actions (collectively, "Permitted
Payments"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under this Indenture (which payment shall be deemed to have
been paid
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on such date of declaration for purposes of Section 4.11(a)(iii));
(ii) the redemption, repurchase, retirement or other acquisition of any
Capital Stock or any Indebtedness of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary) of, or equity
contribution with respect to, Capital Stock of the Company (other than any
Disqualified Stock);
(iii) cash dividends on the Common Stock of the Company paid in the
ordinary course consistent with past practice; provided that the Company
could incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.10(a);
(iv) the redemption, repurchase or other acquisition of Capital Stock of
the Company issued to SmithKline Beecham plc or any other Person as
consideration for or in exchange for products used in the Company's
business in an amount not to exceed $40.0 million in the aggregate; and
(v) other payments not otherwise permitted by the foregoing clauses (i)
through (iv) in an aggregate amount not to exceed $20.0 million.
(c) For purposes of Section 4.11(a)(iii), the Permitted Payments
referred to in clauses (i), (iv) and (v) of Section 4.11(b) shall be included in
the aggregate amount of Restricted Payments made since the Issue Date.
(d) Not later than thirty (30) days after the end of any fiscal quarter
of the Company during which any Restricted Payment or Restricted Investment has
been made, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment or Restricted Investment complies with this
Indenture and setting forth in reasonable detail the basis upon which the
required calculations were computed, which calculations may be based upon the
Company's latest available internal quarterly financial statements.
SECTION 4.12. Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness (other than Permitted Liens) on any asset now owned or
hereafter ac-
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quired, or any income or profits therefrom, or assign or convey any right to
receive income therefrom to secure any such Indebtedness, unless (i) if such
Lien secures Indebtedness which is pari passu with the Notes, then the Notes are
secured on an equal and ratable basis with the obligations so secured until such
time as such obligation is no longer secured by a Lien or (ii) if such Lien
secures Indebtedness which is subordinated to the Notes, any such Lien shall be
subordinated to a Lien granted to the holders of the Notes in the same
collateral as that securing such Lien to the same extent as such subordinated
Indebtedness is subordinated to the Notes.
SECTION 4.13. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause to become effective any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions to
the Company or any other Restricted Subsidiary on its Capital Stock or with
respect to any other interest or participation in, or measured by, its profits,
or pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(ii) make loans or advances to, or issue Guarantees for the benefit of, the
Company or any other Restricted Subsidiary or (iii) transfer any of its
properties or assets to the Company or any other Restricted Subsidiary, except
for such encumbrances or restrictions existing under or by reason of:
(a) applicable law;
(b) any instrument governing Indebtedness or Capital Stock of an
Acquired Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the
extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition); provided, however, that no such
encumbrance or restriction is applicable to any Person, or the properties
or assets of any Person, other than the Acquired Person;
(c) by reason of customary non-assignment, subletting or net worth
provisions in leases or other agreements entered into in the ordinary
course of business and consistent with past practices;
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(d) Purchase Money Obligations for property acquired in the ordinary
course of business that impose restrictions only on the property so
acquired;
(e) an agreement for the sale or disposition of assets or the Capital
Stock of a Restricted Subsidiary; provided, however, that such restriction
or encumbrance is only applicable to such Restricted Subsidiary or assets,
as applicable, and such sale or disposition otherwise is permitted by
Section 4.16; provided, further, however, that such restriction or
encumbrance shall be effective only for a period from the execution and
delivery of such agreement through a termination date not later than 180
days after such execution and delivery;
(f) this Indenture and the Notes; and
(g) Refinancing Indebtedness permitted to be incurred pursuant to
Section 4.10; provided, however, that any such encumbrances and
restrictions are, in the good faith judgment of the Company's Board of
Directors, no more restrictive, in any material respect, than those
contained in the Indebtedness being so refinanced.
SECTION 4.14. Limitation on Transactions with Affiliates.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate of the Company unless (1) such transaction or series of transactions
is on terms that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could reasonably be obtainable
at such time in a comparable transaction in arm's-length dealings with an
unrelated third party, and (2) the Company delivers to the Trustee (a) with
respect to any transaction or series of transactions involving aggregate
payments in excess of $1,000,000, an Officers' Certificate certifying that such
transaction or series of related transactions complies with clause (1) above and
(b) with respect to any transaction or series of transactions involving
aggregate payments in excess of $2.0 million, an Officers' Certificate
certifying that such transaction or series of related transactions has been
approved by a majority of the members of the Board of Directors of the Company
(and approved by a majority of the Independent Directors or, in the event
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there is only one Independent Director, by such Independent Director), and (c)
with respect to any transaction or series of transactions involving aggregate
payments in excess of $10.0 million, an opinion as to the fairness to the
Company from a financial point of view issued by an investment banking firm of
national standing.
(b) Section 4.14(a) will not apply to (i) employment agreements or
compensation or employee benefit arrangements with any officer, director or
employee of the Company or any of its Restricted Subsidiaries entered into in
the ordinary course of business (including customary benefits thereunder and
including reimbursement or advancement of out-of-pocket expenses, and director's
and officer's liability insurance); (ii) any transaction entered into by or
among the Company or one of its Restricted Subsidiaries with one or more
Restricted Subsidiaries of the Company; (iii) any transaction permitted by
Section 4.11(b); and (iv) transactions permitted by, and complying with, Article
Five.
SECTION 4.15. Change of Control.
(a) In the event of a Change of Control, each Holder shall have the
right, unless the Company has given a notice of redemption, subject to the terms
and conditions of this Indenture, to require the Company to offer to purchase
all or any portion (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase, in accordance with the terms set forth below (a "Change of Control
Offer").
(b) On or before the 30th day following the occurrence of any Change of
Control, the Company shall mail, by first-class mail (with a copy to the
Trustee), to each Holder at such Holder's registered address a notice stating:
(i) that a Change of Control has occurred and that such Holder has the right to
require the Company to purchase all or a portion (equal to $1,000 or an integral
multiple thereof) of such Holder's Notes at a purchase price in cash equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), which shall be a business day, specified in such notice, that is not
earlier than 30 days or later than 60 days from the date such notice is mailed;
(ii) the amount of accrued and unpaid interest, if any, as of the Change of
Control Purchase Date; (iii) that any Note not tendered will continue to accrue
interest; (iv) that, unless the Company de-
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faults in the payment of the purchase price for the Notes payable pursuant to
the Change of Control Offer, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest on the Change of Control
Purchase Date; (v) that Holders electing to have a Note purchased pursuant to a
Change of Control Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the second Business Day prior to the Change of Control
Purchase Date; (vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the second Business Day prior to the
Change of Control Purchase Date, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Notes the Holder
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; (vii) that Holders whose Notes are
purchased only in part will be issued new Notes in a principal amount equal to
the unpurchased portion of the Notes surrendered; provided, however, that each
Note purchased and each new Note issued shall be in an original principal amount
of $1,000 or integral multiples thereof; (viii) the circumstances and relevant
facts regarding such Change of Control; and (ix) such other information as may
be required by applicable laws and regulations.
(c) On the Change of Control Purchase Date, the Company will (x) accept
for payment all Notes or portions thereof tendered pursuant to the Change of
Control Offer, (y) deposit with the Paying Agent U.S. Legal Tender sufficient to
pay the aggregate purchase price of all Notes or portions thereof accepted for
payment, and (z) deliver or cause to be delivered to the Trustee all Notes
tendered pursuant to the Change of Control Offer. The Paying Agent shall
promptly mail to each Holder of Notes or portions thereof accepted for payment
an amount equal to the purchase price for such Notes plus accrued and unpaid
interest, if any, thereon, and the Trustee shall promptly authenticate and mail
to each Holder of Notes accepted for payment in part a new Note equal in
principal amount to any unpurchased portion of the Notes, and any Note not
accepted for payment in whole or in part shall be promptly returned to the
Holder of such Note. On and after a Change of Control Purchase Date, interest
will cease to accrue on the Notes or portions thereof accepted for payment,
unless the Company defaults in the payment of the purchase price therefor. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Purchase Date.
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(d) The Company will comply with the applicable tender offer rules,
including the requirements of Section 14(e) and Rule 14e-1 under the Exchange
Act, and all other applicable securities laws and regulations in connection with
any Change of Control Offer and will be deemed not to be in violation of any of
the covenants under this Indenture to the extent such compliance is in conflict
with such covenants.
SECTION 4.16. Limitation on Asset Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, make any Asset Sale unless (i) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value (as evidenced by a resolution of
the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or other property sold or disposed of in the Asset Sale
and (ii) at least 75% of such consideration consists of either cash or Cash
Equivalents; provided, however, that (A) for purposes of this Section 4.16,
"cash" shall include (x) the amount of any Indebtedness (other than any
Indebtedness that is by its terms subordinated to the Notes) of the Company or
such Restricted Subsidiary as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto that is assumed
by the transferee of any such assets or other property in such Asset Sale (and
excluding any liabilities that are incurred in connection with or in
anticipation of such Asset Sale), but only to the extent that such assumption is
effected on a basis such that there is no further recourse to the Company or any
of the Restricted Subsidiaries with respect to such liabilities and (y) any
notes, obligations or securities received by the Company or such Restricted
Subsidiary from such transferee that are converted within 60 days by the Company
or such Restricted Subsidiary into cash (to the extent of the cash received) and
(B) the 75% cash or Cash Equivalents requirement will not apply to any sale of
all or substantially all of the assets or Capital Stock of ICN Biomedicals, Inc.
(b) Within one year after any Asset Sale, the Company or the applicable
Restricted Subsidiary may elect to apply the Net Proceeds from such Asset Sale
to (a) permanently reduce any Senior Bank Debt of the Company and/or (b) make an
investment in, or acquire assets and properties that will be used in, a Related
Business. Pending the final application of any such Net Proceeds, the Company or
any Restricted Subsidiary may temporarily invest such Net Proceeds in any
Investments described under clauses (i) through (iii) of the definition of
Permitted
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Investments. Any Net Proceeds from an Asset Sale not applied or invested as
provided in the first sentence of this Section 4.16(b) within one year of such
Asset Sale will be deemed to constitute "Excess Proceeds."
(c) Each date that the aggregate amount of Excess Proceeds in respect of
which an Asset Sale Offer (as defined below) has not been made exceeds $10.0
million shall be deemed an "Asset Sale Offer Trigger Date." As soon as
practicable, but in no event later than 20 Business Days after each Asset Sale
Offer Trigger Date, the Company shall commence an offer (an "Asset Sale Offer")
to purchase the maximum principal amount of Notes that may be purchased out of
the Excess Proceeds. Any Notes to be purchased pursuant to an Asset Sale Offer
shall be purchased pro rata based on the aggregate principal amount of Notes
outstanding, and all Notes shall be purchased at an offer price in cash in an
amount equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase. To the extent that any Excess
Proceeds remain after completion of an Asset Sale Offer, the Company may use the
remaining amount for general corporate purposes otherwise permitted by this
Indenture. Upon the consummation of any Asset Sale Offer, the amount of Excess
Proceeds shall be deemed to be reset to zero.
(d) Notice of an Asset Sale Offer shall be mailed, by first-class mail
(with a copy to the Trustee), by the Company not later than the 20th Business
Day after the related Asset Sale Offer Trigger Date to each Holder of Notes at
such Holder's registered address, stating: (i) that an Asset Sale Offer Trigger
Date has occurred and that the Company is offering to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds (to
the extent provided in the immediately preceding paragraph), at an offer price
in cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of the purchase (the "Asset Sale Offer
Purchase Date"), which shall be a business day, specified in such notice, that
is not earlier than 30 days or later than 60 days from the date such notice is
mailed, (ii) the amount of accrued and unpaid interest, if any, as of the Asset
Sale Offer Purchase Date, (iii) that any Note not tendered will continue to
accrue interest, (iv) that, unless the Company defaults in the payment of the
purchase price for the Notes payable pursuant to the Asset Sale Offer, any Notes
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Asset Sale Offer Purchase Date, (v) that Holders electing to
have a Note purchased pursuant to a Asset Sale Offer will be required to
<PAGE> 60
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surrender the Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third Business Day
prior to the Asset Sale Offer Purchase Date, (vi) that Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
second Business Day prior to the Asset Sale Offer Purchase Date, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Notes the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased, (vii) that
Holders whose Notes are purchased only in part will be issued new Notes in a
principal amount equal to the unpurchased portion of the Notes surrendered;
provided, however, that each Note purchased and each new Note issued shall be in
an original principal amount of $1,000 or integral multiples thereof, and (viii)
such other information as may be required by applicable laws and regulations.
(e) On the Asset Sale Offer Purchase Date, the Company will (i) accept
for payment the maximum principal amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds
from such Asset Sale that are to be applied to an Asset Sale Offer, (ii) deposit
with the Paying Agent U.S. Legal Tender sufficient to pay the aggregate purchase
price of all Notes or portions thereof accepted for payment, and (iii) deliver
or cause to be delivered to the Trustee all Notes tendered pursuant to the Asset
Sale Offer. If less than all Notes tendered pursuant to the Asset Sale Offer are
accepted for payment by the Company for any reason consistent with this
Indenture, selection of the Notes to be purchased by the Company shall be in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis or by lot; provided, however, that Notes accepted for payment in
part shall only be purchased in integral multiples of $1,000. The Paying Agent
shall promptly mail to each Holder of Notes or portions thereof accepted for
payment an amount equal to the purchase price for such Notes plus accrued and
unpaid interest, if any, thereon, and the Trustee shall promptly authenticate
and mail to such Holder of Notes accepted for payment in part a new Note equal
in principal amount to any unpurchased portion of the Notes, and any Note not
accepted for payment in whole or in part shall be promptly returned to the
Holder of such Note. On and after an Asset Sale Offer Purchase Date, interest
will cease to accrue on the Notes or portions thereof accepted for payment,
unless the Company defaults in the payment of the purchase price
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therefor. The Company will publicly announce the results of the Asset Sale Offer
on or as soon as practicable after the Asset Sale Offer Purchase Date.
(f) This Section 4.16 will not apply to a transaction consummated in
compliance with Article Five.
(g) The Company will comply with the applicable tender offer rules,
including the requirements of Section 14(e) and Rule 14e-1 under the Exchange
Act, and all other applicable securities laws and regulations in connection with
any Asset Sale Offer and will be deemed not to be in violation of any of the
covenants under this Indenture to the extent such compliance is in conflict with
such covenants.
SECTION 4.17. Limitation on Designation of Unrestricted Subsidiaries.
(a) The Company shall not designate any Subsidiary of the Company (other
than a newly created Subsidiary in which no Investment has previously been made)
as an "Unrestricted Subsidiary" under this Indenture (a "Designation") unless:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) immediately after giving effect to such Designation, the Company
would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under Section 4.10(a); and
(iii) the Company would not be prohibited under this Indenture from
making an Investment at the time of such Designation in an amount (the
"Designation Amount") equal to the greater of (x) the book value of such
Restricted Subsidiary on such date and (y) the Fair Market Value of such
Restricted Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have made
an Investment constituting a Restricted Payment pursuant to Section 4.11 for all
purposes of this Indenture in an amount equal to the Designation Amount.
(b) The Company shall not designate an Unrestricted Subsidiary as a
Restricted Subsidiary (a "Redesignation"), unless:
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(i) no Default shall have occurred and be continuing at the time of and
after giving effect to such Redesignation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Redesignation shall be deemed to
have been incurred at such time and shall have been permitted to be
incurred for all purposes of this Indenture.
An Unrestricted Subsidiary shall be deemed to be redesignated as a
Restricted Subsidiary at any time if (a) the Company or any other Restricted
Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness
of such Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) or (ii) is directly or indirectly
liable for any Indebtedness of such Unrestricted Subsidiary or (b) a default
with respect to any Indebtedness of such Unrestricted Subsidiary (including any
right which the holders thereof may have to take enforcement action against it)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity, except in the case of clause (a)
to the extent permitted under Section 4.11.
(c) All Designations and Redesignations shall be evidenced by Board
Resolutions delivered to the Trustee certifying compliance with the foregoing
provisions. Subsidiaries that are not designated by the Board of Directors as
Restricted or Unrestricted Subsidiaries will be deemed to be Restricted
Subsidiaries. The Designation of a Restricted Subsidiary as an Unrestricted
Subsidiary shall be deemed a Designation of all of the Subsidiaries of such
Unrestricted Subsidiary as Unrestricted Subsidiaries.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
(a) The Company shall not, in any single transaction or series of
related transactions, consolidate or merge with or
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into (whether or not the Company is the Surviving Person), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets (determined on a consolidated basis for the Company and its
Restricted Subsidiaries) in one or more related transactions to, another Person,
and the Company will not permit any Restricted Subsidiary to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries, taken
as a whole, to another Person, unless (i) the Surviving Person is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Surviving Person (if other than the Company)
assumes all the obligations of the Company under the Notes, this Indenture and,
if then in effect, the Registration Rights Agreement pursuant to a supplemental
indenture or other written agreement, as the case may be, in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction, no
Default or Event of Default shall have occurred and be continuing; (iv)
immediately after giving pro forma effect to such transaction or series of
related transactions, the Surviving Person (x) would have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately preceding such transaction and (y) would be permitted to incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 4.10(a). Notwithstanding clauses (iii) and (iv) above, any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company or another Restricted Subsidiary.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the Surviving Person, such Surviving Person shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, and the Company shall be discharged from its obligations under,
this Indenture, the Notes and the Registration Rights Agreement.
(b) In connection with any such consolidation, merger, amalgamation,
transfer, lease or disposition, the Company or such Person shall have delivered
to the Trustee (i) an Officers' Certificate and an Opinion of Counsel, each in
form and substance reasonably satisfactory to the Trustee, stating that such
consolidation, amalgamation, merger, sale, assign-
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ment, conveyance, transfer, lease or disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with this Indenture and that all conditions precedent therein
provided for relating to such transaction have been complied with, and (ii) if a
supplemental indenture is required in connection with such transaction, an
Opinion of Counsel, in form and substance reasonably satisfactory to the
Trustee, that such supplemental indenture constitutes the legal, valid, binding
and enforceable obligation of the Surviving Person.
(c) For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries, the
Capital Stock of which constitutes all or substantially all of the properties
and assets of the Company, shall be deemed to be the transfer of all or
substantially all of the properties and assets of the Company.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation, amalgamation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company in accordance with Section 5.01, the
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of the Company under this Indenture, with the same effect
as if such successor had been named as the Company in this Indenture; and
thereafter, the Company shall be discharged from all obligations and covenants
under this Indenture and the Notes.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
"Events of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
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(i) a default for 30 days in the payment when due of interest on, or
Liquidated Damages (if any) with respect to any Note;
(ii) a default in the payment when due of principal on any Note, whether
upon maturity, acceleration, optional redemption, required repurchase or
otherwise;
(iii) failure to perform or comply with any covenant, agreement or
warranty in this Indenture (other than the defaults specified in clauses
(i) and (ii) above) which failure continues for 30 days after written
notice thereof has been given to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the then outstanding Notes;
(iv) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Restricted
Subsidiary then has outstanding Indebtedness in excess of $10.0 million in
the aggregate and, if not already matured at its final maturity in
accordance with its terms, such Indebtedness shall have been accelerated;
(v) one or more judgments, orders or decrees for the payment of money in
excess of $10.0 million, either individually or in the aggregate, shall be
entered against the Company or any Restricted Subsidiary or any of their
respective properties and which judgments, orders or decrees are not paid,
discharged, bonded or stayed or stayed pending appeal for a period of 60
days after their entry; or
(vi) the Company or any Restricted Subsidiary shall (A) commence a
voluntary case or proceeding under any Bankruptcy Law with respect to
itself, (B) consent to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding under any Bankruptcy Law,
(C) consent to the appointment of a Custodian of it or for substantially
all of its property, (D) consent to or acquiesce in the institution of a
bankruptcy or an insolvency proceeding against it, (E) make a general
assignment for the benefit of its creditors, (F) admit in writing its
inability to pay its debts as they become due, or (G) take any corporate
action to authorize or effect any of the foregoing; or
(vii) a court of competent jurisdiction shall enter a judgment, decree
or order for relief in respect of the
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Company or any Restricted Subsidiary in an involuntary case or proceeding
under any Bankruptcy Law which shall (A) approve as properly filed a
petition seeking reorganization, arrangement, adjustment or composition in
respect of the Company or any Restricted Subsidiary, (B) appoint a
Custodian of the Company or any Restricted Subsidiary or for substantially
all of its property or (C) order the winding-up or liquidation of its
affairs; and such judgment, decree or order shall remain unstayed and in
effect for a period of 60 consecutive days.
The Company shall provide an Officers' Certificate to the Trustee within
five days of the occurrence of any Default or Event of Default (provided,
however, that pursuant to Section 4.06 hereof the Company shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
SECTION 6.02. Acceleration.
(a) If any Event of Default (other than as specified in clause (vi) or
(vii) of Section 6.01 with respect to the Company) occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes may, and the Trustee at the request of such Holders shall,
declare all the Notes to be due and payable immediately by notice in writing to
the Company, and to the Company and the Trustee if by the Holders, specifying
the respective Event of Default and that such notice is a "notice of
acceleration," and the Notes shall become immediately due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
the events specified in clause (vi) or (vii) of Section 6.01 with respect to the
Company, the principal of, premium, if any, and any accrued interest on all
outstanding Notes shall ipso facto become immediately due and payable without
further action or notice.
(b) At any time after a declaration of acceleration, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in principal amount of the Notes outstanding,
by written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if (i) the Company has paid or deposited with
the Trustee a sum sufficient to pay (A) all sums paid or advanced by the Trustee
and the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, (B) all overdue interest (including any
in-
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terest accrued subsequent to an Event of Default specified in clause (vi) or
(vii) of Section 6.01 hereof) on all Notes, (C) the principal of and premium, if
any, on any Notes which have become due otherwise than by such declaration or
occurrence of acceleration and interest thereon at the rate borne by the Notes,
and (D) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the Notes; and (ii) all Events of Default,
other than the non-payment of principal of Notes which have become due solely by
such declaration or occurrence of acceleration, have been cured or waived; and
(iii) the rescission would not conflict with any judgment, order or decree of
any court of competent jurisdiction.
(c) The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may, on behalf of the Holders of all
of the Notes, waive any existing Default or Event of Default and its
consequences under this Indenture except (i) a continuing Default or Event of
Default in the payment of the principal of, or premium, if any, or interest on,
the Notes (which may be waived only with the consent of each Holder of Notes
affected), or (ii) in respect of a covenant or provision which under this
Indenture cannot be modified or amended without the consent of the Holder of
each Note outstanding.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment of
the principal of, premium, if any, or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or constitute a waiver of
or acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 2.09, 6.07 and 9.02, prior to the declaration of
acceleration of the Notes, the Holders of not less than a majority in principal
amount of the outstanding
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Notes by written notice to the Trustee may on behalf of all of the Holders waive
any past Default or Event of Default and its consequences, except a Default in
the payment of principal of, premium, if any, or interest on any Note as
specified in clauses (i) and (ii) of Section 6.01 or a Default in respect of any
term or provision of this Indenture that may not be modified or amended without
the consent of each Holder affected as provided in Section 9.02. In case of any
such waiver, the Company, the Trustee and the Holders shall be restored to their
former positions and rights hereunder and under the Notes, respectively. This
paragraph of this Section 6.04 shall be in lieu of Section 316(a)(1)(B) of the
TIA and such Section 316(a)(1)(B) of the TIA is hereby expressly excluded from
this Indenture and the Notes, as permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Notes, but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal amount
of the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it, including, without limitation, any remedies provided for
in Section 6.03; provided, however, that the Trustee may take any other action
deemed proper by the Trustee which is not inconsistent with such direction.
Subject to Section 7.01, however, the Trustee may refuse to follow any direction
that the Trustee reasonably believes conflicts with any law or this Indenture,
that the Trustee determines may be unduly prejudicial to the rights of another
Holder or that exposes the Trustee to personal liability. This Section 6.05
shall be in lieu of Section 316(a)(1)(A) of the TIA, and such Section
316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and the
Notes, as permitted by the TIA.
SECTION 6.06. Limitation on Suits.
No Holder shall have any right to institute any proceeding, judicial or
otherwise with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
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(a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the outstanding Notes.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture or of the Notes,
the right of any Holder to receive payment of the principal of, premium, if any,
and interest on a Note, on or after the respective due dates expressed in such
Note, or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the express prior
written consent of such Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified in
clause (i) or (ii) of Section 6.01 of this Indenture occurs and is continuing,
the Trustee may recover judgment in its own name and as trustee of an express
trust against the Company or any other obligor on the Notes for the whole amount
of the principal, premium, if any, and accrued interest remaining unpaid,
together with interest on overdue principal and, to the extent that payment of
such interest is lawful, interest on overdue installments of interest as set
forth in Section 4.01 and such further amount as shall be suf-
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ficient to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relating to the Company or any other
obligor upon the Notes, any of their respective creditors or any of their
respective property and shall be entitled and empowered to collect and receive
any monies or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, taxes, disbursements and advances of the Trustee, its
agent and counsel, and any other amounts due the Trustee under Section 7.07. The
Company's payment obligations under this Section 6.09 shall be secured in
accordance with the provisions of Section 7.07 hereunder. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: if the Holders are forced to proceed against the Company
directly without the Trustee, to Holders for their collection costs;
Third: to Holders for amounts due and unpaid on the Notes for principal
and interest, ratably, without prefer-
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ence or priority of any kind, according to the amounts due and payable on
the Notes for principal, premium, if any, and interest, respectively; and
Fourth: to the Company or any other obligor on the Notes, as their
interests may appear, or to such party as a court of competent jurisdiction
may direct.
The Trustee, upon prior notice to the Company, may fix a record date and
payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.06, or a suit by a Holder or group of Holders of
more than 10% in principal amount of the outstanding Notes.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise thereof as a prudent
person would exercise or use under the circumstances in the conduct of his own
affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are specifically set
forth in this Indenture and no cove-
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nants or obligations shall be implied in this Indenture that are adverse to
the Trustee; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
in the case of any such certificates or opinions that by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01 and
Section 7.02.
(f) The Trustee shall not be liable for interest on any money or assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the
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Trustee need not be segregated from other assets of the Trustee except to the
extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult with
counsel of its selection and may require an Officers' Certificate or an
Opinion of Counsel, or both, which shall conform to Sections 10.04 and
10.05. The Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such Officers' Certificate or Opinion of
Counsel or upon the advice of counsel.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it reasonably believes to be authorized
or within its rights or powers.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled, upon reasonable notice to
the Company, to examine the books, records, and premises of the Company,
personally or by agent or attorney and to consult with the officers and
representatives of the Company, including the Company's accountants and
attorneys.
(f) The Trustee shall not be deemed to have knowledge of any Default or
Event of Default (except default in
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the payment of moneys which are required by a provision hereof to be paid
to the Trustee or in the delivery of any certificate, opinion or other
document required to be delivered to the Trustee by any provision hereof)
unless the Trustee shall receive from the Company or any Holder notice
stating that a Default or Event of Default has occurred and specifying the
same.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee security
or indemnity reasonably satisfactory to the Trustee against the costs,
expenses and liabilities which may be incurred by it in compliance with
such request, order or direction.
(h) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(i) Delivery of reports, information and documents to the Trustee under
Section 4.09 hereof is for informational purposes only and the Trustee's
receipt of the foregoing shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants
hereunder (as to which the Trustee is entitled to rely exclusively on
Officers' Certificates).
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Company, any Subsidiary, or
their respective Affiliates with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11 hereof.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Notes, and it shall not be accountable for the Company's
use of the proceeds from the Notes, and it shall not be responsible for any
statement in this Indenture or the Notes or any other document in connection
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therewith, other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if a
Trust Officer has knowledge thereof (within the meaning of paragraph (f) of
Section 7.02), the Trustee shall mail to each Holder notice of the uncured
Default or Event of Default within 90 days after such Default or Event of
Default occurs. Except in the case of a Default or an Event of Default in
payment of principal of, or interest on, any Note, including an accelerated
payment, a Default in payment on the Change of Control Purchase Date pursuant to
a Change of Control Offer or on the Asset Sale Offer Purchase Date pursuant to
an Asset Sale Offer or a Default in compliance with Article Five hereof, the
Trustee may withhold the notice if and so long as its Board of Directors, the
executive committee of its Board of Directors or a committee of its directors
and/or Trust Officers in good faith determines that withholding the notice is in
the interest of the Holders. The foregoing sentence of this Section 7.05 shall
be in lieu of the proviso to Section 315(b) of the TIA and such proviso to
Section 315(b) of the TIA is hereby expressly excluded from this Indenture and
the Notes, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each August 1 of each year beginning with 1998, the
Trustee shall, to the extent that any of the events described in TIA Section
313(a) occurred within the previous twelve months, but not otherwise, mail to
each Holder a brief report dated as of such date that complies with TIA Section
313(a). The Trustee also shall comply with TIA Sections 313(b), (c) and (d).
A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the Commission and each stock exchange, if
any, on which the Notes are listed.
The Company shall promptly notify the Trustee if the Notes become listed
on any stock exchange and the Trustee shall comply with TIA Section 313(d).
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SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it in connection with the performance of its duties
under this Indenture. Such expenses shall include the reasonable fees and
expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee (or any predecessor
Trustee) and its agents, employees, stockholders, Affiliates and directors and
officers for, and hold them harmless against, any and all loss, liability,
damage, claim or expense (including reasonable fees and expenses of counsel),
including taxes (other than taxes based on the income of the Trustee) incurred
by them except for such actions to the extent caused by any negligence, bad
faith or willful misconduct on their part, arising out of or in connection with
the acceptance or administration of this trust including the reasonable costs
and expenses of defending themselves against any claim (whether made by the
Company, any Holder or any other Person) or liability in connection with the
exercise or performance of any of their rights, powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. At the Trustee's sole discretion, the
Company shall defend the claim and the Trustee shall cooperate and may
participate in the defense; provided, however, that any settlement of a claim
shall be approved in writing by the Trustee. Alternatively, the Trustee may at
its option have separate counsel of its own choosing and the Company shall pay
the reasonable fees and expenses of such counsel.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all assets or money held or
collected by the Trustee, in its capacity as Trustee, except assets or money
held in trust to pay principal of or interest on particular Notes.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(vi) or (vii) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
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The provisions of this Section 7.07 shall survive the resignation or
removal of the Trustee and the discharge or termination of this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the outstanding Notes may remove the Trustee by
so notifying the Company and the Trustee and may appoint a successor Trustee.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Notes may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in aggregate principal amount of the outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the
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removal of the Trustee and the appointment of a successor Trustee.
Notwithstanding any resignation or replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 shall
continue for the benefit of the retiring Trustee, and the Company shall pay to
any such replaced or removed Trustee all amounts owed under Section 7.07 upon
such replacement or removal.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided, however, that
such corporation shall be otherwise qualified and eligible under this Article
Seven.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirement
of TIA Sections 310(a)(1), (2) and (5). The Trustee (or, in the case of a
corporation included in a bank holding company system, the related bank holding
company) shall have a combined capital and surplus of at least $50 million as
set forth in its most recent published annual report of condition. In addition,
if the Trustee is a corporation included in a bank holding company system, the
Trustee, independently of such bank holding company, shall meet the capital
requirements of TIA Section 310(a)(2). The Trustee shall comply with TIA Section
310(b); provided, however, that there shall be excluded from the operation of
TIA Section 310(b)(1) any indenture or indentures under which other securities,
or certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA Section
310(b)(1) are met. The provisions of TIA Section 310 shall apply to the Company,
as obligor on the Notes.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA
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Section 311(a) to the extent indicated therein. The provisions of TIA Section
311 shall apply to the Company, as obligor on the Notes.
ARTICLE EIGHT
SATISFACTION AND DISCHARGE; DEFEASANCE
SECTION 8.01. Satisfaction and Discharge of Indenture.
(a) This Indenture shall be discharged and shall cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes herein expressly provided for) as to all outstanding Notes and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when:
(i) either
(1) Notes theretofore authenticated and delivered (other than (x)
Notes which have been lost, stolen or destroyed and which have been
replaced or paid as provided in Section 2.07 hereof and (y) Notes for
whose payment money has theretofore been deposited in trust by the
Company and thereafter repaid to the Company or discharged from such
trust) have been delivered to the Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Trustee for
cancellation (other than (x) Notes which have been lost, stolen or
destroyed and which have been replaced or paid as provided in Section
2.07 hereof and (y) Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have
been called for redemption pursuant to the terms of this Indenture or
have otherwise become due and payable, and the Company, in each case,
has irrevocably deposited or caused to be deposited with the Trustee in
trust for the purpose U.S. Legal Tender sufficient to pay and discharge
the entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for the principal of, premium, if any, and
interest to the date of such deposit;
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(ii) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(iii) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
(b) Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 7.07 hereof shall
survive and, if money shall have been deposited with the Trustee pursuant to
clause (a)(i)(2) of this Section 8.01, the obligations of the Trustee under
Sections 8.03 and 8.04 shall survive.
SECTION 8.02. Defeasance or Covenant Defeasance.
(a) Subject to the satisfaction of the conditions in Section 8.02(c)
hereof, the Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have the obligations of the Company discharged
with respect to the outstanding Notes ("defeasance"). Upon such defeasance, the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.04 hereof and the other
Sections of and matters under this Indenture referred to in (i) and (ii) below,
and to have satisfied all its other obligations under such Notes and this
Indenture, except for the following, which shall survive until otherwise
terminated or discharged hereunder: (i) the rights of Holders of Notes to
receive solely from the trust fund described in Section 8.02(c) and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations under Sections 2.03, 2.05, 2.06, 2.07, 2.10 and 4.02,
(iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, including, without limitation, the Trustee's rights under Section
7.07, and (iv) this Article Eight. Subject to compliance with this Article
Eight, the Company may exercise its option under this Section 8.02(a)
notwithstanding the prior exercise of its option under Section 8.02(b) with
respect to the Notes.
(b) Subject to the satisfaction of the conditions in Section 8.02(c)
hereof, the Company may, at its option by Board Resolution, at any time, elect
to effect covenant defeasance ("covenant defeasance"). On and after the date
such conditions
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are satisfied, (i) the Company shall be released from its obligations under any
covenant or provision contained in Sections 4.04, 4.05, 4.06(a), 4.07 and 4.09
through 4.17, (ii) clauses (iii) through (vi) of Section 6.01 hereof shall not
apply, and (iii) the provisions of Articles Five and Ten shall not apply, and
the Notes shall thereafter be deemed to be not "outstanding" for the purposes of
any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants and the
provisions of Articles Five and Ten, but shall continue to be deemed
"outstanding" for all other purposes hereunder and subject to any mandatory
requirements of the TIA. For this purpose, such covenant defeasance means that,
with respect to the Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
Section or Article, whether directly or indirectly, by reason of any reference
elsewhere herein to any such Section or Article or by reason of any reference in
any such Section or Article to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under clauses (iii) through (vi) of Section 6.01 hereof, but, except
as specified above, the remainder of this Indenture shall be unaffected thereby.
(c) In order to effect defeasance or covenant defeasance, the following
conditions must be satisfied:
(i) the Company shall have irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10 hereof who
agrees to comply with the provisions of this Article Eight applicable to
it), as trust funds in trust, for the benefit of the Holders of such Notes,
U.S. Legal Tender, U.S. Government Obligations or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants or a nationally
recognized investment banking firm, as evidenced by a written report,
without consideration of reinvestment of interest of such U.S. Government
Obligations, to pay the principal of, premium, if any, and interest on the
outstanding Notes (except lost, stolen or destroyed Notes which have been
replaced or paid) to maturity or redemption, as the case may be, and the
Company shall have irrevocably instructed the Trustee (or such other
trustee) to apply such U.S. Legal Tender or U.S. Government Obligations to
said payments in respect of the Notes;
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(ii) the Company shall have delivered to the Trustee one or more
Opinions of Counsel in the United States (which counsel or counsels shall
be independent of the Company) to the effect that:
(A) the Holders of the outstanding Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance or covenant defeasance, as the case may be, and will be
subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance or
covenant defeasance, as the case may be, had not occurred (which
opinion, in the case of defeasance, shall be based upon a ruling of the
Internal Revenue Service or a change in applicable Federal income tax
law occurring after the Issue Date);
(B) the trust funds will not be subject to any rights of holders
of Indebtedness of the Company (other than Holders of the Notes); and
(C) after the 91st day following the deposit the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, in the case of Section 6.01(vi)
or (vii), at any time during the period ending on the 91st day after the
date of such deposit;
(iv) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company is a party or
by which it is bound; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent (other than conditions requiring the passage of time) to either
defeasance or covenant defeasance, as the case may be, have been complied
with and that no violations under agreements governing any other
outstanding Indebtedness of the Company would result therefrom.
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Opinions required to be delivered under this Section may have
qualifications customary for opinions of the type required.
SECTION 8.03. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or
U.S. Government Obligations deposited with it pursuant to Section 8.01 or 8.02,
and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of the
principal of and interest on the Notes. The Trustee shall be under no obligation
to invest said U.S. Legal Tender or U.S. Government Obligations except as it may
agree in writing with the Company.
The Company shall pay, and indemnify the Trustee against, any tax, fee
or other charge imposed on or assessed against the U.S. Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.01 or 8.02 or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of outstanding
Notes.
SECTION 8.04. Repayment to the Company.
Subject to Sections 8.01 and 8.02, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess U.S. Legal Tender or
U.S. Government Obligations held by them at any time and thereupon shall be
relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for one year;
provided, however, that the Trustee or such Paying Agent, before being required
to make any payment, may at the expense of the Company cause to be published
once in a newspaper of general circulation in the City of New York or mail to
each Holder entitled to such money notice that such money remains unclaimed and
that after a date specified therein which shall be at least 30 days from the
date of such publication or mailing any unclaimed balance of such money then
remaining will be repaid to the Company. After payment to the Company, Holders
entitled to such money must look to the Company for payment as general creditors
unless an applicable law designates another Person.
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SECTION 8.05. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender
or U.S. Government Obligations in accordance with Section 8.01 or 8.02 by reason
of any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to Section
8.01 or 8.02, as the case may be, until such time as the Trustee or Paying Agent
is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations
in accordance with Section 8.01 or 8.02, as the case may be; provided, however,
that if the Company has made any payment of interest on or principal of any
Notes because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or
Paying Agent.
SECTION 8.06. Acknowledgment of Discharge by Trustee.
After (i) the conditions of Section 8.01 or 8.02(a) have been satisfied,
(ii) the Company has paid or caused to be paid all other sums payable hereunder
by the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i), above, relating to the satisfaction and
discharge or defeasance of this Indenture have been complied with, the Trustee
upon request shall acknowledge in writing the discharge of the Company's
obligations under this Indenture except for those surviving obligations
specified in Section 8.01 or 8.02, as the case may be.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, when authorized by a Board Resolution, and the Trustee,
together, may amend or supplement this Indenture or the Notes without notice to
or consent of any Holder:
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(i) to cure any ambiguity, defect or inconsistency; provided,
however, that such amendment or supplement does not adversely affect the
rights of any Holder;
(ii) to effect the assumption by a successor Person of all obligations
of the Company under the Notes, this Indenture and, if still in effect, the
Registration Rights Agreement in the event of any Disposition involving the
Company in which the Company is not the Surviving Person;
(iii) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(iv) to comply with any requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA;
(v) to make any change that would provide any additional benefit or
rights to the Holders;
(vi) to provide for issuance of the Exchange Notes (which will have
terms substantially identical in all material respects to the Initial Notes
except that the transfer restrictions contained in the Initial Notes will
be modified or eliminated, as appropriate), and which will be treated
together with any outstanding Initial Notes, as a single issue of
securities; or
(vii) to make any other change that does not adversely affect the
rights of any Holder under this Indenture;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 9.01.
SECTION 9.02. With Consent of Holders.
(a) Subject to Section 6.07, the Company, when authorized by a Board
Resolution, and the Trustee, together, with the written consent of the Holder or
Holders of not less than a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes), may amend or supplement this Indenture or the
Notes without notice to any other Holder. Subject to Section 6.02 and 6.07, the
Holder or Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes may waive compliance by
<PAGE> 86
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the Company with any provision of this Indenture or the Notes without notice to
any other Holder.
(b) Notwithstanding Section 9.02(a) hereof, no amendment, supplement or
waiver, including a waiver pursuant to Section 6.04, shall, without the prior
written consent of each Holder of each Note affected thereby:
(i) reduce the principal amount of the Notes whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any Note,
or alter or waive the provisions with respect to the redemption of the
Notes in a manner adverse to the Holders of the Notes other than with
respect to a Change of Control Offer or an Asset Sale Offer;
(iii) reduce the rate of or change the time for payment of interest on
any Notes;
(iv) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest on the Notes (except that Holders of at
least a majority in aggregate principal amount of the then outstanding
Notes may (a) rescind an acceleration of the Notes that resulted from a
non-payment default and (b) waive the payment default that resulted from
such acceleration);
(v) make any Note payable in money other than that stated in the
Notes;
(vi) make any change in the provisions of this Indenture relating to
waivers of past Defaults or Events of Default or the rights of Holders to
receive payments of principal of, or premium, if any, or interest on, the
Notes; or
(vii) following the occurrence of a Change of Control, amend, change or
modify the Company's obligation to make and consummate a Change of Control
Offer in the event of a Change of Control or modify any of the provisions
or definitions with respect thereto in a manner adverse to the Holders, or
following the occurrence of an Asset Sale, amend, change or modify the
Company's obligation to make and consummate an Asset Sale Offer or modify
any of the provisions or definitions with respect thereto in a manner
adverse to the Holders.
<PAGE> 87
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(c) It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
(d) After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect; provided, however, that this
Section 9.03 shall not of itself require that this Indenture or the Trustee be
qualified under the TIA or constitute any admission or acknowledgment by any
party hereto that any such qualification is required prior to the time this
Indenture and the Trustee are required by the TIA to be so qualified.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent Holder
of a Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. Subject
to the following paragraph, any such Holder or subsequent Holder may revoke the
consent as to such Holder's Note or portion of such Note by notice to the
Trustee or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Notes have consented (and not theretofore revoked such consent) to the
amendment, supplement or waiver. An amendment, supplement or waiver becomes
effective upon receipt by the Trustee of such Officers' Certificate and evidence
of consent by the Holders of the requisite percentage in principal amount of
outstanding Notes.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstand-
<PAGE> 88
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ing the second sentence of the immediately preceding paragraph, those Persons
who were Holders at such record date (or their duly designated proxies), and
only those Persons, shall be entitled to revoke any consent previously given,
whether or not such Persons continue to be Holders after such record date. No
such consent shall be valid or effective for more than 90 days after such record
date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes any change described in Section 9.02(b), in
which case, the amendment, supplement or waiver shall bind only each Holder of a
Note who has consented to it and every subsequent Holder of a Note or portion of
a Note that evidences the same debt as the consenting Holder's Note; provided,
however, that any such waiver shall not impair or affect the right of any Holder
to receive payment of principal of and interest on a Note, on or after the
respective due dates expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates without the
consent of such Holder.
SECTION 9.05. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of such Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver authorized
pursuant to this Article Nine; provided, however, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Such Opinion of Counsel shall not be an expense of the Trustee or the
Holders.
<PAGE> 89
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ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control; provided, however, that this Section 10.01
shall not of itself require that this Indenture or the Trustee be qualified
under the TIA or constitute any admission or acknowledgment by any party hereto
that any such qualification is required prior to the time this Indenture and the
Trustee are required by the TIA to be so qualified.
SECTION 10.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company:
ICN Pharmaceuticals, Inc.
3300 Hyland Avenue
Costa Mesa, California 92626
Telecopier No.: (714) 641-7228
Attention: General Counsel
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Telecopier No.: (212) 852-1626/1627
Attention: Corporate Trust Division
Each of the Company and the Trustee by written notice to the other may
designate additional or different addresses for notices to such Person. Any
notice or communication to the Company or the Trustee shall be deemed to have
been given or made as of the date so delivered if personally delivered; when
<PAGE> 90
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answered back, if telexed; when receipt is acknowledged, if faxed; and five (5)
calendar days after mailing if sent by registered or certified mail, postage
prepaid (except that a notice of change of address shall not be deemed to have
been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to him by
first class mail or other equivalent means at his address as it appears on the
registration books of the Registrar and shall be sufficiently given to him if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 10.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and any other Person shall have the
protection of TIA Section 312(c).
SECTION 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate, in form and substance satisfactory to the
Trustee, stating that, in the opinion of the signers, all conditions
precedent to be performed by the Company, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such counsel,
all such conditions precedent to be performed by the Company, if any,
provided for in this Indenture relating to the proposed action have been
complied with.
<PAGE> 91
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SECTION 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture, other than the Officers' Certificate
required by Section 4.06 shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with.
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Holders. The Paying Agent
or Registrar may make reasonable rules for its functions.
SECTION 10.07. Legal Holidays.
A "Legal Holiday" as used with respect to a particular place of payment,
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of payment are not required to be open. If a payment date
is a Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 10.08. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
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AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS. Each of the parties hereto agrees
to submit to the jurisdiction of the courts of the State of New York in any
action or proceeding arising out of or relating to this Indenture.
SECTION 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of the Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 10.10. No Recourse Against Others.
A director, officer, employee, stockholder, incorporator or controlling
person, as such, of the Company or of the Trustee shall not have any liability
for any obligations of the Company under the Notes or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creations. Each Holder by accepting a Note waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Notes.
SECTION 10.11. Successors.
All agreements of the Company in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successors.
SECTION 10.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together shall represent the same
agreement.
SECTION 10.13. Severability.
In case any one or more of the provisions in this Indenture or in the
Notes shall be held invalid, illegal or unenforceable, in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions shall not in any way be affected
or impaired thereby, it being intended that all of the provisions hereof shall
be enforceable to the full extent permitted by law.
<PAGE> 93
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SECTION 10.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Notes shall be
given independent effect so that if any particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 94
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
ICN PHARMACEUTICALS, INC.
By:
-------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By: /s/ [ILLEGIBLE]
-------------------------------------
Name: Gerard [ILLEGIBLE]
Title: Sr. VP
<PAGE> 95
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
ICN PHARMACEUTICALS, INC.
By: /s/ BILL A. MACDONALD
-------------------------------------
Name: Bill A. MacDonald
Title: Executive Vice President
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
-------------------------------------
Name:
Title:
<PAGE> 96
EXHIBIT A
ICN PHARMACEUTICALS, INC.
8 3/4% SENIOR NOTE DUE 2008
CUSIP No.: 448924AE0
No. $
ICN PHARMACEUTICALS, INC., a Delaware corporation (the "Company", which
term includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of Dollars, on November 15,
2008.
Interest Payment Dates: May 15 and November 15, commencing on November
15, 1998
Record Dates: May 1 and November 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
ICN PHARMACEUTICALS, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Certificate of Authentication
This is one of the 8 3/4% Senior Notes due 2008 referred to in the
within-mentioned Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:
-----------------------------------
Authorized Signatory
Date of Authentication: August 20, 1998
A-1
<PAGE> 97
(REVERSE OF SECURITY)
8 3/4% Senior Note due 2008
1. Interest. ICN PHARMACEUTICALS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from August 20, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful, from time to time on demand at the rate borne by the Notes.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are canceled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, United States Trust Company of
New York (the "Trustee") will act as Paying Agent and Registrar. The Company may
change any Paying Agent, Registrar or co-Registrar without notice to the
Holders.
4. Indenture. The Company issued the Notes under an Indenture, dated as
of August 20, 1998 (the "Indenture"), between the Company and the Trustee. This
Note is one of a duly authorized issue of Initial Notes of the Company
designated as its 8 3/4% Senior Notes due 2008 (the "Initial Notes"). The Notes
are limited in aggregate principal amount to $350,000,000. The Notes include the
Initial Notes and the Exchange Notes, as defined below, issued in exchange for
the Initial Notes pursuant to the Indenture. The Initial Notes and
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<PAGE> 98
the Exchange Notes are treated as a single class of securities under the
Indenture. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture. Notwithstanding anything to the contrary
herein, the Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the TIA for a statement of them. The Notes are
general unsecured obligations of the Company. Each Holder, by accepting a Note,
agrees to be bound by all of the terms and provisions of the Indenture, as the
same may be amended from time to time in accordance with its terms.
5. Optional Redemption. At any time or from time to time on or prior to
November 15, 2001, the Company may, at its option, redeem up to $70 million of
the aggregate principal amount of the Notes with the net proceeds of one or more
Public Equity Offerings, at a redemption price equal to 108.75% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
redemption; provided, however, that such redemption is effected within 90 days
after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Capital Stock (other than Disqualified Capital
Stock) of the Company pursuant to an effective registration statement filed
under the Securities Act.
The Notes are not entitled to the benefit of any sinking fund.
6. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Hold-
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<PAGE> 99
ers of such Notes will be to receive payment of the Redemption Price plus
accrued interest, if any.
7. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, after certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
8. Registration Rights. Pursuant to the Registration Rights Agreement
dated as of the date of the Indenture, among the Company and Schroder & Co. Inc.
and Warburg Dillon Read LLC, as initial purchasers of the Initial Notes, the
Company is obligated to consummate an exchange offer pursuant to which the
Holder of this Note shall have the right to exchange this Note for the Company's
Series B 8 3/4% Senior Notes due 2008 (the "Exchange Notes"), which shall have
been registered under the Securities Act, in like principal amount and having
terms identical in all material respects as the Initial Notes. The Holders of
the Initial Notes shall be entitled to receive certain additional interest
payments in the event such exchange offer is not consummated and upon certain
other conditions, all pursuant to and in accordance with the terms of the
Registration Rights Agreement.
9. Denominations; Transfer; Exchange. The Notes are in registered form,
without coupons, and in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer or exchange of Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Notes or portions thereof selected for redemption.
10. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes, subject to the provisions of the
Indenture with respect to record dates for the payment of interest.
11. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Com-
A-4
<PAGE> 100
pany. After that, all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, but excluding its obligation to pay
the principal of and interest on the Notes).
13. Amendment; Supplement; Waiver. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of not less than a majority
in aggregate principal amount of the Notes then outstanding, and any past
Default or Event of Default or noncompliance with any provision may be waived
with the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding. Without notice to or consent of
any Holder, the parties thereto may amend or supplement the Indenture or the
Notes to, among other things, cure any ambiguity, defect or inconsistency,
provided, however, that such amendment or supplement does not adversely affect
the rights of any Holder, provide for uncertificated Notes in addition to or in
place of certificated Notes, or comply with Article Five of the Indenture or
make any other change that does not adversely affect the rights of any Holder of
a Note.
14. Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Company and the Subsidiaries to, among other things, incur
additional Indebtedness, make Restricted Payments or Restricted Investments,
create or incur Liens, enter into transactions with Affiliates, create dividend
or other payment restrictions affecting Subsidiaries and issue Preferred Stock
of Subsidiaries, and on the ability of the Company and the Subsidiaries to merge
or consolidate with any other Person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company and
the Subsidiaries. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
A-5
<PAGE> 101
15. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
16. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default in payment of principal or interest when due, a
Default in payment on the Change of Control Purchase Date pursuant to a Change
of Control Offer or on the Asset Sale Offer Purchase Date pursuant to an Asset
Sale Offer or a Default in compliance with Article Five of the Indenture) if it
determines that withholding notice is in their interest.
17. Trustee Dealings with Company. The Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of Notes
and may otherwise deal with the Company, the Subsidiaries or their respective
Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
19. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
20. Governing Law. This Note and the Indenture shall be governed by and
construed in accordance with the laws
A-6
<PAGE> 102
of the State of New York, as applied to contracts made and performed within the
State of New York, without regard to principles of conflict of laws.
21. Abbreviations and Defined Terms. Customary abbreviations may be used
in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture, which has the text of this Note in
larger type. Requests may be made to: ICN Pharmaceuticals, Inc., 3300 Hyland
Avenue, Costa Mesa, CA 92626, Attn: Secretary.
A-7
<PAGE> 103
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _____________________________________, agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
Dated: Signed:
------------------------------- ----------------------------------
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:
------------------------------------
(Signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the Exchange
Act.)
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date of the declaration by the Commission of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) , 1999, the undersigned confirms that it has not utilized any
general solicitation or general advertising in connection with the transfer:
A-8
<PAGE> 104
[Check One]
(1) [ ] to the Company or a subsidiary thereof; or
(2) [ ] pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended ("Rule 144A"); or
(3) [ ] outside the United States to a "foreign person" in compliance with
Rule 904 of Regulation S under the Securities Act of 1933, as amended;
or
(4) [ ] pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, as amended, if available; or
(5) [ ] pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(6) [ ] pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
[ ] The transferee is an Affiliate of the Company.
Unless one of the numbered boxes is checked, the Trustee will refuse to register
any of the Notes evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if box (3), (4) or
(6) is checked, the Company or the Trustee may require, prior to registering any
such transfer of the Notes, in its sole discretion, such written legal opinions,
certifications (including an investment letter in the case of box (3)) and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
of 1933, as amended.
If none of the foregoing boxes is checked, the Trustee or Registrar
shall not be obligated to register this Note in the name of any person other
than the Holder hereof unless and until the conditions to any such transfer of
registration
A-9
<PAGE> 105
set forth herein and in Section 2.17 of the Indenture shall have been satisfied.
Dated: Signed:
---------------------------- -------------------------------------
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:
-----------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A and is aware that the sale
to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and that
it is aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Dated:
---------------------------- --------------------------------------
NOTICE: To be executed by
an executive officer
A-10
<PAGE> 106
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$
------------------
Dated:
-------------------------- ------------------------------------------
NOTICE: The signature on this assignment
must correspond with the name as it
appears upon the face of the within Note
in every particular without alteration or
enlargement or any change whatsoever and
be guaranteed.
Signature Guarantee:
---------------------------
(Signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the Exchange
Act.)
A-11
<PAGE> 107
EXHIBIT B
ICN PHARMACEUTICALS, INC.
SERIES B 8 3/4% SENIOR NOTE DUE 2008
CUSIP No.:
No. $
ICN PHARMACEUTICALS, INC., a Delaware corporation (the "Company",
which term includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of Dollars, on November 15, 2008.
Interest Payment Dates: May 15 and November 15, commencing on November
15, 1998
Record Dates: May 1 and November 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
ICN PHARMACEUTICALS, INC.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
Certificate of Authentication
This is one of the Series B 8 3/4% Senior Notes due 2008 referred to
in the within-mentioned Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By:
------------------------------------
Authorized Signatory
Date of Authentication:
B-1
<PAGE> 108
(REVERSE OF SECURITY)
SERIES B 8 3/4% SENIOR NOTE DUE 2008
1. Interest. ICN PHARMACEUTICALS, INC., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from August 20, 1998. The Company will pay interest semi-annually in arrears on
each Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful, from time to time on demand at the rate borne by the Notes.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are canceled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, United States Trust Company
of New York (the "Trustee") will act as Paying Agent and Registrar. The Company
may change any Paying Agent, Registrar or co-Registrar without notice to the
Holders.
4. Indenture. The Company issued the Notes under an Indenture, dated
as of August 20, 1998 (the "Indenture"), between the Company and the Trustee.
This Note is one of a duly authorized issue of Exchange Notes of the Company
designated as its Series B 8 3/4% Senior Notes due 2008 (the "Exchange Notes").
The Notes are limited in aggregate principal amount to $350,000,000. The Notes
include the Exchange Notes and the Initial Notes in exchange for which the
Exchange Notes were issued pursuant to the Indenture. The Initial Notes
B-2
<PAGE> 109
and the Exchange Notes are treated as a single class of securities under the
Indenture. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture. Notwithstanding anything to the contrary
herein, the Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the TIA for a statement of them. The Notes are
general unsecured obligations of the Company. Each Holder, by accepting a Note,
agrees to be bound by all of the terms and provisions of the Indenture, as the
same may be amended from time to time in accordance with its terms.
5. Optional Redemption. At any time or from time to time on or prior
to November 15, 2001, the Company may, at its option, redeem up to $70 million
of the aggregate principal amount of the Notes with the net proceeds of one or
more Public Equity Offerings, at a redemption price equal to 108.75% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of redemption; provided, however, that such redemption is effected within 90
days after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Capital Stock (other than Disqualified Capital
Stock) of the Company pursuant to an effective registration statement filed
under the Securities Act.
The Notes are not entitled to the benefit of any sinking fund.
6. Notice of Redemption. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at such Holder's registered address. Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Hold-
B-3
<PAGE> 110
ers of such Notes will be to receive payment of the Redemption Price plus
accrued interest, if any.
7. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide
that, after certain Asset Sales (as defined in the Indenture) and upon the
occurrence of a Change of Control (as defined in the Indenture), and subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
8. Denominations; Transfer; Exchange. The Notes are in registered
form, without coupons, and in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer or exchange of Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Notes or portions thereof selected for redemption.
9. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes, subject to the provisions of the
Indenture with respect to record dates for the payment of interest.
10. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for one year, the Trustee and the Paying Agent will pay the
money back to the Company. After that, all liability of the Trustee and such
Paying Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, but excluding its obligation to pay
the principal of and interest on the Notes).
12. Amendment; Supplement; Waiver. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of not less than a majority
in aggregate
B-4
<PAGE> 111
principal amount of the Notes then outstanding, and any past Default or Event of
Default or noncompliance with any provision may be waived with the written
consent of the Holders of not less than a majority in aggregate principal amount
of the Notes then outstanding. Without notice to or consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Notes in addition to or in place of certificated Notes, or comply
with Article Five of the Indenture or make any other change that does not
adversely affect the rights of any Holder of a Note.
13. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and the Subsidiaries to, among other things, incur
additional Indebtedness, make Restricted Payments or Restricted Investments,
create or incur Liens, enter into transactions with Affiliates, create dividend
or other payment restrictions affecting Subsidiaries and issue Preferred Stock
of Subsidiaries, and on the ability of the Company and the Subsidiaries to merge
or consolidate with any other Person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company and
the Subsidiaries. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the
Company must annually report to the Trustee on compliance with such limitations.
14. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
15. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of Notes then outstanding may declare all the Notes to be due
and payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default in payment of principal
B-5
<PAGE> 112
or interest when due, a Default in payment on the Change of Control Purchase
Date pursuant to a Change of Control Offer or on the Asset Sale Offer Purchase
Date pursuant to an Asset Sale Offer or a Default in compliance with Article
Five of the Indenture) if it determines that withholding notice is in their
interest.
16. Trustee Dealings with Company. The Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of Notes
and may otherwise deal with the Company, the Subsidiaries or their respective
Affiliates as if it were not the Trustee.
17. No Recourse Against Others. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
18. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
19. Governing Law. This Note and the Indenture shall be governed by
and construed in accordance with the laws of the State of New York, as applied
to contracts made and performed within the State of New York, without regard to
principles of conflict of laws.
20. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
21. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
B-6
<PAGE> 113
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture, which has the text of this Note in
larger type. Requests may be made to: ICN Pharmaceuticals, Inc., 3300 Hyland
Avenue, Costa Mesa, CA 92626, Attn: Secretary.
B-7
<PAGE> 114
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _____________________________________, agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
Dated: Signed:
-------------------------- ------------------------------------
(Sign exactly as your name appears
on the other side of this Note)
Signature Guarantee:
----------------------
(Signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the Exchange
Act.)
B-8
<PAGE> 115
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$
-------------------
Dated: Signed:
-------------------------- ------------------------------------
NOTICE: The signature on this
assignment must correspond with the
name as it appears upon the face of
the within Note in every particular
without alteration or enlargement or
any change whatsoever and be
guaranteed.
Signature Guarantee:
--------------------------
(Signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the Exchange
Act.)
B-9
<PAGE> 116
EXHIBIT C
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
--------------, ----
United States Trust Company
of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Division
Re: ICN Pharmaceuticals, Inc. (the "Company")
___% Senior Notes due 2008 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $___________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the transferee
was outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States, or
(b) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting
on our behalf knows that the transaction has been pre-arranged with a buyer
in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
C-1
<PAGE> 117
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
You, the Company and counsel for the Company are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferee]
By:
-----------------------------------
Authorized Signature
C-2
<PAGE> 1
EXHIBIT 4.3
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of August 20, 1998
By and Between
ICN PHARMACEUTICALS, INC.
and
SCHRODER & CO. INC.,
WARBURG DILLON READ LLC,
as Initial Purchasers
8 3/4% Senior Notes due 2008
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions.......................................................................................................... 1
2. Exchange Offer....................................................................................................... 6
3. Shelf Registration.................................................................................................. 11
4. Additional Interest................................................................................................. 13
5. Registration Procedures............................................................................................. 15
6. Registration Expenses............................................................................................... 26
7. Indemnification..................................................................................................... 27
8. Rules 144 and 144A.................................................................................................. 32
9. Underwritten Registrations.......................................................................................... 32
10. Miscellaneous....................................................................................................... 32
(a) No Inconsistent Agreements................................................................................ 32
(b) Adjustments Affecting Registrable Notes................................................................... 33
(c) Amendments and Waivers.................................................................................... 33
(d) Notices................................................................................................... 33
(e) Successors and Assigns.................................................................................... 34
(f) Counterparts.............................................................................................. 34
(g) Headings.................................................................................................. 35
(h) Governing Law............................................................................................. 35
(i) Severability.............................................................................................. 35
(j) Securities Held by the Company or their
Affiliates............................................................................................... 35
(k) Third Party Beneficiaries................................................................................. 35
(l) Attorneys' Fees........................................................................................... 35
(m) Entire Agreement.......................................................................................... 35
</TABLE>
-i-
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
August 20, 1998, by and between ICN PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), on the one hand, and SCHRODER & CO. INC. and
WARBURG DILLON READ LLC (the "Initial Purchasers"), on the other hand.
This Agreement is entered into in connection with the Purchase
Agreement, dated as of August 14, 1998, between the Company and the Initial
Purchasers (the "Purchase Agreement"), which provides for the sale by the
Company to the Initial Purchasers of $200,000,000 aggregate principal amount of
the Company's 8 3/4% Senior Notes due 2008 (the "Notes"). In order to induce the
Initial Purchasers to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement for the benefit
of the Initial Purchasers and any subsequent holder or holders of the Notes. The
execution and delivery of this Agreement is a condition to the Initial
Purchasers' obligation to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
Section 1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Interest" shall have the meaning set forth in Section 4
hereof.
"Advice" shall have the meaning set forth in Section 5 hereof.
"Agreement" shall have the meaning set forth in the introductory
paragraphs hereto.
"Applicable Period" shall have the meaning set forth in Section 2
hereof.
"Board of Directors" shall have the meaning set forth in Section 2
hereof.
"Business Day" shall mean a day that is not a Legal Holiday.
<PAGE> 4
-2-
"Company" shall have the meaning set forth in the preamble of this
Agreement and shall also include the Company's permitted successors and assigns.
"Commission" shall mean the Securities and Exchange Commission.
"Delay Period" shall have the meaning set forth in Section 2 hereof.
"Effectiveness Date" shall mean, (i) with respect to the Exchange
Offer Registration Statement, the 150th day after the Issue Date and (ii) with
respect to any other Registration Statement, the 120th day after the Filing Date
with respect thereto.
"Effectiveness Period" shall have the meaning set forth in Section 3
hereof.
"Event Date" shall have the meaning set forth in Section 4 hereof.
"Exchange Act" shall mean Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Notes" shall have the meaning set forth in Section 2 hereof.
"Exchange Offer" shall have the meaning set forth in Section 2 hereof.
"Exchange Offer Registration Statement" shall have the meaning set
forth in Section 2 hereof.
"Filing Date" shall mean, (A) if no Registration Statement has been
filed by the Company pursuant to this Agreement, the 30th day after the Issue
Date; provided, however, that if a Shelf Filing Event shall have occurred within
10 days of the Filing Date, then the Filing Date with respect to the Initial
Shelf Registration shall be the 15th calendar day after the occurrence of the
Shelf Filing Event; and (B) in each other case (which may be applicable
notwithstanding the consummation of the Exchange Offer), the 30th day after the
occurrence of the Shelf Filing Event.
"Holder" shall mean any holder of a Registrable Note or Registrable
Notes.
<PAGE> 5
-3-
"Indemnified Person" shall have the meaning set forth in Section 7(c)
hereof.
"Indemnifying Person" shall have the meaning set forth in Section 7(c)
hereof.
"Indenture" shall mean the Indenture, dated as of August 20, 1998, by
and between the Company and United States Trust Company of New York, as trustee,
pursuant to which the Notes are being issued, as amended or supplemented from
time to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the preamble
hereof.
"Initial Shelf Registration" shall have the meaning set forth in
Section 3(a) hereof.
"Inspectors" shall have the meaning set forth in Section 5(n) hereof.
"Issue Date" shall mean August 20, 1998, the date of original issuance
of the Notes.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
banking institutions in New York, New York are required by law, regulation or
executive order to remain closed.
"NASD" shall have the meaning set forth in Section 5(s) hereof.
"Participant" shall have the meaning set forth in Section 7(a) hereof.
"Participating Broker-Dealer" shall mean any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer or any other person
with similar prospectus delivery requirements for use in connection with any
resale of Exchange Notes.
"Person" shall mean an individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union, business
association, firm, government or agency or political subdivision thereof or
other legal entity.
"Private Exchange" shall have the meaning set forth in Section 2
hereof.
<PAGE> 6
-4-
"Private Exchange Notes" shall have the meaning set forth in Section 2
hereof.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Purchase Agreement" shall have the meaning set forth in the
introductory paragraphs hereof.
"Records" shall have the meaning set forth in Section 5(n) hereof.
"Registrable Notes" shall mean each Note upon its original issuance
and at all times subsequent thereto, each Exchange Note as to which Section
2(c)(iv) hereof is applicable upon original issuance and at all times subsequent
thereto and each Private Exchange Note upon original issuance thereof and at all
times subsequent thereto, until (i) a Registration Statement (other than, with
respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable,
the Exchange Offer Registration Statement) covering such Note, Exchange Note or
Private Exchange Note has been declared effective by the Commission and such
Note, Exchange Note or such Private Exchange Note, as the case may be, has been
disposed of in accordance with such effective Registration Statement, (ii) such
Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or
Exchange Notes that may be resold without restriction under state and federal
securities laws, or (iii) such Note, Exchange Note or Private Exchange Note, as
the case may be, ceases to be outstanding for purposes of the Indenture.
"Registration Statement" shall mean any appropriate registration
statement of the Company covering any of the Registrable Notes pursuant to the
provisions of this Agreement, including, but not limited to, the Exchange Offer
Registration Statement, filed with the Commission under the Securities Act, and
all amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case
<PAGE> 7
-5-
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144A) or regulation hereafter adopted by the Commission providing for
offers and sales of securities made in compliance therewith resulting in offers
and sales by subsequent holders that are not affiliates of an issuer of such
securities being free of the registration and prospectus delivery requirements
of the Securities Act.
"Rule 144A" shall mean Rule 144A promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144) or regulation hereafter adopted by the Commission.
"Rule 415" shall mean Rule 415 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Shelf Filing Event" shall have the meaning set forth in Section 2
hereof.
"Shelf Registration" shall have the meaning set forth in Section 3(b)
hereof.
"Subsequent Shelf Registration" shall have the meaning set forth in
Section 3(b) hereof.
"TIA" shall mean the Trust Indenture Act of 1939, as amended.
"Trustee" shall mean the trustee under the Indenture and the trustee
(if any) under any indenture governing the Exchange Notes and Private Exchange
Notes.
"Underwritten registration or underwritten offering" shall mean a
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
<PAGE> 8
-6-
Section 2. Exchange Offer
(a) The Company shall file with the Commission, no later than the
Filing Date, a Registration Statement (the "Exchange Offer Registration
Statement") on an appropriate registration form with respect to a registered
offer (the "Exchange Offer") to exchange any and all of the Registrable Notes
for a like aggregate principal amount of notes (the "Exchange Notes") of the
Company that are identical in all material respects to the Notes except that the
Exchange Notes shall contain no restrictive legend thereon. The Exchange Offer
shall comply with all applicable tender offer rules and regulations under the
Exchange Act and other applicable law. The Company shall use its best efforts to
(x) cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act on or before the Effectiveness Date; (y) keep the
Exchange Offer open for at least 20 Business Days (or longer if required by
applicable law) after the date on which the Exchange Offer Registration
Statement is declared effective; and (z) on or prior to the 45th day following
the date on which the Exchange Offer Registration Statement is declared
effective by the Commission, issue Exchange Notes for Notes tendered in the
Exchange Offer. For purposes of this Section 2(a) only, if after the Exchange
Offer Registration Statement is initially declared effective by the Commission,
the Exchange Offer or the issuance of the Exchange Notes thereunder is
interfered with by any stop order, injunction or other order or requirement of
the Commission or any other governmental agency or court, the Exchange Offer
Registration Statement shall be deemed not to have become effective for purposes
of this Agreement.
Each Holder that participates in the Exchange Offer will be required
to represent to the Company in writing that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii)
such Holder will have no arrangement or understanding with any Person to
participate in the distribution of the Exchange Notes in violation of the
provisions of the Securities Act, (iii) that such Holder is not an affiliate of
the Company within the meaning of the Securities Act or, if such Holder is such
an affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act applicable to it, (iv) if such Holder is not
a broker-dealer, that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes and (v) if such Holder is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Notes that were
accquired as a result of market-making or other trading
<PAGE> 9
-7-
activities, that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Notes that are Private Exchange
Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange
Notes held by Participating Broker-Dealers (as defined), and the Company shall
have no further obligation to register Registrable Notes (other than Private
Exchange Notes and other than in respect of any Exchange Notes as to which
clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included in the
Exchange Offer Registration Statement.
(b) The Company and the Initial Purchasers acknowledge that the staff
of the Commission has taken the position that any broker-dealer that elects to
exchange Notes that were acquired by such broker-dealer for its own account as a
result of market-making or other trading activities for Exchange Notes in the
Exchange Offer (a "Participating Broker-Dealer") may be deemed to be an
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes (other than a resale of an unsold allotment
resulting from the original offering of the Notes).
The Company and the Initial Purchasers also acknowledge that it is the
SEC staff's position that if the Prospectus contained in the Exchange Offer
Registration Statement includes a plan of distribution containing a statement to
the above effect and the means by which Participating Broker-Dealers may resell
the Exchange Notes, without naming the Participating Broker-Dealers or
specifying the amount of Exchange Notes owned by them, such Prospectus may be
delivered by Participating Broker-Dealers to satisfy their prospectus delivery
obligations under the Securities Act in connection with resales of Exchange
Notes for their own accounts, so long as the Prospectus otherwise meets the
requirements of the Securities Act.
In light of the foregoing, if requested by a Participating
Broker-Dealer (a "Requesting Participating Broker-Dealer"), the Company agrees
to use its best efforts to keep the Exchange Offer Registration Statement
continuously effective for a period of up to 180 days after the date on which
the Exchange Registration Statement is declared effective, or such
<PAGE> 10
-8-
longer period if extended pursuant to the last paragraph of Section 5 hereof
(such period, the "Applicable Period"), or such earlier date as all Requesting
Participating Broker-Dealers shall have notified the Company in writing that
such Requesting Participating Broker-Dealers have resold all Exchange Notes
acquired in the Exchange Offer. The Company shall include a plan of distribution
in such Exchange Offer Registration Statement that meets the requirements set
forth in the preceding paragraph.
If, prior to consummation of the Exchange Offer, any Holder holds any
Notes acquired by it that have, or that are reasonably likely to be determined
to have, the status of an unsold allotment in an initial distribution, or if any
Holder is not entitled to participate in the Exchange Offer, the Company upon
the request of any such Holder shall simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to any such Holder, in
exchange (the "Private Exchange") for such Notes held by any such Holder, a like
principal amount of notes (the "Private Exchange Notes") of the Company that are
identical in all material respects to the Exchange Notes. The Private Exchange
Notes shall be issued pursuant to the same indenture as the Exchange Notes and
bear the same CUSIP number as the Exchange Notes.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder entitled to participate in the Exchange Offer
a copy of the Prospectus forming part of the Exchange Offer Registration
Statement, together with an appropriate letter of transmittal and related
documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last Business Day on which the
Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
<PAGE> 11
-9-
As soon as practicable after the close of the Exchange Offer and the
Private Exchange, if any, the Company shall:
(1) accept for exchange all Notes validly tendered and not validly
withdrawn pursuant to the Exchange Offer and the Private Exchange;
(2) deliver to the Trustee for cancellation all Notes so accepted for
exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may
be, equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Offer and the Private Exchange shall not be subject to
any conditions, other than that (i) the Exchange Offer or Private Exchange, as
the case may be, does not violate applicable law or any applicable
interpretation of the staff of the Commission, (ii) no action or proceeding
shall have been instituted or threatened in any court or by any governmental
agency which might materially impair the ability of the Company to proceed with
the Exchange Offer or the Private Exchange, and no material adverse development
shall have occurred in any existing action or proceeding with respect to the
Company and (iii) all governmental approvals shall have been obtained, which
approvals the Company deems necessary for the consummation of the Exchange Offer
or Private Exchange.
The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture (in either case, with such changes as are necessary to comply
with any requirements of the Commission to effect or maintain the qualification
thereof under the TIA) and which, in either case, has been qualified under the
TIA and shall provide that the Exchange Notes shall not be subject to the
transfer restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Notes, the Private Exchange Notes and
the Notes shall vote and consent together on all matters as one class and that
none of the Exchange Notes, the Private Exchange Notes or the Notes will have
the right to vote or consent as a separate class on any matter.
(c) If, (i) because of any applicable interpretations of the staff of
the Commission, the Company is not per-
<PAGE> 12
-10-
mitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated
within 180 days of the Issue Date, (iii) the Initial Purchasers so request with
respect to Notes not eligible to be exchanged for Exchange Notes in the Exchange
Offer, or (iv) any Holder is not eligible to participate in the Exchange Offer
or does not receive Exchange Notes on the date of the exchange that may be sold
without restriction under state and federal securities laws (other than due
solely to the status of such Holder as an affiliate of any of the Company within
the meaning of the Securities Act) (each such event referred to in clauses (i)
through (iv) of this sentence, a "Shelf Filing Event"), then the Company (x)
shall promptly deliver to the Holders and the Trustee written notice thereof in
the case of clause (i) or (ii) and (y) shall file a Shelf Registration pursuant
to Section 3 hereof.
(d) Notwithstanding the foregoing, the time periods specified in
Sections 2(a), (b) and (c) shall be tolled during the pendency of any
circumstances beyond the Company's control that prevent performance by the
Company of its obligations hereunder despite the Company's best efforts. Such
matters include events affecting issuers generally, such as the temporary
closure of federal agencies, and events directly affecting the Company, such as
the Company's inability to obtain all information regarding an acquisition
entity constituting a Significant Subsidiary (as defined by Regulation S-X
promulgated by the Commission) within a time period that would permit
independent auditors to prepare any required audited financial information on a
timely basis.
(e) In addition, if at any time prior to the termination of the
Company's obligation under this Agreement, outside counsel to the Company (which
counsel shall be experienced in securities laws matters) shall determine in good
faith that it is reasonable to conclude that the filing of the Exchange Offer
Registration Statement or any Shelf Registration or the compliance by the
Company with its disclosure obligations in connection with the Exchange Offer
Registration Statement or any Shelf Registration may require the disclosure of
information which the Board of Directors of the Company (the "Board of
Directors") has identified as material and which the Board of Directors has
resolved that the Company has a bona fide business purpose for preserving as
confidential, then the Company may delay the filing or the effectiveness of the
Exchange Offer Registration Statement or any Shelf Registration (if not then
filed or effective, as applicable) and shall not be required to maintain the
effectiveness thereof or amend or supplement the Exchange Offer Registration
Statement or any Shelf Registration
<PAGE> 13
-11-
for a period (a "Delay Period") expiring upon the earlier to occur of (A) the
date on which such material information is disclosed to the public or ceases to
be material or the Company is able to so comply with its disclosure obligations
and Commission requirements or (B) 30 days after the Company notifies the
Holders of such good faith determination. There shall not be more than three
Delay Periods, and there shall not be two non-contiguous Delay Periods during
any contiguous 90-day period.
(f) The Company will give prompt written notice, in the manner
prescribed by Section 10(d) hereof, to each Holder of each Delay Period. Such
notice shall be given as soon as practicable after the Board of Directors makes
the determination referenced in Section 2(d). Such notice shall state to the
extent, if any, as is practicable, an estimate of the duration of such Delay
Period and shall advise the recipient thereof of the agreement of such Holder
provided in the next succeeding sentence. Each Holder, by his acceptance of any
Registrable Note, agrees that (i) upon receipt of such notice of a Delay Period
it will forthwith discontinue disposition of Registrable Notes pursuant to any
Shelf Registration and (ii) it will not deliver any prospectus forming a part of
any Shelf Registration in connection with any sale of Registrable Notes until
the expiration of such Delay Period.
Section 3. Shelf Registration
If at any time a Shelf Filing Event shall occur, then:
(a) Shelf Registration. The Company shall file with the Commission a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 covering all of the Registrable Notes not exchanged in the Exchange
Offer, Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) is
applicable (the "Initial Shelf Registration"). The Company shall use its best
efforts to file with the Commission the Initial Shelf Registration as promptly
as practicable. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Notes for resale by
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company shall not permit
any securities other than the Registrable Notes to be included in the Initial
Shelf Registration or any Subsequent Shelf Registration (as defined below).
<PAGE> 14
-12-
The Company shall use its best efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act on or prior to
the Effectiveness Date and to keep the Initial Shelf Registration continuously
effective under the Securities Act for the period ending on the date which is
two years from the Issue Date, subject to extension pursuant to the last
paragraph of Section 5 hereof (the "Effectiveness Period"), or such shorter
period ending when (i) all Registrable Notes covered by the Initial Shelf
Registration have been sold in the manner set forth and as contemplated in the
Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all
of the Registrable Notes covered by and not sold under the Initial Shelf
Registration or an earlier Subsequent Shelf Registration has been declared
effective under the Securities Act; provided, however, that the Effectiveness
Period in respect of the Initial Shelf Registration shall be extended to the
extent required to permit dealers to comply with the applicable prospectus
delivery requirements of Rule 174 under the Securities Act and as otherwise
provided herein; provided, further, that the Company may suspend the
effectiveness of a Shelf Registration Statement by written notice to the Holders
for a period not to exceed 30 days in any calendar year if, (i) an event occurs
and is continuing as a result of which the Shelf Registration Statement would,
in the Company's good faith judgment, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading and (ii) (a) the Company determines in good faith that
the disclosure of such event at such time would have a material adverse effect
on the business, operations or prospects of the Company and its subsidiaries,
taken as a whole, or (b) the disclosure otherwise relates to a previously
undisclosed pending material business transaction, the disclosure of which would
impede the Company's ability to consummate such transaction.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration
or any Subsequent Shelf Registration ceases to be effective for any reason at
any time during the Effectiveness Period (other than because of the sale of all
of the securities registered thereunder), the Company shall use its best efforts
to obtain the prompt withdrawal of any order suspending the effectiveness
thereof, and in any event shall as soon as practicable after such cessation
amend the Initial Shelf Registration in a manner to obtain the withdrawal of the
order suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Notes covered by and not sold under the Initial Shelf Registration or an earlier
Subsequent
<PAGE> 15
-13-
Shelf Registration (each, a "Subsequent Shelf Registration"). If a Subsequent
Shelf Registration is filed, the Company shall use its best efforts to cause the
Subsequent Shelf Registration to be declared effective under the Securities Act
as soon as practicable after such filing and to keep such Registration Statement
continuously effective for a period equal to the number of days in the
Effectiveness Period less the aggregate number of days during which the Initial
Shelf Registration or any Subsequent Shelf Registration was previously
continuously effective. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall promptly supplement
and amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested by
the Holders of a majority in aggregate principal amount of the Registrable Notes
covered by such Registration Statement or by any underwriter of such Registrable
Notes.
Section 4. Additional Interest
(a) The Company and the Initial Purchasers agree that the Holders will
suffer damages if the Company fails to fulfill its obligations under Section 2
or Section 3 hereof and that it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, the Company agrees to pay, as
liquidated damages, additional interest on the Notes ("Additional Interest")
under the circumstances and to the extent set forth below (each of which shall
be given independent effect):
(i) if (A) neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration has been filed on or prior to the applicable
Filing Date or (B) notwithstanding that the Company has consummated or will
consummate the Exchange Offer, the Company is required to file a Shelf
Registration and such Shelf Registration is not filed on or prior to the
Filing Date applicable thereto, then, commencing on the day after any such
Filing Date, Additional Interest shall accrue on the principal amount of
the Notes at a rate of 0.50% per annum for the first 90 days immediately
following each such Filing Date, and such Additional Interest rate shall
increase by an additional 0.25% per annum at the beginning of each
subsequent 90-day period; or
<PAGE> 16
-14-
(ii) if (A) neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration is declared effective by the Commission on or
prior to the relevant Effectiveness Date or (B) notwithstanding that the
Company has consummated or will consummate the Exchange Offer, the Company
is required to file a Shelf Registration and such Shelf Registration is not
declared effective by the Commission on or prior to the Effectiveness Date
in respect of such Shelf Registration, then, commencing on the day after
such Effectiveness Date, Additional Interest shall accrue on the principal
amount of the Notes at a rate of 0.50% per annum for the first 90 days
immediately following the day after such Effectiveness Date, and such
Additional Interest rate shall increase by an additional 0.25% per annum at
the beginning of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to the 180th day following the Issue Date or (B) the Exchange
Offer Registration Statement or the Shelf Registration is declared
effective but thereafter ceases to be effective at any time during the
Effectiveness Period (except as permitted by Section 10(a) hereof) for a
period of 15 consecutive days without being succeeded immediately by an
additional Exchange Offer Registration Statement or Shelf Registration
Statement, as the case may be, filed and declared effective, then
Additional Interest shall accrue on the principal amount of the Notes at a
rate of 0.50% per annum for the first 90 days commencing on the (x) 181st
day after the Issue Date, in the case of (A) above, or (y) the 16th day
after such Shelf Registration ceases to be effective in the case of (B)
above, and such Additional Interest rate shall increase by an additional
0.25% per annum at the beginning of each such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 1.0% per annum; provided, further, however,
that (1) upon the filing of the applicable Exchange Offer Registration Statement
or the applicable Shelf Registration as required hereunder (in the case of
clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange
Offer Registration Statement or the applicable Shelf Registration Statement as
required hereunder (in the case of clause (ii) of this Section 4), or (3) upon
the exchange of the applicable Exchange Notes for all Notes tendered
<PAGE> 17
-15-
(in the case of clause (iii)(A) of this Section 4), or upon the effectiveness of
the applicable Exchange Offer Registration Statement or Shelf Registration
Statement which had ceased to remain effective (in the case of (iii)(B) of this
Section 4), Additional Interest on the Notes in respect of which such events
relate as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one Business Day after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). Any amounts of Additional
Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be
payable in cash semi-annually on the interest payment dates specified in the
Indenture (to the holders of record as specified in the Indenture), commencing
with the first such interest payment date occurring after any such Additional
Interest commences to accrue. The amount of Additional Interest will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the Registrable Notes, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.
Section 5. Registration Procedures
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Company shall effect such registrations to permit
the sale of the securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by the Company hereunder the Company
shall:
(a) Prepare and file with the Commission prior to the applicable
Filing Date, a Registration Statement or Registration Statements as
prescribed by Sections 2 or 3 hereof, and use its best efforts to cause
each such Registration Statement to become effective and remain effective
as provided herein; provided, however, that, if (1) such filing is pursuant
to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the Ap-
<PAGE> 18
-16-
plicable Period relating thereto, before filing any Registration Statement
or Prospectus or any amendments or supplements thereto, the Company shall
furnish to and afford the Holders of the Registrable Notes covered by such
Registration Statement or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriters, if any, a
reasonable opportunity to review copies of all such documents (including
copies of any documents to be incorporated by reference therein and all
exhibits thereto) proposed to be filed (in each case at least five Business
Days prior to such filing). The Company shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto if the
Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement, or any such Participating
Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to each Shelf Registration Statement or Exchange
Offer Registration Statement, as the case may be, as may be necessary to
keep such Registration Statement continuously effective for the
Effectiveness Period or the Applicable Period, as the case may be; cause
the related Prospectus to be supplemented by any Prospectus supplement
required by applicable law, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; and comply with the provisions of the Securities Act and
the Exchange Act applicable to each of them with respect to the disposition
of all securities covered by such Registration Statement as so amended or
in such Prospectus as so supplemented and with respect to the subsequent
resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus, in each case, in accordance with the
intended methods of distribution set forth in such Registration Statement
or Prospectus, as so amended. The Company shall be deemed not to have used
its best efforts to keep a Registration Statement effective during the
Effective Period or the Applicable Period, as the case may be, relating
thereto if the Company voluntarily takes any action that would result in
selling Holders of the Registrable Notes covered thereby or Participating
Broker-Dealers seeking to sell Exchange Notes not being able to sell such
Registrable Notes or such Exchange Notes during that period unless such
action is required by applicable law.
<PAGE> 19
-17-
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period relating thereto, notify the
selling Holders of Registrable Notes, or each such Participating
Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, as promptly as possible, and, if requested by any
such Person, confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when
the same has become effective under the Securities Act (including in such
notice a written statement that any Holder may, upon request, obtain, at
the sole expense of the Company, one conformed copy of such Registration
Statement or post-effective amendment including financial statements and
schedules, documents incorporated or deemed to be incorporated by reference
and exhibits), (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection
with sales of the Registrable Notes or resales of Exchange Notes by
Participating Broker-Dealers the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated by Section 5(m) hereof cease to be true and correct in all
material respects, (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer for
offer or sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event, the
existence of any condition or any information becoming known to the Company
that makes any statement made in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the
making of any changes in or amendments or supplements to such Registration
Statement, Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, and that in the case of the
Prospectus, it will not
<PAGE> 20
-18-
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the Company's determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, use its best efforts to
prevent the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of
a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Notes or the Exchange Notes to be
sold by any Participating Broker-Dealer, for sale in any jurisdiction, and,
if any such order is issued, to use its best efforts to obtain the
withdrawal of any such order at the earliest practicable moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters (if any), the Holders
of a majority in aggregate principal amount of the Registrable Notes being
sold in connection with an underwritten offering or any Participating
Broker-Dealer, (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or
underwriters (if any), such Holders or any Participating Broker-Dealer
(based upon advice of counsel) determine is reasonably necessary to be
included therein, (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after
the Company has received notification of the matters to be incorporated in
such prospectus supplement or post-effective amendment; provided, however,
that the Company shall not be required to take any action hereunder that
would, in the written opinion of counsel to the Company, violate applicable
laws, and (iii) supplement or make amendments to
<PAGE> 21
-19-
such Registration Statement (based upon advice of counsel).
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, furnish to each selling Holder
of Registrable Notes and to each such Participating Broker-Dealer who so
requests and to counsel and each managing underwriter, if any, at the sole
expense of the Company, one conformed copy of the Registration Statement or
Registration Statements and each post-effective amendment thereto,
including financial statements and schedules, and, if requested, all
documents incorporated or deemed to be incorporated therein by reference
and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, deliver to each selling Holder
of Registrable Notes, or each such Participating Broker-Dealer, as the case
may be, their respective counsel, and the underwriters, if any, at the sole
expense of the Company, as many copies of the Prospectus or Prospectuses
(including each form of preliminary prospectus) and each amendment or
supplement thereto and any documents incorporated by reference therein as
such Persons may reasonably request; and, subject to the last paragraph of
this Section 5, the Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Holders of
Registrable Notes or each such Participating Broker-Dealer, as the case may
be, and the underwriters or agents, if any, and dealers (if any), in
connection with the offering and sale of the Registrable Notes covered by,
or the sale by Participating Broker-Dealers of the Exchange Notes pursuant
to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery
of a Prospectus contained in the Exchange Offer Registration Statement by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
<PAGE> 22
-20-
Applicable Period, use its best efforts to register or qualify, and to
cooperate with the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, the managing underwriter
or underwriters, if any, and their respective counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of, such Registrable Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States
as any selling Holder, Participating Broker-Dealer, or the managing
underwriter or underwriters reasonably request; provided, however, that
where Exchange Notes held by Participating Broker-Dealers or Registrable
Notes are offered other than through an underwritten offering, the Company
agrees to cause the Company's counsel to perform Blue Sky investigations
and file registrations and qualifications required to be filed pursuant to
this Section 5(h); keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration
Statement is required to be kept effective and do any and all other acts or
things reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Registrable Notes covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C)
subject itself to taxation in excess of a nominal dollar amount in any such
jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates representing Registrable Notes to be sold,
which certificates shall not bear any restrictive legends and shall be in a
form eligible for deposit with The Depository Trust Company; and enable
such Registrable Notes to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holders may
request at least two Business Days prior to any sale of such Registrable
Notes.
(j) Use its best efforts to cause the Registrable Notes covered by the
Registration Statement to be regis-
<PAGE> 23
-21-
tered with or approved by such other governmental agencies or authorities
as may be reasonably necessary to enable the seller or sellers thereof or
the underwriter or underwriters, if any, to consummate the disposition of
such Registrable Notes, except as may be required solely as a consequence
of the nature of such selling Holder's business, in which case the Company
will cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, upon the occurrence of any
event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as
practicable prepare and (subject to Section 5(a) hereof) file with the
Commission, at the sole expense of the Company, a supplement or
post-effective amendment to the Registration Statement or a supplement to
the related Prospectus or any document incorporated or deemed to be
incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes
being sold thereunder or to the purchasers of the Exchange Notes to whom
such Prospectus will be delivered by a Participating Broker-Dealer, any
such Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with
certificates for the Registrable Notes in a form eligible for deposit with
The Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Notes.
(m) In connection with any underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as
is customary in underwritten offerings of debt securities similar to the
Notes and take all such other actions as are reasonably requested by the
managing underwriter or underwriters in order to expedite or facilitate the
registration or the dis-
<PAGE> 24
-22-
position of such Registrable Notes and, in such connection, (i) make such
representations and warranties to, and covenants with, the underwriters
with respect to the business of the Company and its subsidiaries (including
any acquired business, properties or entity, if applicable) and the
Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten offerings of
debt securities similar to the Notes, and confirm the same in writing if
and when requested; (ii) use its best efforts to obtain the written
opinions of counsel to the Company and written updates thereof in form,
scope and substance reasonably satisfactory to the managing underwriter or
underwriters, addressed to the underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by the managing
underwriter or underwriters; (iii) use its best efforts to obtain "cold
comfort" letters and updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters from
the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data are, or are required to be,
included or incorporated by reference in the Registration Statement),
addressed to each of the underwriters, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings; and (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than those set
forth in Section 7 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement and the managing
underwriter or underwriters or agents) with respect to all parties to be
indemnified pursuant to said Section. The above shall be done at each
closing under such underwriting agreement, or as and to the extent required
thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to
<PAGE> 25
-23-
sell Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Notes being sold, or
each such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Notes, if any, and any
attorney, accountant or other agent retained by any such selling Holder or
each such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept,
during reasonable business hours, all financial and other records,
pertinent corporate documents and instruments of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary
to enable them to exercise any applicable due diligence responsibilities,
and cause the officers, directors and employees of the Company and its
subsidiaries to supply all information reasonably requested by any such
Inspector in connection with such Registration Statement and Prospectus.
Each Inspector shall agree in writing that it will not disclose any records
that the Company determines, in good faith, to be confidential and that it
notifies the Inspectors in writing are confidential unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such Registration Statement or Prospectus, (ii) the release
of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction, (iii) disclosure of such information is
necessary or advisable in connection with any action, claim, suit or
proceeding, directly or indirectly, involving or potentially involving such
Inspector and arising out of, based upon, relating to, or involving this
Agreement or the Purchase Agreement, or any transactions contemplated
hereby or thereby or arising hereunder or thereunder, or (iv) the
information in such Records has been made generally available to the
public; provided, however, that such Inspector shall take such actions as
are reasonably necessary to protect the confidentiality of such information
(if practicable) to the extent such action is otherwise not inconsistent
with, an impairment of or in derogation of the rights and interests of the
Holder or any Inspector.
(o) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the first
Registration Statement relating to the Registrable Notes;
<PAGE> 26
-24-
and in connection therewith, cooperate with the trustee under any such
indenture and the Holders of the Registrable Notes, to effect such changes
to such indenture as may be required for such indenture to be so qualified
in accordance with the terms of the TIA; and execute, and use its best
efforts to cause such trustee to execute, all documents as may be required
to effect such changes, and all other forms and documents required to be
filed with the Commission to enable such indenture to be so qualified in a
timely manner.
(p) Comply with all applicable rules and regulations of the Commission
and make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Notes are
sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company
after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(q) Upon consummation of the Exchange Offer or a Private Exchange, use
its best efforts to obtain an opinion of counsel to the Company, in a form
customary for underwritten transactions, addressed to the Trustee for the
benefit of all Holders of Registrable Notes participating in the Exchange
Offer or the Private Exchange, as the case may be, that the Exchange Notes
or Private Exchange Notes, as the case may be, and the related indenture
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its respective terms, subject to
customary exceptions and qualifications.
(r) If the Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Notes or the Private Exchange Notes, as the case may be, mark, or cause to
be marked, on such Registrable Notes that such Registrable Notes are being
cancelled in exchange for the Exchange Notes or the Private Exchange Notes,
as the case
<PAGE> 27
-25-
may be; in no event shall such Registrable Notes be marked as paid or
otherwise satisfied.
(s) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National
Association of Securities Dealers, Inc. (the "NASD").
(t) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Exchange Notes and/or
Registrable Notes covered by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which
any registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Registrable Notes as the
Company may, from time to time, reasonably request. The Company may exclude from
such registration the Registrable Notes of any seller so long as such seller
fails to furnish such information within a reasonable time after receiving such
request. Each seller as to which any Shelf Registration is being effected agrees
to furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such seller
not materially misleading.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the securities covered thereby and that
such holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, or (ii) in the event that such reference
to such Holder by name or otherwise is not required by the Securities Act or any
similar federal statute then in force, the deletion of the reference to such
Holder in any amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable
<PAGE> 28
-26-
Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the
case may be, that, upon actual receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv),
5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition
of such Registrable Notes covered by such Registration Statement or Prospectus
or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as
the case may be, until such Holder's or Participating Broker-Dealer's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
5(k) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any amendments or supplements thereto. In the event that the Company
shall give any such notice, each of the Effectiveness Period and the Applicable
Period shall be extended by the number of days during such periods from and
including the date of the giving of such notice to and including the date when
each seller of Registrable Notes covered by such Registration Statement or
Exchange Notes to be sold by such Participating Broker-Dealer, as the case may
be, shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) hereof or (y) the Advice.
Section 6. Registration Expenses
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company, whether or not
the Exchange Offer Registration Statement or any Shelf Registration is filed or
becomes effective or the Exchange Offer is consummated, including, without
limitation, (i) all registration and filing fees (including, without limitation,
(A) fees with respect to filings required to be made with the NASD in connection
with an underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility of the
Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions (x) where the holders of Registrable Notes are located, in the
case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the
case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses, including,
without limitation, expenses of printing certificates for Registrable Notes or
Exchange Notes in a form eligible for deposit with The Depository Trust Company
and of printing prospectuses
<PAGE> 29
-27-
if the printing of prospectuses is requested by the managing underwriter or
underwriters, if any, by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or in respect of
Registrable Notes or Exchange Notes to be sold by any Participating
Broker-Dealer during the Applicable Period, as the case may be, (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and reasonable fees and disbursements of one special counsel for all of
the sellers of Registrable Notes (exclusive of any counsel retained pursuant to
Section 7 hereof), (v) fees and disbursements of all independent certified
public accountants referred to in Section 5(m)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) Securities Act liability
insurance, if the Company desires such insurance, (vii) fees and expenses of all
other Persons retained by the Company, (viii) internal expenses of the Company
(including, without limitation, all salaries and expenses of officers and
employees of the Company performing legal or accounting duties), (ix) the
expense of any annual audit, (x) the fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
and the obtaining of a rating of the securities, in each case, if applicable,
and (xi) the expenses relating to printing, word processing and distributing all
Registration Statements, underwriting agreements, indentures and any other
documents necessary in order to comply with this Agreement. Notwithstanding the
foregoing or anything to the contrary, each Holder shall pay all underwriting
discounts and commissions of any underwriters with respect to any Registrable
Notes sold by or on behalf of it.
Section 7. Indemnification
(a) The Company agrees to indemnify and hold harmless each Holder of
Registrable Notes and each Participating Broker-Dealer selling Exchange Notes
during the Applicable Period, the officers and directors of each such Person,
and each Person, if any, who controls any such Person within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act (each,
a "Participant"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or supplemented
if the Com-
<PAGE> 30
-28-
pany shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by, arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the case of the
Prospectus in the light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant furnished to the Company in writing by or on behalf of such
Participant expressly for use therein; provided, however, that the foregoing
indemnity with respect to any preliminary prospectus shall not inure to the
benefit of any Participant from whom the Person asserting such losses, claims,
damages or liabilities purchased Registrable Notes if (x) it is established in
the related proceeding that such Participant failed to send or give a copy of
the Prospectus (as amended or supplemented if such amendment or supplement was
furnished to such Participant prior to the written confirmation of such sale) to
such Person with or prior to the written confirmation of such sale, if required
by applicable law, and (y) the untrue statement or omission or alleged untrue
statement or omission was completely corrected in the Prospectus (as amended or
supplemented if amended or supplemented as aforesaid) and such Prospectus does
not contain any other untrue statement or omission or alleged untrue statement
or omission that was the subject matter of the related proceeding.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers and each Person who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent (but on a several, and not
joint, basis) as the foregoing indemnity from the Company to each Participant,
but only with reference to information relating to such Participant furnished to
the Company in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
notify the Persons against whom such indemnity may be sought (the "Indemnifying
Persons") in writing, and the
<PAGE> 31
-29-
Indemnifying Persons, upon request of the Indemnified Person, shall retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Persons may reasonably
designate in such proceeding and shall pay the fees and expenses actually
incurred by such counsel related to such proceeding; provided, however, that the
failure to so notify the Indemnifying Persons shall not relieve any of them of
any obligation or liability which any of them may have hereunder or otherwise.
In any such proceeding, any Indemnified Person shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person unless (i) the Indemnifying Persons and the
Indemnified Person shall have mutually agreed to the contrary, (ii) the
Indemnifying Persons shall have failed within a reasonable period of time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both any Indemnifying Person and the Indemnified Person or any affiliate thereof
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that, unless there exists a conflict among Indemnified Persons, the Indemnifying
Persons shall not, in connection with any one such proceeding or separate but
substantially similar related proceeding in the same jurisdiction arising out of
the same general allegations, be liable for the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed promptly as
they are incurred. Any such separate firm for the Participants and such control
Persons of Participants shall be designated in writing by Participants who sold
a majority in interest of Registrable Notes and Exchange Notes sold by all such
Participants and shall be reasonably acceptable to the Company and any such
separate firm for the Company, their respective directors, their respective
officers and such control Persons of the Company shall be designated in writing
by the Company and shall be reasonably acceptable to the Holders. The
Indemnifying Persons shall not be liable for any settlement of any proceeding
effected without its prior written consent (which consent shall not be
unreasonably withheld or delayed), but if settled with such consent or if there
be a final judgment for the plaintiff for which the Indemnified Person is
entitled to indemnification pursuant to this Agreement, each of the Indemnifying
Persons agrees to indemnify and hold harmless each Indemnified Person from and
against any loss or liability by reason of such settlement or judgment. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Persons (which consent shall
<PAGE> 32
-30-
not be unreasonably withheld or delayed), effect any settlement or compromise of
any pending or threatened proceeding in respect of which any Indemnified Person
is or could have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement (A) includes an unconditional
written release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of such
Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the offering of
the Notes or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Participants on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of discounts
and commissions but before deducting expenses) of the Notes received by the
Company bears to the total proceeds received by such Participant from the sale
of Registrable Notes or Exchange Notes, as the case may be. The relative fault
of the parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or such Participant or such other Indemnified Person, as
the case may be, on the other, the parties' relative intent, knowledge, access
to information and opportunity to
<PAGE> 33
-31-
correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which an
Indemnified Person is entitled to indemnification or contribution under this
Section 7 shall be paid by the Indemnifying Person to the Indemnified Person as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any person who controls a
Holder, the Company, their respective directors or officers or any person
controlling the Company, and (ii) any termination of this Agreement.
(g) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
<PAGE> 34
-32-
Section 8. Rules 144 and 144A
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder in a timely manner in
accordance with the requirements of the Securities Act and the Exchange Act and,
if at any time the Company is not required to file such reports, it will, upon
the request of any Holder or beneficial owner of Registrable Notes, make
available such information necessary to permit sales pursuant to Rule 144A under
the Securities Act. The Company further covenants that it will take such further
action as any Holder of Registrable Notes may reasonably request, all to the
extent required from time to time to enable such Holder to sell Registrable
Notes without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act,
as such Rules may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Notwithstanding the foregoing,
nothing in this Section 8 shall be deemed to require the Company to register any
of its securities pursuant to the Exchange Act.
Section 9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
Section 10. Miscellaneous
(a) No Inconsistent Agreements. The Company has not, as of the date
hereof, and the Company shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the
<PAGE> 35
-33-
rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not conflict with and are not inconsistent with, in any
material respect, the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements. The Company has not
entered and will not enter into any agreement with respect to any of its
securities which will grant to any Person piggy-back registration rights with
respect to any Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Company shall not,
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given except pursuant to a written agreement
duly signed and delivered by (I) the Company and (II)(A) the Holders of not less
than a majority in aggregate principal amount of the then outstanding
Registrable Notes and (B) in circumstances that would adversely affect the
Participating Broker-Dealers, the Participating Broker-Dealers holding not less
than a majority in aggregate principal amount of the Exchange Notes held by all
Participating Broker-Dealers; provided, however, that Section 7 and this Section
10(c) may not be amended, modified or supplemented except pursuant to a written
agreement duly signed and delivered by each Holder and each Participating
Broker-Dealer (including any person who was a Holder or Participating
Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be,
disposed of pursuant to any Registration Statement) affected by any such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.
(d) Notices. All notices and other communications (including, without
limitation, any notices or other communica-
<PAGE> 36
-34-
tions to the Trustee) provided for or permitted hereunder shall be made in
writing by hand-delivery, registered first-class mail, next-day air courier or
telecopier:
(i) if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture.
(ii) if to the Company, at the address as follows:
3300 Hyland Avenue
Costa Mesa, California 92626
Facsimile No.: (714) 641-7228
Attention: General Counsel
(iii) if to the Initial Purchasers, as provided in the Purchase
Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five Business Days after
being deposited in the mail, postage prepaid, if mailed; when receipt is
acknowledged by the recipient's telecopier machine, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties hereto,
the Holders and the Participating Broker-Dealers; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign holds
Registrable Notes.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
<PAGE> 37
-35-
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Company or their Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or any of its
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(k) Third Party Beneficiaries. Holders and beneficial owners of
Registrable Notes and Participating Broker-Dealers are intended third party
beneficiaries of this Agreement, and this Agreement may be enforced by such
Persons.
(l) Attorneys' Fees. As between the parties to this Agreement, in any
action or proceeding brought to enforce any provision of this Agreement, or
where any provision hereof is validly asserted as a defense, the successful
party shall be entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
(m) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Indenture, is intended by the parties as a final and exclusive
statement of the agreement and
<PAGE> 38
-36-
understanding of the parties hereto in respect of the subject matter contained
herein and therein and any and all prior oral or written agreements,
representations, or warranties, contracts, understandings, correspondence,
conversations and memoranda between the Holders on the one hand and the Company
on the other, or between or among any agents, representatives, parents,
subsidiaries, affiliates, predecessors in interest or successors in interest
with respect to the subject matter hereof and thereof are merged herein and
replaced hereby.
<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ICN PHARMACEUTICALS, INC.
By:
---------------------------------
Name:
Title:
SCHRODER & CO. INC.
WARBURG DILLON READ LLC
By: SCHRODER & CO. INC.
By: [SIG]
---------------------------------
Name:
Title:
<PAGE> 40
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ICN PHARMACEUTICALS, INC.
By: /s/ Bill A. MacDonald
---------------------------------
Name: Bill A. MacDonald
Title: Executive Vice President
SCHRODER & CO. INC.
WARBURG DILLON READ LLC
By: SCHRODER & CO. INC.
By:
---------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.6
LETTER OF TRANSMITTAL
FOR
8 3/4% SENIOR NOTES
OF
ICN PHARMACEUTICALS, INC.
PURSUANT TO THE
EXCHANGE OFFER
IN RESPECT OF
ALL OF ITS OUTSTANDING 8 3/4% SENIOR NOTES DUE 2008
FOR
8 3/4% SERIES B SENIOR NOTES DUE 2008
------------------------
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1998 UNLESS THE EXCHANGE OFFER IS EXTENDED (THE "EXPIRATION
DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON
THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
TO: UNITED STATES TRUST COMPANY OF NEW YORK, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Mail: By Hand to 4:30: By Hand After 4:30 and
By Overnight Courier:
United States Trust Company of United States Trust Company of United States Trust Company of
New York New York New York
P.O. Box 843 111 Broadway 770 Broadway, 13th floor
Cooper Station New York, New York 10006 New York, New York 10003
New York, New York 10276 Attention: Lower Level Attention: Corporate Trust
Attention: Corporate Trust Corporate Trust Window Services
Services
</TABLE>
By Facsimile Transmission: (212) 780-0592
Confirm by Telephone: (800) 548-6565
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION VIA
TELEGRAM, TELEX OR FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE
A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY
BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR OLD NOTES
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR OLD
NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
By execution hereof, the undersigned acknowledges receipt of the Prospectus
(the "Prospectus"), dated , 1998, of ICN Pharmaceuticals, Inc., a
Delaware corporation (the "Company"), which, together with this Letter of
Transmittal and the instructions hereto (the "Letter of Transmittal"),
constitute the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 8 3/4% Series B Senior Notes Due 2008 (the "New Notes")
that have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
constitutes a part, for each $1,000 principal amount of its outstanding 8 3/4%
Senior Notes Due 2008 (the "Old Notes"), upon the terms and subject to the
conditions set forth in the Prospectus.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders; (ii) tender of Old Notes is to be made by
<PAGE> 2
book-entry transfer to the Exchange Agent's account at The Depository Trust
Company ("DTC") pursuant to the procedures set forth in the Prospectus under
"The Exchange Offer -- Procedures for Tendering" by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Old Notes (such participants, acting on behalf of
Holders, are referred to herein, together with such Holders, as "Acting
Holders"); or (iii) tender of Old Notes is to be made according to the
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures." DELIVERY OF DOCUMENTS TO DTC DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
If Holders desire to tender Old Notes pursuant to the Exchange Offer and
(i) certificates representing such Old Notes are not lost but are not
immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Old Notes or other required documents to reach
the Exchange Agent prior to the Expiration Date or (iii) the procedures for book
entry transfer cannot be completed prior to the Expiration Date, such Holders
may effect a tender of such Old Notes in accordance with the guaranteed delivery
procedures set forth in the Prospectus under "The Exchange Offer Guaranteed
Delivery Procedures."
The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder; or (ii) whose Old Notes are held of record by DTC who desires to deliver
such Old Notes by book-entry transfer at DTC.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this letter in its entirety.
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Prospectus.
The instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this latter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 8 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES
MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, list the certificate numbers and
principal amounts on a separately executed schedule and affix the schedule to
this Letter of Transmittal. Tenders of Old Notes will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DESCRIPTION OF OLD NOTES
- --------------------------------------------------------------------------------------------------------------------
CERTIFICATE NUMBER(S)* AGGREGATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF HOLDER(S) (ATTACH SIGNED LIST IF AMOUNT TENDERED
(PLEASE FILL IN, IF BLANK) NECESSARY) (IF LESS THAN ALL)**
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF OLD NOTES TENDERED
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Need not be completed by Holders who wish to tender with respect to all
Old Notes listed. See Instruction 2.
- --------------------------------------------------------------------------------
2
<PAGE> 3
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE
AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
----------------------------------------------------------------------------
DTC Book Entry Account No.:
----------------------------------------------------------------------------
Transaction Code No.:
----------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Holder(s) of Old Notes:
----------------------------------------------------------------------------
Window Ticket No. (if any):
----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
---------------------------------------------------------------
----------------------------------------------------------------------------
If Delivered by Book Entry Transfer: Name of Tendering Institution:
----------------------------------------------
DTC Book Entry Account No.:
----------------------------------------------------------------------------
Transaction Code No.:
----------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THIS PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------------
Address:
----------------------------------------------------------------------------
Ladies and Gentlemen:
Subject to the terms of the Exchange Offer, the undersigned hereby tenders
to the Company the principal amount of Old Notes indicated above. Subject to and
effective upon the acceptance for exchange of the principal amount of Old Notes
tendered in accordance with this Letter of Transmittal, the undersigned sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to the Old Notes tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Company and as Trustee under the Indenture for the Old Notes and
the New Notes) with respect to the tendered Old Notes with full power of
substitution to (i) deliver certificates for such Old Notes to the Company, or
transfer ownership of such Old Notes on the account books maintained by DTC,
together in either such case, with all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company and (ii) present such Old
Notes for transfer on the books of the Company and receive all benefits and
otherwise exercise all
3
<PAGE> 4
rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he has full power and
authority to tender, sell, assign and transfer the Old Notes tendered hereby and
that the Company will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim, when the same are acquired by the Company. The undersigned
also acknowledges that this Exchange Offer is being made in reliance upon an
interpretation by the staff of the Securities and Exchange Commission that the
New Notes issued in exchange for the Old Notes pursuant to the Exchange Offer
may be offered for sale, resold and otherwise transferred by holders thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such New Notes. If the undersigned is not a broker-dealer,
the undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of the New Notes.
The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder has no arrangements with any person to participate in
the distribution of such New Notes and (iii) such holder is not a "affiliate,"
as defined under Rule 405 of the Securities Act of the Company or, if such
holder is an affiliate, that such holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New Notes.
If the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
has no arrangements with any person to participate in the distribution of the
New Notes and that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned will upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered
hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent. If any tendered Old Notes are
not accepted for exchange pursuant to the Exchange Offer for any reason,
certificates for any such unaccepted Old Notes will be returned (except as noted
below with respect to tenders through DTC), without expense, to the undersigned
at the address shown below or at a different address shown below or at a
different address as may be indicated under "Special Issuance Instructions" as
promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation under this Letter of Transmittal shall be
binding upon the undersigned's heirs, personal representatives, successors and
assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Old Notes tendered by DTC, by credit to the account at DTC). Similarly,
unless otherwise indicated under "Special Delivery Instructions," please send
the certificates representing the New Notes issued in exchange for the Old
4
<PAGE> 5
Notes accepted for exchange and any certificates for Old Notes not tendered or
not exchanged (and accompanying documents, as appropriate) to the undersigned at
the address shown below the undersigned's signatures, unless, in either event,
tender is being made through DTC. In the event that both "Special Issuance
Instructions" and "Special Delivery Instructions" are completed, please issue
the certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and return any Old Notes not tendered or not exchanged in
the name(s) of, and send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Old Notes from the name of the registered holder(s) thereof if the Company
does not accept for exchange any of the Old Notes so tendered.
5
<PAGE> 6
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF
OLD NOTES REGARDLESS OF WHETHER OLD NOTES ARE BEING
PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if
tendered by a participant in DTC, exactly as such participant's name appears on
a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below under "Capacity" and submit evidence satisfactory to the
Company of such person's authority to so act. See Instruction 3 herein.
If the signature appearing below is not of the registered Holder(s) of the
Old Notes, then the registered Holder(s) must sign a valid proxy
<TABLE>
<S> <C>
X Date:
- ------------------------------------------------- -------------------------------------------------
X Date:
- ------------------------------------------------- -------------------------------------------------
SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY
Name(s): Address:
------------------------------------------------ -------------------------------------------------
------------------------------------------------
- ------------------------------------------------ (INCLUDING ZIP CODE)
(PLEASE PRINT)
Capacity Area Code and Telephone No:
- ------------------------------------------------- ------------------------
Social Security No:
-------------------------------------
</TABLE>
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTION 3 HEREIN)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- --------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
6
<PAGE> 7
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered are to be issued in the name of, or the New Notes issued pursuant
to the Exchange Offer are to be issued to the order of, someone other than the
person or persons whose signature(s) appear(s) within this Letter of Transmittal
or issued to an address different from that shown in the box entitled
"Description of Old Notes" within this Letter of Transmittal, or if Old Notes
tendered by book-entry transfer that are not accepted for purchase are to be
credited to an account maintained at DTC
Name:
- ----------------------------------------------------
(PLEASE PRINT)
Address:
- -------------------------------------------------
(PLEASE PRINT)
- ------------------------------------------------------------
ZIP CODE
- ------------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered or not accepted for purchase or the New Notes issued pursuant to
the Exchange Offer are to be sent to someone other than the person or persons
whose signature(s) appear(s) within this Letter of Transmittal or to an address
different from that shown in the box entitled "Description of Old Notes" within
this Letter of Transmittal
Name:
- ----------------------------------------------------
(PLEASE PRINT)
Address:
- -------------------------------------------------
(PLEASE PRINT)
- ------------------------------------------------------------
ZIP CODE
- ------------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 HEREIN)
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER AND THE SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. The certificates
for the tendered Old Notes (or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of all Old Notes delivered electronically), as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile hereof and any other documents required by this Letter
of Transmittal, must be received by the Exchange Agent at its address set forth
herein prior to 5:00 P.M., New York City time, on the Expiration Date. The
method of delivery of the tendered Old Notes, this Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Holder and, except as otherwise provided below, the delivery will be deemed
made only when actually received by the Exchange Agent. Instead of delivery by
mail, it is recommended that the Holder use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. No Letter of Transmittal or Old Notes should be sent to the Company.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date must tender their Old Notes and follow the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution; (ii) prior
to the Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder of the Old Notes, the certificate number or numbers of
such Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five business days
after the Expiration Date, this Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes (or a confirmation
of electronic delivery of book-entry delivery into the Exchange Agent's account
at DTC) and any the required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile hereof), as well as all other
documents required by this Letter of Transmittal and the certificate(s)
representing all tendered Old Notes in proper form for transfer (or a
confirmation of electronic mail delivery of book-entry delivery into the
Exchange Agent's account at DTC), must be received by the Exchange Agent within
five business days after the Expiration Date, all as provided in the Prospectus
under the caption, "The Exchange Offer -- Guaranteed Delivery Procedures." Any
Holder of Old Notes who wishes to tender his Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 P.M., New York
City time, on the Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in this Letter of Transmittal)
will be and is binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering Holders of Old Notes, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
8
<PAGE> 9
2. PARTIAL TENDERS. Tenders of Old Notes will be accepted in all
denominations of $1,000 and integral multiples in excess thereof. If less than
the entire principal amount of any Old Notes is tendered, the tendering Holder
should fill in the principal amount tendered in the third column of the chart
entitled "Description of Old Notes." The entire principal amount of Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, Old Notes for the principal amount of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Old Notes is not tendered, Old Notes for
the principal amount of the Old Notes not tendered and a certificate or
certificates representing New Notes issued in exchange of any Old Notes accepted
will be sent to the Holder at his registered address, unless a different address
is provided in the appropriate box on this Letter of Transmittal or unless
tender is made through DTC, promptly after the Old Notes are accepted for
exchange.
3. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the registered Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Old Notes tendered and the certificate(s) for New Notes
issued in exchange therefor is to be issued (or any untendered principal amount
of Old Notes is to be reissued) to the registered Holder, such Holder need not
and should not endorse any tendered Old Note, nor provide a separate bond power.
In any other case, such holder must either properly endorse the Old Notes
tendered or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signatures on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder(s) of any Old Notes listed, such Old Notes must
be endorsed or accompanied by appropriate bond powers signed as the name of the
registered Holder(s) appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by an Eligible Institution unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered Holder (including any participant in
DTC whose name appears on a security position listing as the owner of Old Notes)
who has not completed the box set forth herein entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" or (ii) for
the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable spaces, the name and address to which New Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of the Old
Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
5. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Old Notes tendered hereby, or if tendered Old Notes are registered in the
name of any person other than the person signing this Letter of
9
<PAGE> 10
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.
7. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instruction.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified in
the Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Delivery Prepared by
- --------------------------------------------------------------------------------------------------------Checked
by
-------------------------------------------------------------------------------------------------------------
Date
-------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for payment is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his social security number. If the Exchange Agent is not provided
with the correct TIN, a $50 penalty may be imposed by the Internal Revenue
Service, and payments made with respect to New Notes may be subject to backup
withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
20% of any payments made to the Holder or other payee. Backup withholding is not
an additional federal income tax. Rather, the federal
10
<PAGE> 11
income tax liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the Exchange
Offer, the Holder is required to provide the Exchange Agent with either: (i) the
Holder's correct TIN by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such Holder is awaiting a
TIN and that (A) the Holder has not been notified by the Internal Revenue
Service that the Holder is subject to backup withholding as a result of failure
to report all interest or dividends or (B) the Internal Revenue Service has
notified the Holder that the Holder is no longer subject to backup withholding;
or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder of
the Old Notes. If the Old Notes are held in more than one name or are held not
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
11
<PAGE> 12
PAYER'S NAME:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW. OR ---------------------------------
Employer Identification Number
-----------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2 -- Certification -- Under Penalties of Perjury, I certify PART 3 --
INTERNAL REVENUE SERVICE that:
(1) The number shown on this form is my correct Taxpayer Awaiting TIN
PAYER'S REQUEST FOR TAXPAYER Identification Number (or I am waiting for a number to be issued [ ]
IDENTIFICATION NUMBER to me) and
(2) I am not subject to backup withholding either because I have
not been notified by the Internal Revenue Service ("IRS") that I
am subject to backup withholding as a result of failure to
report all interest or dividends, or the IRS has notified me
that I am no longer subject to backup withholding.
-----------------------------------------------------------------------------------
Certificate instructions -- You must cross out item (2) in Part 2 above if you have
been notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS stating that you are no longer subject to backup
withholding, do not cross out item (2).
SIGNATURE ------------------------------- DATE ----------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO HOLDERS OF NEW NOTES PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number within 60 days, 31 percent of all reportable
payments made to me thereafter will be withheld until I provide a number.
- ------------------------------ ------------------------
Signature Date
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Hand After 4:30: By Hand to 4:30: and
By Overnight Courier:
United States Trust Company of United States Trust Company of United States Trust Company of
New York New York New York
P.O. Box 843 111 Broadway 770 Broadway, 13th floor
New York, New York 10276 New York, New York 10006 New York, New York 10003
Attention: Corporate Trust Services Attention: Lower Level Attention: Corporate Trust
Corporate Trust Window Services
</TABLE>
By Facsimile Transmission: (212) 780-0592
Confirm by Telephone: (800) 548-6565
12
<PAGE> 13
NOTICE OF GUARANTEED DELIVERY
FOR
8 3/4% SENIOR NOTES DUE 2008
OF
ICN PHARMACEUTICALS, INC.
As set forth in the Prospectus, dated , 1998 (the "Prospectus"),
of ICN Pharmaceuticals, Inc. (the "Company"), in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), this form or
one substantially equivalent hereto must be used to accept the Company's
exchange offer (the "Exchange Offer") to purchase all of its outstanding 8 3/4%
Senior Notes due 2008 (the "Old Notes") if (i) certificates representing the Old
Notes to be tendered for purchase and payment are not lost but are not
immediately available, (ii) time will not permit the Letter of Transmittal,
certificates representing such Old Notes or other required documents to reach
the Exchange Agent prior to the Expiration Date or (iii) the procedure for
book-entry transfer cannot be completed prior to the Expiration Date. This form
may be delivered by an Eligible Institution by mail or hand delivery or
transmitted, via telegram, telex or facsimile, to the Exchange Agent as set
forth below. All capitalized terms used herein but not defined herein shall have
the meanings ascribed to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998 UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE").
TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE
BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
TO: UNITED STATES TRUST COMPANY OF NEW YORK, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Mail: By Hand to 4:30: By Hand After 4:30 and
By Overnight Courier:
United States Trust Company of United States Trust Company of United States Trust Company of New
New York New York York
P.O. Box 843 111 Broadway 770 Broadway, 13th floor
Cooper Station New York, New York 10006 New York, New York 10003
New York, New York 10276 Attention: Lower Level Attention: Corporate Trust
Attention: Corporate Trust Corporate Trust Window Services
Services
By Facsimile Transmission: (212) 780-0592
Confirm by Telephone: (800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA TELEGRAM,
TELEX OR FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Exchange Offer and the Letter of Transmittal,
receipt of which is hereby acknowledged, the aggregate principal amount of Old
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus.
The undersigned understands that tenders of Old Notes will be accepted only
in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Notes pursuant to the Exchange Offer
may not be withdrawn after 5:00 p.m., New York City time on the Business Day
prior to the Expiration Date. Tenders of Old Notes may also be withdrawn if the
Exchange offer is terminated without any such Old Notes being purchased
thereunder or as otherwise provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
<PAGE> 14
<TABLE>
<S> <C>
Signature(s) of the Registered Owner(s) or Authorized Name(s) of Registered Holder(s):
Signatory: -------------------------------------------------------
-------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------------
Principal Amount of Old Notes Tendered: Address:
---------------------------------------------------
- ------------------------------------------------------- -------------------------------------------------------
Certificate No(s). of Old Notes (if available): Area Code and Telephone No.:
---------------------------
- ------------------------------------------------------- If Old Notes will be delivered by book-entry transfer
at The Depository Trust Company,
- ------------------------------------------------------- Depository Account No.:
Date: -------------------------
- -------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
This Notice of Guaranteed Delivery must be signed by the registered holder(s) of
Old Notes exactly as its (their) name(s) appear on certificates for Old Notes or
on a security position listing as the owner of Old Notes or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information.
Please print name(s) and address(es)
Name(s):
------------------------------------------------------------
------------------------------------------------------------
Capacity:
------------------------------------------------------------
Address(s):
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Do not send Old Notes with this form. Debentures should be sent to the Exchange
Agent together with a properly completed and duly executed Letter of
Transmittal.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or
a correspondent in the United States, hereby (a) represents that each holder of Old Notes on whose
behalf this tender is being made "own(s)" the Old Notes covered hereby within the meaning of Rule
14e-4 under the Securities Exchange Act of 1934, as amended, (b) represents that such tender of Old
Notes complies with such Rule 14e-4, and (c) guarantees that, within five New York Stock Exchange
trading days from the date of this Notice of Guaranteed Delivery, a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), together with certificates representing
the Old Notes covered hereby, in proper form for transfer (or confirmation of the book-entry
transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company,
pursuant to the procedure for book-entry transfer set forth in the Prospectus) and required
documents will be deposited by the undersigned with the Exchange Agent.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVERY THE LETTER OF TRANSMITTAL AND OLD NOTES TENDERED
HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SET FORTH ABOVE AND THAT FAILURE TO DO SO COULD
RESULT IN FINANCIAL LOSS TO THE UNDERSIGNED.
Name of Firm:
---------------------------------------
----------------------------------------------
AUTHORIZED SIGNATURE
Address: Name:
- ---------------------------------------------- ----------------------------------------------
Title:
----------------------------------------------
- ----------------------------------------------
Area Code and Telephone No.:
--------------------- Date:
----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 5.1
LETTERHEAD OF PROSKAUER ROSE LLP
September 17, 1998
ICN Pharmaceuticals, Inc.
Costa Mesa, California
Ladies and Gentlemen:
You have requested our opinion in connection with the filing by ICN
Pharmaceuticals, Inc., a Delaware corporation ("ICN"), with the Securities and
Exchange Commission of a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933 (the "Securities Act") with respect
to $200,000,000 principal amount of ICN's 8 3/4% Series B Senior Notes Due 2008
(the "New Notes"). The Registration Statement relates to the offer (the
"Exchange Offer") by ICN to exchange the New Notes for $200,000,000 principal
amount of ICN's outstanding 8 3/4% Senior Notes Due 2008 (the "Old Notes").
We have examined such records, documents and other instruments as we have
deemed relevant and necessary as a basis for the opinions hereinafter set forth.
We have also assumed without investigation the authenticity of any document
submitted to us as an original, the conformity to originals of any document
submitted to us as a copy, the authenticity of the originals of such latter
documents, the genuineness of all signatures and the legal capacity of natural
persons signed such documents.
Based upon the foregoing, it is our opinion that:
The New Notes, when duly executed by ICN, authenticated by the trustee
pursuant to the terms of the related Indenture and exchanged for the Old Notes
in accordance with the terms of the Exchange Offer, will be duly authorized and
legally issued and will constitute binding obligations of ICN entitled to the
benefits of the Indenture in accordance with their terms, subject as to their
binding nature to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
The foregoing opinions relate only to matters of the internal law of the
State of New York and to the general corporate law of the State of Delaware and
to matters of Federal law and do not purport to express any opinion on the laws
of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm under the caption,
"Legal Matters," in the Prospectus contained in the Registration Statement. In
so doing, we do not admit that we are in the category of persons whose consent
is required under Section 7 of the Securities Act or the rules and regulations
of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ PROSKAUER ROSE LLP
<PAGE> 1
EXHIBIT 12.1
STATEMENT RE COMPUTATION OF RATIOS
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
PRO
FORMA
1993 1994 1995 1996 1997 1997
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES:
Earnings:
Income (loss) before write-off of
purchased research and development,
income taxes and minority
interest............................ $ 27,067 $ 51,048 $ 86,249 $ 99,052 $105,571 $ 87,076
Add: interest expense................. 23,750 9,317 22,889 15,780 22,849 41,344
-------- -------- --------- -------- -------- --------
$ 50,817 $ 60,365 $ 109,138 $114,832 $128,420 $128,420
======== ======== ========= ======== ======== ========
Fixed Charges(1):
Interest expense...................... $ 23,750 $ 9,317 $ 22,889 $ 15,780 $ 22,849 $ 41,344
Capitalized interest.................. -- -- 1,978 3,770 5,419 5,419
-------- -------- --------- -------- -------- --------
$ 23,750 $ 9,317 $ 24,867 $ 19,550 $ 28,268 $ 46,763
======== ======== ========= ======== ======== ========
Ratio of earnings to fixed
charges(2)............................ 2.1 6.5 4.4 5.9 4.5 2.7
======== ======== ========= ======== ======== ========
RATIO OF EBITDA TO FIXED CHARGES:
EBITDA:
Income (loss) from operations......... $ 39,502 $(165,172) $ 93,166 $114,113 $125,298 $125,298
Write-off purchased research and
development......................... -- 221,000 -- -- -- --
Provision at ICN Yugoslavia........... -- -- -- -- -- --
Depreciation and amortization......... 8,513 9,248 13,814 17,936 28,753 28,753
-------- -------- --------- -------- -------- --------
$ 48,015 $ 65,076 $ 106,980 $132,049 $154,051 $154,051
======== ======== ========= ======== ======== ========
Fixed Charges.......................... 23,750 9,317 24,867 19,550 28,268 46,763
======== ======== ========= ======== ======== ========
Ratio of EBITDA to fixed charges....... 2.0 7.0 4.3 6.8 5.4 3.3
======== ======== ========= ======== ======== ========
RATIO OF NET DEBT TO EBITDA:(3)
Net debt:
Long-term debt (including notes
payable and current portion of
long-term debt)..................... $ 35,206 $215,005 $ 166,269 $195,681 $348,206
Less: unrestricted cash and cash
equivalents......................... (14,777) (42,376) (24,094) (39,366) (209,896)
-------- -------- --------- -------- --------
$ 20,429 $172,629 $ 142,175 $156,315 $138,310
======== ======== ========= ======== ========
EBITDA(4).............................. $ 48,015 $ 65,076 $ 106,980 $132,049 $154,051
======== ======== ========= ======== ========
Ratio of net debt to EBITDA............ 0.4 2.7 1.3 1.2 0.9
======== ======== ========= ======== ========
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------
PRO PRO
FORMA FORMA
1997 1998 1997 1998
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES:
Earnings:
Income (loss) before write-off of
purchased research and development,
income taxes and minority
interest............................ $ 38,705 $(87,956) $29,457 $ (97,204)
Add: interest expense................. 7,382 11,808 16,630 21,056
-------- -------- ------- ---------
$ 46,087 $(76,148) $46,087 $ (76,148)
======== ======== ======= =========
Fixed Charges(1):
Interest expense...................... $ 7,382 $ 11,808 $16,630 $ 21,056
Capitalized interest.................. 2,498 3,540 2,498 3,540
-------- -------- ------- ---------
$ 9,880 $ 15,348 $19,128 $ 24,596
======== ======== ======= =========
Ratio of earnings to fixed
charges(2)............................ 4.7 -- 2.4 --
======== ======== ======= =========
RATIO OF EBITDA TO FIXED CHARGES:
EBITDA:
Income (loss) from operations......... $ 48,334 $(58,647) $48,334 $ (58,647)
Write-off purchased research and
development......................... -- -- -- --
Provision at ICN Yugoslavia........... -- 165,646 -- 165,646
Depreciation and amortization......... 10,765 22,664 10,765 22,664
-------- -------- ------- ---------
$ 59,099 $129,663 $59,099 $ 129,663
======== ======== ======= =========
Fixed Charges.......................... 9,880 15,348 19,128 24,596
======== ======== ======= =========
Ratio of EBITDA to fixed charges....... 6.0 8.4 3.1 5.3
======== ======== ======= =========
RATIO OF NET DEBT TO EBITDA:(3)
Net debt:
Long-term debt (including notes
payable and current portion of
long-term debt)..................... $208,031 $342,034 $ 538,686
Less: unrestricted cash and cash
equivalents......................... (41,969) (90,983) (281,035)
-------- -------- ---------
$166,062 $251,051 $ 257,651
======== ======== =========
EBITDA(4).............................. $118,198 $259,326 $ 259,326
======== ======== =========
Ratio of net debt to EBITDA............ 1.4 1.0 1.0
======== ======== =========
</TABLE>
- ---------------
(1) The majority of facilities and substantially all equipment is owned by the
Company. Accordingly, there is no interest portion of rent expense.
(2) For the six months ended June 30, 1998, the Company had a deficiency of
earnings compared to its fixed charges of $91,496 and a deficiency of pro
forma earnings compared to its fixed charges of $100,744.
(3) Computation was not made as of December 31, 1997 and June 30, 1997 on a pro
forma basis, as a pro forma balance sheet is not presented.
(4) EBITDA for all interim periods presented has been annualized.
<PAGE> 1
EXHIBIT 15.1
September 17, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: ICN Pharmaceuticals, Inc.
Registration on Form S-4
We are aware that our reports dated April 29, 1998 and July 31, 1998 on our
reviews of interim financial information of ICN Pharmaceuticals, Inc. for the
periods ended March 31, 1998 and June 30, 1998, respectively, and included in
the Company's quarterly reports on Form 10-Q for the respective quarters then
ended are incorporated by reference in this registration statement. Pursuant to
Rule 436(c) under the Securities Act of 1933, these reports should not be
considered a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
PricewaterhouseCoopers LLP
Newport Beach, CA
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
333- ) of our report dated March 5, 1998, which includes an emphasis of a
matter paragraph related to the Company's net monetary assets at ICN Yugoslavia,
which would be subject to foreign exchange loss if a devaluation of the
Yugoslavian dinar were to occur, on our audits of the consolidated financial
statements and financial statement schedule of ICN Pharmaceuticals, Inc. We also
consent to the reference to our firm under the caption "Independent Public
Accountants".
/s/ PRICEWATERHOUSECOOPERS LLP
-----------------------------------------------------
PricewaterhouseCoopers LLP
Newport Beach, California
September 17, 1998
<PAGE> 1
EXHIBIT 25
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
ICN PHARMACEUTICALS, INC.
(Exact name of obligor as specified in its charter)
Delaware 33-0628076
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
3300 Hyland Avenue
Costa Mesa, CA 92626
(Address of principal executive offices) (Zip Code)
------------------
8 3/4% Series B Senior Notes due 2008
(Title of the indenture securities)
==============================================
<PAGE> 2
- 2 -
GENERAL
1. General Information
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, DC
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
Items 3., 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
ICN Pharmaceuticals, Inc. currently is not in default under any of its
outstanding securities for which United States Trust Company of New York is
Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
----------------
T-1.1 -- Organization Certificate, as amended, issued by the
State of New York Banking Department to transact business
as a Trust Company, is incorporated by reference to
Exhibit T-1.1 to Form T-1 filed on September 15, 1995 with
the Commission pursuant to the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1 of this Statement of Eligibility.
T-1.3 -- Included in Exhibit T-1.1 of this Statement of Eligibility.
<PAGE> 3
- 3 -
16. List of Exhibits
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York,
as amended, is incorporated by reference to Exhibit T-1.4
to Form T-1 filed on September 15, 1995 with the
Commission pursuant to the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b)
of the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
- ----
As of September 11, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2., refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2. in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 11th day
of September, 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ John Guiliano
---------------------
John Guiliano
Vice President
<PAGE> 4
EXHIBIT T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
January 7, 1997
Securities and Exchange Commission
450 5th Street, NW
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Gerard F. Ganey
-----------------------------
Gerard F. Ganey
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1998
---------------------------------------
($ IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
- ------
Cash and Due from Banks $ 99,322
Short-Term Investments 171,315
Securities, Available for Sale 626,426
Loans 1,857,795
Less: Allowance for Credit Losses 16,708
----------
Net Loans 1,841,087
Premises and Equipment 59,304
Other Assets 122,476
----------
Total Assets $2,919,930
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 648,072
Interest Bearing 1,046,049
----------
Total Deposits 2,294,121
Short-Term Credit Facilities 306,807
Accounts Payable and Accrued Liabilities 144,419
----------
Total Liabilities $2,745,347
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 107,703
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,344
----------
Total Stockholder's Equity 174,583
----------
Total Liabilities and
Stockholder's Equity $2,919,930
==========
</TABLE>
I, Richard E. Brinkmann, Managing Director & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
/s/ RICHARD E. BRINKMANN
- --------------------------
Richard E. Brinkmann
July 31, 1998
