-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U2793bF6997uA/Ppjoju0k7XUrtLSrUNcMS9FXEBc0xTUlqqJiKTBGi9WT1Hq5dm PsFQgW30AwWux8CazObk3Q== 0001193125-04-040619.txt : 20040312 0001193125-04-040619.hdr.sgml : 20040312 20040312165033 ACCESSION NUMBER: 0001193125-04-040619 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVAX CORP CENTRAL INDEX KEY: 0000772197 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 161003559 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09623 FILM NUMBER: 04666671 BUSINESS ADDRESS: STREET 1: 4400 BISCAYNE BLVD CITY: MIAMI STATE: FL ZIP: 33137 BUSINESS PHONE: 3055756000 MAIL ADDRESS: STREET 1: 4400 BISCAYNE BOULEVARD CITY: MIAMI STATE: FL ZIP: 33137 FORMER COMPANY: FORMER CONFORMED NAME: IVAX CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IVACO INDUSTRIES INC DATE OF NAME CHANGE: 19871213 FORMER COMPANY: FORMER CONFORMED NAME: INLAND VACUUM INDUSTRIES INC DATE OF NAME CHANGE: 19870611 10-K 1 d10k.htm ANNUAL REPORT Annual Report
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-K

 


 

ANNUAL REPORT PURSUANT TO SECTION 13 OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2003   Commission File Number 1-09623

 


 

IVAX CORPORATION

 


 

Incorporated under the laws of the   I.R.S. Employer Identification Number
State of Florida   16-1003559

 

4400 Biscayne Boulevard, Miami, Florida 33137

305-575-6000

 


 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT

 

Title of each class


 

Name of each exchange on which registered


Common Stock, Par Value $.10   American Stock Exchange London Stock Exchange

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  x    No  ¨

 

As of February 29, 2004, there were 197,115,277 shares of Common Stock outstanding.

 

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2003, was approximately $2.7 billion, based on the price at which the equity stock was last sold on the American Stock Exchange on such date of $17.85 per share. Solely for the purpose of this calculation, shares held by directors, executive officers and 10% shareholders of the registrant have been excluded. Such exclusion should not be deemed a determination or an admission by the registrant that these individuals are, in fact, affiliates of the registrant.

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

Information required by Part III is incorporated by reference to portions of the Registrant’s Proxy Statement for the 2004 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission within 120 days after the close of the Registrant’s 2003 year end.

 



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IVAX CORPORATION

 

Annual Report on Form 10-K

for the year ended December 31, 2003

 

TABLE OF CONTENTS

 

         PAGE

PART I

Item 1.

 

Business

   1

Item 2.

 

Properties

   29

Item 3.

 

Legal Proceedings

   29

Item 4.

 

Submission of Matters to a Vote of Security Holders

   34
PART II

Item 5.

 

Market for Registrant’s Common Equity and Related Shareholder Matters

   35

Item 6.

 

Selected Financial Data

   36

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   37

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

   53

Item 8.

 

Financial Statements and Supplementary Data

   54

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

   54

Item 9A.

 

Controls and Procedures

   54
PART III

Item 10.

 

Directors and Executive Officers of the Registrant

   55

Item 11.

 

Executive Compensation

   55

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

   55

Item 13.

 

Certain Relationships and Related Transactions

   56

Item 14.

 

Principal Accountant Fees and Services

   56
PART IV

Item 15.

 

Exhibits, Financial Statement Schedule and Reports on Form 8-K

   56

 


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PART I

 

Item 1. Business

 

Business

 

Overview

 

We are a multinational company engaged in the research, development, manufacture and marketing of pharmaceutical products. We were incorporated in Florida in 1993, as successor to a Delaware corporation formed in 1985.

 

We manufacture and/or market several brand name pharmaceutical products and a wide variety of brand equivalent and over-the-counter pharmaceutical products, primarily in the United States, Europe and Latin America. We also have subsidiaries located throughout the world, some of which are among the leading pharmaceutical companies in their markets. We maintain manufacturing operations in Argentina, Chile, China, the Czech Republic, Germany, Ireland, Italy, Mexico, Puerto Rico, the United Kingdom, the United States, the U.S. Virgin Islands and Venezuela. We conduct our research and development programs in the Czech Republic, Hungary, India, the United Kingdom and the United States. We also have marketing and sales operations in Azerbaijan, Bulgaria, Costa Rica, Croatia, El Salvador, Estonia, Finland, France, Guatemala, Honduras, Hong Kong, Kazakhstan, Latvia, Lithuania, The Netherlands, Nicaragua, Panama, Peru, Poland, Romania, Russia, the Slovak Republic, Sweden, Switzerland, Taiwan, Ukraine, Uruguay and Uzbekistan and market our products through distributors or joint ventures in other foreign markets.

 

Growth Strategies

 

We expect our future growth to come from:

 

  discovering and developing and/or acquiring new products;

 

  developing and marketing selected brand equivalent pharmaceuticals;

 

  leveraging proprietary technology and development strengths in the respiratory and oncology areas;

 

  pursuing complementary, accretive or strategic acquisitions; and

 

  strategically expanding sales and distribution of our proprietary and branded products as well as our brand equivalent pharmaceutical products.

 

Discovery and Development and/or Acquisition of New Products

 

We expect that new products that we discover, develop and/or acquire will provide a cornerstone for our future growth. In October 1999, we dramatically increased the size and scope of our new product development capability through our acquisition of the Institute for Drug Research (now called IVAX Drug Research Institute), which had approximately 250 employees engaged in drug research and development. We currently have over 800 people involved in our drug research and development programs. In 2003, we spent $108.3 million for company-sponsored research and development activities compared to $76.0 million in 2002 and $88.0 million in 2001.


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Among the proprietary compounds in development that have either entered or that we expect to enter clinical trials in the near future are:

 

  Xorane an oral form of paclitaxel;

 

  a compound for the treatment of multiple sclerosis and epilepsy;

 

  a compound for the treatment of inflammation disorders;

 

  a compound for the treatment of recurrent glioblastoma;

 

  one or more of the soft steroids that we are developing for asthma, allergic rhinitis, dermatology and gastrointestinal indications both in humans and companion animals;

 

  a compound for the treatment of benign prostatic hypertrophy; and

 

  a brain targeted estrogen for the treatment of postmenopausal syndrome, postmenopausal memory disorders and sexual disorders.

 

Other new compounds in earlier stages of development are being designed to treat cystic fibrosis, HIV infection and neurological disorders.

 

We believe that our research programs will allow us to develop proprietary and novel compounds and delivery systems.

 

Developing and Marketing Selected Brand Equivalent Pharmaceuticals

 

We develop and market the generic equivalent of brand pharmaceuticals that no longer enjoy patent protection. We seek to develop generic products that have one or more characteristics that we believe will make it difficult for other competitors to develop competing generics. The characteristics of the selected brand equivalent products we pursue may include one or more of the following:

 

  those requiring specialized manufacturing capabilities;

 

  those where sourcing the raw material may be difficult;

 

  those with complex formulation or development characteristics;

 

  those that must overcome unusual regulatory or legal challenges; or

 

  those that confront difficult sales and marketing challenges.

 

We believe that products with some or all of these characteristics may face limited competition and may produce higher profits for a longer period of time than products without these characteristics.

 

Leverage Proprietary Technology and Development Strengths

 

We intend to continue to leverage our proprietary technology and development strengths to develop a portfolio of proprietary pharmaceutical products in the areas of respiratory diseases and oncology. Primary among these strengths are:

 

  our patented inhalation technology and our expertise in developing and commercializing respiratory products; and

 

  our experience in the development and commercialization of oncology drugs.

 

Our technology and capabilities in these areas have also allowed us to pursue new business opportunities in the form of strategic collaborations with pharmaceutical partners desiring to license our technologies and utilize our expertise. In the respiratory area, we were the first company to obtain approvals of our own formulations of certain drugs that did not contain chlorofluorocarbon (CFC).

 

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Pursue Complementary, Accretive or Strategic Acquisitions

 

Acquisitions have in the past helped to build our company, and we expect to use well-timed, carefully selected acquisitions to continue to drive our growth. We intend to pursue primarily acquisitions that will complement our existing businesses and provide new product and market opportunities, as well as leverage our existing assets. In assessing strategic opportunities, we will consider whether we expect the acquisition to:

 

  be accretive to earnings;

 

  allow us to leverage our expertise in our areas of therapeutic focus by adding new products or product development capabilities;

 

  offer geographic expansion opportunities into key strategic markets; and

 

  allow us to penetrate further our existing markets.

 

In addition to business acquisitions, we intend to continue to actively pursue strategic product acquisitions and other collaborative arrangements.

 

Strategically Expand Sales and Distribution of Our Products

 

We intend to continue to expand strategically the sales and distribution of our products. We are developing sales capabilities in various European countries to market respiratory products. In 2000, we began marketing proprietary products through our subsidiaries in the United States and in Eastern Europe. In 2003, we purchased 3M’s branded respiratory products business, including related marketing and sales people in nine European countries adding over 200 sales professionals to our sales capabilities.

 

We have completed acquisitions of pharmaceutical companies and facilities in Argentina, Chile, Mexico and Venezuela, which complement our existing operations in Argentina, Peru and Uruguay and continue the expansion of our Latin American operations. Our future plans include the acquisition of additional manufacturing and distribution capabilities in Europe and Latin America.

 

In Asia, we believe that we can complement the operations of our subsidiaries IVAX Asia Limited, IVAX India PVT Limited and IVAX Pharmaceutical (Beijing) Co. Ltd., and our Kunming Baker Norton joint venture company, by establishing additional joint ventures and selectively establishing distribution channels for our major products.

 

At the same time, we are attempting to further integrate operations and are continuously seeking to identify and exploit the cross-marketing and distribution opportunities that exist among our various subsidiaries. For example, our Czech Republic subsidiary is a large producer of bulk and final dosage form cyclosporin, a drug used to prevent rejection in organ transplant recipients. Cyclosporin is also used in conjunction with our Xorane product.

 

Pharmaceutical Business

 

Current Proprietary and Branded Products

 

We market a number of proprietary and brand name products treating a variety of conditions through our subsidiaries throughout the world. These products are marketed by our direct sales forces to physicians, pharmacies, hospitals, managed health care organizations and government agencies. These products are sold primarily to wholesalers, retail pharmacies, distributors, hospitals and physicians.

 

We have substantial expertise in the development, manufacture and marketing of respiratory drugs, primarily for asthma, delivered by metered-dose and dry powder inhalers. Our subsidiary in the

 

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United Kingdom, Norton Healthcare Limited, trading as IVAX Pharmaceuticals UK, is the third largest respiratory company in that market. At the core of our respiratory franchise are advanced delivery systems, which include a patented breath-activated metered-dose inhaler called Easi-Breathe and a patented dry powder inhaler called Airmax, as well as conventional metered-dose inhalers.

 

Easi-Breathe. We hold patents on Easi-Breathe, our breath-activated metered-dose inhaler, which is designed to overcome the difficulty many persons experience with conventional metered-dose inhalers in coordinating inhalation with the emission of the medication. Easi-Breathe emits the medication automatically in one step upon inhalation, minimizing coordination problems and ensuring that the medication is delivered to the lungs. We market Easi-Breathe through our subsidiaries in France, Ireland, Poland, the United Kingdom, the Czech Republic, the Slovak Republic and Mexico and through distributors in Asia and a distributor in Germany.

 

We have pioneered the development of aerosol products that do not contain CFC, chemicals believed to be harmful to the environment which are being phased out on a global basis. In November 1997, we received the world’s first approval for a CFC-free beclomethasone in Ireland.

 

In October 2001, we acquired from Elan Corporation the United States rights to the intranasal steroid brand products, Nasarel® and Nasalide®, for the treatment of allergic rhinitis. In March 2002, we also acquired from the Roche Group the same intranasal steroid products, which are marketed under a number of trademarks in Belgium, Canada, the Czech Republic, France, Ireland, The Netherlands, Norway and the United Kingdom.

 

In April 2002, we entered into an exclusive United States agreement with Minnesota Mining and Manufacturing Company, also known as 3M, related to the QVAR® brand (beclomethasone dipropionate) inhalation aerosol, an inhaled corticosteroid prescribed to treat chronic asthma. QVAR® is a novel metered-dose inhaler that delivers asthma medicine via a non-ozone depleting hydrofluoroalkane (HFA) aerosol rather than conventional CFC propellant. Under the terms of the agreement, we have obtained exclusive United States rights to the QVAR® product as well as a non-exclusive worldwide license to certain 3M patents covering HFA formulations of various asthma drugs. In addition, in 2007, we can exercise an option to obtain ownership of the United States QVAR® trademark, as well as related patents and the New Drug Application, also known as an NDA. QVAR® is currently a registered trademark of 3M through its subsidiary, Riker Laboratories, Inc. 3M manufactures the QVAR® product for us under a long-term contract.

 

In October 2003, we purchased 3M’s branded respiratory products business, including related marketing and sales people in nine European countries. This purchase covers QVAR®, Airomir® in Autohaler® and standard metered dose inhalers, and over 200 professionals to market and sell these products.

 

New Proprietary and Branded Products Under Development

 

We are committed to the cost-effective development of proprietary pharmaceuticals directed primarily towards indications having relatively large patient populations or for which limited or inadequate treatments are available. We seek to accelerate product development and commercialization by in-licensing compounds, especially after clinical testing has begun, and by developing new dosage forms of existing products or new therapeutic indications for existing products. We intend to emphasize the development of drug products in the oncology and respiratory fields and have a variety of proprietary pharmaceuticals in varying stages of development.

 

Inhalation Products. In light of international agreements calling for the eventual phase-out of CFC, we are developing CFC-free inhalation aerosol products, including CFC-free beclomethasone and albuterol, using HFA propellants and dry powder formulations. Beclomethasone and albuterol are two of the most widely prescribed products for asthma.

 

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We received regulatory approval to market CFC-free beclomethasone in Ireland and France in 1997 in our standard metered-dose inhaler and our Easi-Breathe inhaler, the first such approvals for any company anywhere in the world. We received regulatory approval to market CFC-free beclomethasone in our standard metered-dose inhaler in Belgium, Italy, Finland and Portugal in 1999 and in Japan, Germany and Spain in 2000. We received approval in December 2001 through the mutual recognition procedure to market CFC-free beclomethasone in our Easi-Breathe inhaler in Belgium, Luxembourg, Spain and Portugal.

 

In 1998, we also applied for approval to market an albuterol CFC-free formulation in the United Kingdom in our standard metered-dose inhaler and our Easi-Breathe inhaler and in April 2000, these products were approved. In October 2001, these approvals were used as the basis for obtaining approvals of these two products in other European countries, including Belgium, Denmark, Germany, Luxembourg, Norway and Spain under the mutual recognition procedure. We also received approval for CFC-free albuterol in our Easi-Breathe inhaler in Holland under the same procedure. In the United States, Phase III clinical trials to support marketing approval of an albuterol CFC-free formulation in our standard metered-dose inhaler have been completed and an NDA was submitted for this product (Volare) in January 2003. At the end of 2003, we received notice from the FDA that this NDA is approvable.

 

We have also developed a multi-dose dry powder inhaler, which uses no propellant and is believed to have superior dosing accuracy than competing models. In 2001, we received regulatory approval to market formoterol in our multi-dose dry powder inhaler in Denmark and in 2003 we received regulatory approval to market albuterol in our multi-dose dry powder inhaler in the United Kingdom. In November 2003, we also commenced Phase I clinical studies in the United States with etiprednol dicloacetate, an inhaled corticosteroid, in our multi-dose dry powder inhaler.

 

We are continuing to develop the Easi-Breathe inhaler for use with various compounds. During 2003, we completed Phase III clinical trials for Volare in Easi-Breathe and an NDA was submitted for this product in August 2003. In addition, Phase III clinical trials for QVAR® in Easi-Breathe are scheduled to begin in 2004.

 

In developing CFC-free formulations for metered-dose inhalers, we and many of our competitors have obtained or licensed patents on formulations containing alternative propellants. There are many existing patents covering the use of HFA with pharmaceuticals, and successful product development by us may require that we incur substantial expense in seeking to develop formulations that do not infringe competitors’ patents, or that we license or invalidate such patents. We successfully invalidated certain relevant United Kingdom and European patents in the United Kingdom during 1997, 1998 and 1999. In our license agreement with 3M, we have also obtained access to several of 3M’s patented HFA based formulations.

 

Xorane. Presently, paclitaxel, which is one of the leading anti-cancer drugs in the world, is marketed only in injectable form. We are currently marketing paclitaxel injection in the United States under the name Onxol and in other countries under the name Paxene®. We are developing an oral formulation of paclitaxel that we believe may provide significant advantages over the injectable dosage form in terms of patient convenience and reduced side effects. We believe that our patented new system will allow patients to obtain effective doses of paclitaxel through oral administration and that this patented system can be applied to other chemotherapeutic agents that are not currently orally available. We have completed Phase II clinical trials with patients with recurrent breast cancer, advanced lung cancer, and advanced stomach cancer and the results showed substantial anti-cancer activity.

 

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Cervene. In pre-clinical trials of our epidermal growth factor (EGF) receptor-targeted brain cancer therapy, our lead compound, Cervene, was found to be highly specific and toxic to brain cancer cells. This compound is currently in a Phase II multi-center clinical trial in patients with recurrent glioblastoma.

 

Talampanel. In February 2001, we acquired the rights to develop and market the AMPA receptor antagonist, talampanel, from Eli Lilly & Co. Talampanel was initially discovered at the IVAX Drug Research Institute in Budapest, Hungary. In Phase II studies conducted by Eli Lilly, talampanel was shown to reduce the incidence of seizures in patients with epilepsy, and we have commenced additional Phase II clinical trials in epilepsy patients, involving 25 centers in the United States and Europe. The drug for epilepsy will be marketed under the brand name Ampanel. In July 2003, we commenced Phase II clinical trials with patients with recurrent glioblastoma and we are planning to commence in 2004 Phase II clinical trials with patients with newly diagnosed glioblastoma. We are also planning to continue Phase II clinical trials with talampanel using patients with Parkinson’s disease and planning additional studies using this compound to treat multiple sclerosis and other neurological diseases.

 

Estredox. In March 2002, we completed a pilot Phase II study in postmenopausal women of our brain targeted estrogen, Estredox. In this study, luteinizing hormone (LH) levels, normally elevated in postmenopausal women, were suppressed following administration of Estredox and plasma levels of estradiol were below normal premenopausal levels. Lower plasma levels should reduce the risks associated with hormone replacement therapy. Early in 2004, we initiated a clinical trial to determine the appropriate dose for the treatment of postmenopausal hot flashes.

 

Asthma and Inflammatory Diseases. In December 1999, we acquired Soft Drugs, Inc., a private company with a significant patent portfolio. This acquisition entered us into a new field of technology and provides us with several new chemical entities to add to our pipeline of proprietary drugs. These chemical entities include a corticosteroid that is rapidly converted to an inactive form after absorption, which reduces the likelihood of side effects normally associated with these types of drugs. Initial applications are expected to treat asthma (as an inhaled product under the mark Respicort for BNP-166), allergic rhinitis (under the mark Ethinase for BNP-166) and inflammatory diseases of the large intestine (in a special oral formulation under the mark Cronaze for BNP-166). One of our soft steroid compounds, BNP-166, has successfully completed Phase Ia and Ib clinical trials for safety for oral administration. After successfully completing regulatory inhalation toxicology, we have started Phase I clinical studies with BNP-166 in the United States towards the development of the compound to treat allergic rhinitis. In November 2003, we initiated Phase I clinical trials with BNP-166 for the indication of bronchial asthma. In August 2003, we acquired the worldwide rights, exclusive of Japan and certain Asian countries, for loteprednol etabonate for allergic rhinitis. In 2003, we completed a Phase II study with loteprednol etabonate for allergic rhinitis. We plan to begin Phase III clinical trials in 2004.

 

Brand Equivalent Pharmaceutical Products

 

Another important part of our pharmaceutical business is the broad line of brand equivalent pharmaceutical products, both prescription and over-the-counter, that our various subsidiaries market as brand equivalent substitutes or under a brand name. Brand equivalent drugs are therapeutically equivalent to their brand name counterparts, but are generally sold at lower prices and as alternatives to the brand name products. In order to remain successful in the brand equivalent pharmaceutical business, we are working to develop new formulations and to obtain marketing authorizations which will enable us to be the first or among the first to launch brand equivalent pharmaceutical products on the market.

 

In the United States, our subsidiary, IVAX Pharmaceuticals, Inc., manufactures and markets approximately 63 brand equivalent prescription drugs in capsule or tablet forms in an aggregate of approximately 143 dosage strengths. We also distribute in the United States approximately 164 additional brand equivalent prescription and over-the-counter drugs and vitamin supplements, in various dosage forms, dosage strengths and package sizes. Our domestic brand equivalent drug distribution

 

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network encompasses most trade classes of the pharmaceutical market, including wholesalers, retail drug chains, retail pharmacies, mail order companies, managed care organizations, hospital groups, nursing home providers and government agencies.

 

In the United Kingdom, we are a leading provider of brand equivalent pharmaceutical products. We market approximately 312 brand equivalent prescription drugs, about half of which we manufacture, in various dosage forms and dosage strengths, constituting an aggregate of approximately 140 molecules. We market such products to wholesalers, retail pharmacies, hospitals, physicians and government agencies. In addition, we manufacture and market various “blow-fill-seal” pharmaceutical products, such as solutions for injection or irrigation, and unit-dose vials for nebulization to treat respiratory disorders.

 

Brand equivalent products (but not including branded generic products) represented 62% of our revenues in 2003, 56% in 2002 and 57% in 2001.

 

New Brand Equivalent Products Under Development

 

We develop and market the generic equivalent of brand pharmaceuticals that no longer enjoy patent protection. We seek to develop generic products that have one or more characteristics that we believe will make it difficult for other competitors to develop competing generics. The characteristics of the selected brand equivalent products we pursue may include one or more of the following:

 

  those requiring specialized manufacturing capabilities;

 

  those where sourcing the raw material may be difficult;

 

  those with complex formulation or development characteristics;

 

  those that must overcome unusual regulatory or legal challenges; or

 

  those that confront difficult sales and marketing challenges.

 

By emphasizing the development of selected brand equivalent pharmaceutical products, we seek to introduce brand equivalent products that may face limited competition and may produce higher profits for a longer period of time than products without these characteristics. In addition, in evaluating which brand equivalent pharmaceutical product development projects to undertake, we consider whether the new product, once developed, will complement our other products in the same therapeutic family, or will otherwise assist in making our product line more complete. Developing selected brand equivalent pharmaceutical products generally involves more time and resources than developing common brand equivalent pharmaceutical products.

 

During 2003, we received final United States Food and Drug Administration (FDA) approval of 8 Abbreviated New Drug Applications (ANDAs) for 8 molecules, tentative FDA approval of 4 ANDAs for 4 molecules, approval of 2 ANDs (the Canadian equivalent of an ANDA) for 2 molecules in Canada, 3 ANDs for 3 molecules were transferred to us from Schein Pharmaceuticals in Canada, approval of 17 Abridged Marketing Authorization Applications or AMAAs (the European equivalent of an ANDA) for 3 molecules in the United Kingdom, and approval of 31 AMAAs for 7 molecules in the other European Union (EU) countries.

 

As of January 1, 2004, we had ANDAs or its foreign equivalent pending as follows:

 

Number Pending   Country

38 (34 molecules)

  United States

44 (16 molecules)

  United Kingdom

23 (9 molecules)

  Other EU Countries

 

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Acquisitions

 

The acquisition of strategic and complementary businesses has been a significant component of the expansion of our pharmaceutical business. Some of our recent acquisitions are described below.

 

ChemSource Corporation. In January 2003, we acquired ChemSource, which is based in Puerto Rico. We subsequently changed its name to API Industries, Inc. API Industries develops, manufactures and sells active pharmaceutical ingredients for various pharmaceuticals products, including many products which we currently sell or have under development.

 

Merck Sharp & Dohme France. In December 2002, we completed the acquisition of substantially all of the products comprising the generic pharmaceutical business of Merck & Co, Inc.’s Merck Sharp & Dohme subsidiary in France.

 

Laboratorio Chile S.A. Through two tender offers, the first of which commenced on May 31, 2001, we acquired 99.9% of the outstanding shares of Laboratorio Chile S.A. Laboratorio Chile was at the time of purchase and remains the largest Chilean pharmaceutical company in terms of revenue. Through its Argentine subsidiary, Laboratorio Chile was among the major pharmaceutical companies in Argentina. Laboratorio Chile manufactures, markets and sells a broad line of more than 700 branded and brand equivalent products in Chile, Argentina and Peru. Its main products are to treat respiratory and infectious diseases, but it also has strong franchises with cardiovascular, neurological and gynecological products.

 

Indiana Protein Technologies, Inc. In 1999, we acquired 30% of Indiana Protein Technologies, Inc. On April 2, 2001, we acquired the remaining 70% of Indiana Protein Technologies, Inc. that we did not already own. Indiana Protein Technologies specializes in using recombinant technology to develop peptide-based pharmaceutical products. Indiana Protein Technologies had been working with us to develop a number of brand equivalent pharmaceutical products pursuant to a development agreement.

 

Laboratorios Fustery, S.A. de C.V. In February 2001, we acquired Laboratorios Fustery, S.A. de C.V., which is based in Mexico City, Mexico. We subsequently changed its name to IVAX Pharmaceuticals Mexico, S.A. de C.V. IVAX Pharmaceuticals Mexico manufactures, markets and distributes a broad range of prescription pharmaceutical products and is a leading manufacturer of antibiotics and injectable products in Mexico. IVAX Pharmaceuticals Mexico’s therapeutic areas of primary emphasis are antibiotics, anti-inflammatories, analgesics, hormone replacement therapy and gastrointestinal products. IVAX Pharmaceuticals Mexico employs approximately 200 medical representatives who promote IVAX Pharmaceuticals Mexico’s products.

 

Wakefield Pharmaceuticals, Inc. In September 2000, we acquired Wakefield Pharmaceuticals, Inc., which was merged into IVAX Laboratories, Inc. on October 17, 2001.

 

Laboratorios Elmor, S.A. In June 2000, we acquired Laboratorios Elmor, S.A., which is based in Caracas, Venezuela. Elmor manufactures, markets and distributes a broad range of pharmaceutical products in Venezuela. At the time of purchase, Elmor was the largest Venezuelan pharmaceutical company in terms of units sold, and one of the fastest growing pharmaceutical companies in Venezuela.

 

Institute for Drug Research. In October 1999, we acquired the Institute for Drug Research, which is based in Budapest, Hungary. We subsequently changed its name to IVAX Drug Research Institute, Ltd. IVAX Drug Research Institute employs approximately 250 scientists and support staff and engages in original drug discovery and provides contract research services to other pharmaceutical companies. It was originally founded in 1950 as a government-owned pharmaceutical research and development center for the Hungarian pharmaceutical industry. Through our acquisition of IVAX Drug Research Institute,

 

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we obtained a research capability that includes drug discovery, screening, synthesis and pre-clinical development. Additionally, IVAX Drug Research Institute has a depository of more than 1,500 microorganisms to produce chemicals of medicinal value through fermentation. As part of the acquisition of the Institute for Drug Research, we also acquired rights to several important compounds, including a patented drug for the treatment of benign prostatic hypertrophy, which successfully completed a Phase II clinical trial. IVAX Drug Research Institute also has a number of other new drug candidates that are in preclinical development, including compounds to prevent metastasis, several peptide analogs with dual anti-thrombin activity and others to treat disseminated intravascular coagulation (DIC) and sepsis.

 

Galena, a.s. In 1994, we acquired a 60% interest in Galena, a.s., one of the oldest pharmaceutical companies based in the Czech Republic. We changed its name to IVAX-CR a.s. Through open market purchases made in 1995, 1996, 1999 and 2000, and public tender offers made in 1999 and 2000, we increased our ownership interest in the company to 98%. On December 31, 2002, IVAX-CR a.s. was converted to IVAX Pharmaceuticals s.r.o., a limited liability company, and we increased our ownership in this company to 100%. IVAX Pharmaceuticals s.r.o. develops, manufactures and markets a variety of human pharmaceutical and veterinary products, as well as active ingredients and herbal extracts used in the manufacture of pharmaceuticals, including cyclosporin and ergot alkaloids, in the Czech Republic. IVAX Pharmaceuticals s.r.o. sells its products primarily in Central and Eastern European countries, including Russia.

 

Collaborative Agreements

 

We also seek to enter into collaborative alliances which allow us to exploit our drug discovery and development capabilities or provide us with valuable intellectual property and technologies. Some of these collaborative alliances are described below.

 

Mayne Group Limited. In February 2004, we entered into an agreement with Mayne Group Limited for the marketing and distribution of our injectable paclitaxel product, Paxene®, in the European nations of Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Sweden, the United Kingdom and Norway.

 

EIS Eczacibasi IIac Sanayi ve Ticaret A.S. In May 2003, we entered into an exclusive marketing authorization and supply agreement with EIS Eczacibasi IIac Sanayi ve Ticaret A.S. for 21 generic products in 15 Central and Eastern European countries.

 

Laboratory of Molecular Biology of the National Cancer Institute. In January 2003, we entered into a collaboration agreement with the Laboratory of Molecular Biology of the National Cancer Institute to develop a recombinant immunotoxin designed to treat HIV infection by selectively destroying HIV infected cells.

 

Serono, S.A. In October 2002, we entered into an exclusive worldwide product development and license agreement with Ares Trading, S.A., an affiliate of Serono, S.A., for the development and commercialization of an oral formulation of IVAX’ Cladribine for the treatment of multiple sclerosis. Cladribine is an immunosuppressive agent that has demonstrated encouraging results in Phase II studies.

 

Licensing

 

We have obtained licenses to technology and compounds for the development of new pharmaceutical products from various inventors, universities and the United States government. For example, we are working with compounds licensed from The National Institutes of Health to develop a potential new treatment for brain cancer. We will continue to seek new licenses from third parties, including pharmaceutical companies.

 

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We also grant licenses to other pharmaceutical companies relating to technologies or compounds under development and, in some cases, finished products.

 

Other Business

 

Diagnostics

 

In March 2001, our diagnostics group merged with b2bstores.com forming IVAX Diagnostics, Inc., a publicly traded company which trades on the American Stock Exchange under the symbol IVD and is listed on the Boston Stock Exchange. We own approximately 72% of the equity of IVAX Diagnostics, Inc.

 

IVAX Diagnostics, Inc. develops, manufactures and markets diagnostic test kits or assays that are used to aid in the detection of disease markers primarily in the area of autoimmune and infectious diseases. These tests, which are designed to aid in the identification of the causes of illness and disease, assist physicians in selecting appropriate patient treatment. Most of IVAX Diagnostics’ tests are based on Enzyme Linked ImmunoSorbent Assay (ELISA) technology, a clinical technology used worldwide. In addition to an extensive line of diagnostic kits, IVAX Diagnostics also designs and manufactures laboratory instruments that perform the tests and provide fast and accurate results, while reducing labor costs. IVAX Diagnostics markets these products to clinical reference laboratories, hospital laboratories, research institutions and other commercial entities in the United States and in Italy through their direct sales force and through independent distributors in various other foreign markets. IVAX Diagnostics also serves as the distribution center for selling these same products to customers located in other European and international markets outside Italy. Some of these sales, such as in Spain and Portugal, are made through distributors while others are made on a direct basis. The sales made on a direct basis occur primarily in the United Kingdom, France and Germany. These sales are supported by IVAX Diagnostics’ employees or sales agents based in England, France and Italy.

 

Patents and Proprietary Rights

 

We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications to protect our products, technologies, inventions and improvements that we consider important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position.

 

We hold approximately 1,026 United States and foreign patents and have filed several hundred United States and foreign patent applications. In addition, we have exclusively licensed several additional United States and foreign patents and patent applications. Our success depends, in part, on our ability to obtain and enforce United States and foreign patent protection for our products, to preserve our trade secrets and proprietary rights and to operate without infringing on the proprietary rights of third parties or having third parties circumvent our rights. Because of the length of time and expense associated with bringing new products through development and regulatory approval to the marketplace, the pharmaceutical industry has traditionally placed considerable importance on obtaining patent and trade secret protection for significant new technologies, products and processes.

 

Government Regulation

 

Our pharmaceutical and diagnostic operations are subject to extensive regulation by governmental authorities in the United States and other countries with respect to the testing, approval, manufacture, labeling, marketing and sale of pharmaceutical and diagnostic products. We devote significant time, effort and expense to addressing the extensive government regulations applicable to our business. In general, the trend is towards more stringent regulation.

 

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In the United States, the FDA requires extensive testing of new pharmaceutical products to demonstrate that such products are both safe and effective in treating the indications for which FDA approval is sought. Testing in humans may not be commenced until after the FDA grants an Investigational New Drug exemption. An NDA must be submitted to the FDA for new drugs that have not been previously approved by the FDA and for new combinations of, and new indications and new delivery methods for, previously approved drugs. Three phases of clinical trials must be successfully completed before an NDA is approved. Phase I clinical trials involve the administration of the drug to a small number of healthy subjects to determine safety, tolerance, absorption and metabolism characteristics. Phase II clinical trials involve the administration of the drug to a limited number of patients for a specific disease to determine dose response, efficacy and safety. Phase III clinical trials involve the study of the drug to gain confirmatory evidence of efficacy and safety from a wide base of investigators and patients. In the case of a drug that has been previously approved by the FDA, an abbreviated approval process is available for its brand equivalent. For such drugs an ANDA may be submitted to the FDA for approval. For an ANDA to be approved, among other requirements, the drug must be shown to be bioequivalent to the previously approved drug or must be granted a waiver by the FDA of such requirement. The NDA and ANDA development and approval processes generally take a number of years and involve the expenditure of substantial resources. Even so, the time and resources devoted to seeking regulatory approval for new products will not necessarily result in product approvals or earnings.

 

The NDA applicant, owner of a new drug, is required to list with the FDA all patents which cover the approved drug and its approved uses. A company filing an ANDA and seeking approval to market a product before expiration of all listed patents must certify that such patents are invalid or will not be infringed by the manufacture, use or sale of the applicant’s product, and must notify the patent owner and the owner of the approved drug of its filing. If the approved drug owner sues the ANDA filer for patent infringement within 45 days after it receives such notice, then the FDA will not grant final approval of the ANDA until the earlier of 30 months from the date the approved drug owner receives such notice or the date when a court determines that the applicable patents are either invalid or would not be infringed by the applicant’s product. As a result, brand equivalent drug manufacturers, including us, are often involved in lengthy, expensive patent litigation against brand name drug companies that have considerably greater resources and that are typically inclined to actively pursue patent litigation in an effort to protect their franchises.

 

On an ongoing basis, the FDA reviews the safety and efficacy of marketed pharmaceutical products and products considered medical devices and monitors labeling, advertising and other matters related to the promotion of such products. The FDA may cause a recall or withdraw product approvals if regulatory standards are not maintained or if safety or efficacy concerns arise with respect to such products. The FDA also regulates the facilities and procedures used to manufacture pharmaceutical and diagnostic products in the United States or for sale in the United States. Such facilities must be registered with the FDA and all products made in such facilities must be manufactured in accordance with “good manufacturing practices” established by the FDA. Compliance with good manufacturing practices regulations requires the dedication of substantial resources and requires significant costs. The FDA periodically inspects our manufacturing facilities and procedures to assure compliance. The FDA approval to manufacture a drug is site-specific. In the event an approved manufacturing facility for a particular drug becomes inoperable, obtaining the required FDA approval to manufacture such drug at a different manufacturing site could result in production delays, which could adversely affect our business and results of operations. In addition, in connection with its review of our applications for new products, the FDA conducts pre-approval and post-approval reviews and plant inspections to determine whether our systems and procedures comply with good manufacturing practices and other FDA regulations. Among

 

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other things, the FDA may withhold approval of NDAs, ANDAs or other product applications of a facility if deficiencies are found at that facility. Vendors that supply us with finished products or components that we use to manufacture, package or label products are subject to similar regulation and periodic inspections.

 

Following such inspections, the FDA may issue notices on Form 483 and warning letters that could cause us to modify certain activities identified during the inspection. A Form 483 notice is generally issued at the conclusion of an FDA inspection and lists conditions the FDA investigators believe may violate good manufacturing practices or other FDA regulations. Failure to comply with FDA or other governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure of products, total or partial suspension of production and/or distribution, suspension of the FDA’s review of NDAs, ANDAs or other product applications, enforcement actions, injunctions and criminal prosecution. Under certain circumstances the FDA also has the authority to revoke previously granted drug approvals.

 

The evolving and complex nature of regulatory requirements, the broad authority and discretion of the FDA and the severely high level of regulatory oversight result in a continuing possibility that we may be adversely affected by regulatory actions despite our efforts to maintain compliance with regulatory requirements.

 

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false claims statutes.

 

The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any health care item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical and device manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

 

Federal false claims laws prohibit, among other things, any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines, and imprisonment.

 

Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition and results of operations.

 

In connection with our activities outside the United States, we are also subject to regulatory requirements governing the testing, approval, manufacture, labeling, marketing and sale of pharmaceutical and diagnostic products, which requirements vary from country to country. Whether or

 

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not FDA approval has been obtained for a product, approval of the product by comparable regulatory authorities of foreign countries must be obtained prior to marketing the product in those countries. The approval process may be more or less rigorous from country to country, and the time required for approval may be longer or shorter than that required in the United States. No assurance can be given that clinical studies conducted outside of any country will be accepted by such country, and the approval of any pharmaceutical or diagnostic product in one country does not assure that such product will be approved in another country.

 

The federal and state governments in the United States, as well as many foreign governments, including the United Kingdom, from time to time explore ways to reduce medical care costs through health care reform. These efforts have resulted in, among other things, government policies that encourage the use of brand equivalent drugs rather than brand name drugs to reduce drug reimbursement costs. Virtually every state in the United States has a brand equivalent substitution law which permits the dispensing pharmacist to substitute a brand equivalent drug for the prescribed brand name product. The debate to reform the United States’ health care system is expected to be protracted and intense. Due to uncertainties regarding the ultimate features of reform initiatives and their enactment and implementation, we cannot predict what impact any reform proposal ultimately adopted may have on the pharmaceutical or diagnostic industries or on our business or operating results.

 

Competition

 

The pharmaceutical market is highly competitive and includes many established companies. Some of our major competitors are:

 

  Astra Zeneca

 

  Aventis Pharmaceuticals

 

  Boehringer Ingelheim

 

  Bristol-Myers Squibb

 

  Forest Laboratories

 

  Geneva Pharmaceuticals

 

  GlaxoSmithKline

 

  Eli Lilly

 

  Mylan Pharmaceuticals

 

  Novartis Pharmaceuticals

 

  Pfizer Inc.

 

  Schering-Plough

 

  Teva Pharmaceuticals

 

  Watson Pharmaceuticals

 

Our competitors may be able to develop products and processes competitive with or superior to our own for many reasons, including that they may have:

 

  significantly greater financial resources;

 

  larger research and development and marketing staffs;

 

  larger production facilities; or

 

  extensive experience in preclinical testing and human clinical trials.

 

The pharmaceutical market is undergoing, and is expected to continue to undergo, rapid and significant technological change, and we expect competition to intensify as technological advances are made. We intend to compete in the pharmaceutical market by developing or licensing pharmaceutical products that are either patented or proprietary and which are primarily for indications having relatively large patient populations or for which limited or inadequate treatments are available, and, with respect to brand equivalent pharmaceuticals, by developing therapeutic equivalents to previously patented products which we expect to have less intensive competition. Developments by others could make our pharmaceutical products or technologies obsolete or uncompetitive.

 

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In addition to product development, other competitive factors in the pharmaceutical industry include product quality, price, customer service, and reputation. Price is a key competitive factor in the brand equivalent pharmaceutical business. To compete effectively on the basis of price and remain profitable, a brand equivalent drug manufacturer must manufacture its products in a cost-effective manner.

 

Revenues and gross profit derived from brand equivalent pharmaceutical products tend to follow a pattern based on regulatory and competitive factors unique to the brand equivalent pharmaceutical industry. As patents for brand name products and related exclusivity periods mandated by regulatory authorities expire, the first brand equivalent manufacturer to apply for regulatory approval for generic equivalents of such products may be entitled to a 180-day period of marketing exclusivity under the Hatch-Waxman Act. During this exclusivity period, the FDA cannot approve any other generic equivalent. If we are not the first brand equivalent applicant, our brand equivalent product will be kept off the market during the 180-day exclusivity period for the first brand equivalent commercial launch of the product. The first brand equivalent product on the market is usually able to achieve relatively high revenues and gross profit. As other brand equivalent manufacturers receive regulatory approvals and enter the market, prices typically decline, and in some cases dramatically. Accordingly, the level of revenues and gross profit attributable to brand equivalent products that we develop and manufacture is dependent, in part, on:

 

  our ability to maintain a pipeline of products in development;

 

  our ability to develop and rapidly introduce new products;

 

  the timing of regulatory approval of such products;

 

  the number and timing of regulatory approvals of competing products;

 

  our ability to manufacture such products efficiently; and

 

  our ability to market such products effectively.

 

Because of the regulatory and competitive factors discussed above, our revenues and results of operations historically have fluctuated from period to period. We expect this fluctuation to continue as long as a significant part of our revenues are generated from sales of brand equivalent pharmaceuticals.

 

In addition to competition from other brand equivalent drug manufacturers, we face competition from brand name companies as they increasingly sell their products into the brand equivalent market directly by establishing, acquiring or forming licensing or business arrangements with brand equivalent pharmaceutical companies. No regulatory approvals are required for a brand name manufacturer to sell directly or through a third party to the brand equivalent market, nor do such manufacturers face any other significant barriers to entry into such market.

 

In addition, many large drug companies are increasingly pursuing strategies to prevent or delay the introduction of brand equivalent competition. These strategies include:

 

  seeking to establish regulatory obstacles to the ability of brand equivalent product manufacturers to demonstrate that there is no significant difference in the rate and extent to which the active ingredient in the brand equivalent product becomes available at the site of drug action as compared to the brand name counterpart;

 

  instituting legal actions based on process or other patents that allegedly are infringed by the brand equivalent products that automatically delay approval of brand equivalent products because the approval of the brand equivalent product requires certifications that the brand name drug’s patents are invalid or would not be infringed by the brand equivalent;

 

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  obtaining approvals of patented drugs for a rare disease or condition and, as a result, obtaining seven years of exclusivity for that indication;

 

  obtaining extensions of patent exclusivity by conducting additional clinical trials of brand name drugs using children;

 

  persuading the FDA to withdraw the approvals of brand name drugs, the patents for which are about to expire, so that the brand name company can substitute a new patented product; and

 

  instituting legislative efforts in various states to limit the substitution of brand equivalent versions of certain types of branded pharmaceuticals.

 

Additionally, in the United States, some companies have lobbied Congress for amendments to the Hatch-Waxman legislation which could give them additional advantages over brand equivalent competitors such as us. For example, although the life of a drug company’s drug patent is extended for a period equal to the time that it takes the FDA to approve the drug, some companies have proposed eliminating the maximum five-year period for those patent extensions and extending the patent life by a full year for each year spent in clinical trials, rather than the one-half year that is currently allowed. If proposals like these become effective, our entry into the United States market and our ability to generate revenues associated with these brand equivalent products will be delayed.

 

Under the Federal Food, Drug, and Cosmetic Act, an additional six months of market exclusivity in the United States may be added for indications of new or currently marketed drugs, if the FDA requests and the applicant completes agreed upon pediatric studies. Brand name companies are utilizing this provision to increase their period of market exclusivity.

 

A significant amount of our United States brand equivalent pharmaceutical sales are made to a relatively small number of drug wholesalers and retail drug chains, which represent an essential part of the distribution chain of brand equivalent pharmaceutical products in the United States. Drug wholesalers and retail drug chains have undergone, and are continuing to undergo, significant consolidation, which has resulted in our customers gaining more purchasing leverage and consequently increasing the pricing pressures facing our United States brand equivalent pharmaceutical business. Further consolidation among our customers may result in even greater pricing pressures and correspondingly reduce our market share, volumes and the gross margins of this business.

 

Other competitive factors affecting our business include the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions, which are able to seek price discounts on pharmaceutical products, and the reimbursement policies of third party payors, such as insurance companies, Medicare and Medicaid. As the influence of these entities continues to grow, we may continue to face increased pricing pressure on the products we market.

 

Backlog Orders

 

As of January 30, 2004, the dollar amount of backlog orders for IVAX Pharmaceuticals was $9.5 million compared to $36.5 million as of January 30, 2003, and as of January 30, 2004, for IVAX Pharmaceuticals UK it was $1.1 million compared to $1.1 million as of January 30, 2003. We expect to fill all of our backlog orders during our current fiscal year.

 

Raw Materials

 

Raw materials needed for our business are generally readily available from multiple sources. Certain raw materials and components used in the manufacture of our products are, however, available from limited sources, and in some cases, a single source. Additionally, in many cases we have listed only one supplier in applications with the FDA. A problem with the availability of such approved raw materials

 

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could cause production or other delays, and, in the case of products for which only one approved raw material supplier exists, could result in a material loss of sales, with consequent adverse effects on our business. In addition, because raw material sources for pharmaceutical products must generally be approved by regulatory authorities, changes in raw material suppliers may result in production delays, higher raw material costs and loss of sales and customers. We obtain a significant portion of our raw materials from foreign suppliers, and our arrangements with such suppliers are subject to FDA, customs and other government clearances, duties and regulation by the countries of origin.

 

Returns

 

Based on industry practice in the United States, brand equivalent manufacturers, including us, have liberal return policies and have been willing to give customers post-sale inventory allowances. Under these arrangements, the manufacturers give customers credits on the manufacturer’s brand equivalent products which the customers hold in inventory after decreases in the market prices of the brand equivalent products. Like our competitors, we also give credits for charge-backs to wholesale customers that have contracts with us for their sales to hospitals, group purchasing organizations, pharmacies or other retail customers.

 

Seasonality

 

While certain of our individual products may have a degree of seasonality, there are no significant seasonal aspects to our business, except that sales of pharmaceutical products indicated for colds and flu symptoms are higher during the fourth quarter as customers supplement inventories in anticipation of the cold and flu season. In addition, revenues that are contingent upon licensees achieving certain sales targets during the year tend to be higher in the second half of the year.

 

Environmental Matters

 

We are engaged in a continuing program to comply with federal, state and local environmental laws and regulations. While it is impossible to accurately predict the future costs associated with environmental compliance and potential remediation activities, compliance with environmental laws is not expected to require significant capital expenditures and has not had, and is not presently expected to have, a material adverse effect on our earnings or competitive position. See “Item 3. Legal Proceedings” for a description of an environmental proceeding involving one of our subsidiaries.

 

Employees

 

As of December 31, 2003, we had approximately 8,719 employees worldwide.

 

Available Information

 

Our Internet website is: www.ivax.com. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with or furnished to the Securities and Exchange Commission. Information contained in our website is not part of this report.

 

Risk Factors

 

You should carefully consider the risks described below. These and other risks could materially and adversely affect our business, operating results or financial condition. You should also refer to the other information contained or incorporated by reference in this report.

 

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Risks Relating to Our Company

 

We depend on our development, manufacture and marketing of new products for our future success.

 

Our future success is largely dependent upon our ability to develop, manufacture and market commercially successful new pharmaceutical products and brand equivalent versions of pharmaceutical products that are no longer subject to patents. Generally, the commercial marketing of pharmaceutical products depends upon:

 

  continually developing and testing products;

 

  proving that new products are safe and effective in clinical trials;

 

  proving that there is no significant difference in the rate and extent to which the active ingredient in the brand equivalent product becomes available at the site of drug action as compared to the brand name version; and

 

  receiving requisite regulatory approval for all new products.

 

Delays in the development, manufacture and marketing of new products will impact our results of operations. Each of the steps in the development, manufacture and marketing of our products, as well as the process taken as a whole, involves significant periods of time and expense. We cannot be sure that:

 

  any of our products presently under development, if and when fully developed and tested, will perform as we expect;

 

  we will obtain necessary regulatory approvals in a timely manner, if at all; or

 

  we can successfully and profitably produce and market any of our products.

 

Future inability to obtain components and raw materials or products could seriously affect our operations.

 

Some components and materials used in our manufactured products, and some products sold by us, are currently available only from one or a limited number of domestic or foreign suppliers. Additionally, in many cases we have listed only one supplier in our applications with the FDA and foreign governmental authorities. This includes products that have historically accounted for a significant portion of our revenues, including paclitaxel. In the event an existing supplier becomes unavailable or loses its regulatory status as an approved source, we will attempt to locate a qualified alternative; however, we may be unable to obtain the required components, raw materials, or products on a timely basis or at commercially reasonable prices. In addition, from time to time, certain of our outside suppliers have experienced regulatory or supply-related difficulties that have adversely impacted their ability to deliver products to us, causing supply delays or interruptions of supply. To the extent such difficulties cannot be resolved within a reasonable time, and at a reasonable cost, or we are required to qualify a new supplier, our revenues, profit margins and market share for the affected product could decrease, as well as delay our development and sales and marketing efforts.

 

Our arrangements with foreign suppliers are subject to certain additional risks, including the availability of government clearances, export duties, political instability, currency fluctuations and restrictions on the transfer of funds. Arrangements with international raw material suppliers are subject to, among other things, FDA regulation, various import duties and required government clearances. Acts of governments outside the United States may affect the price or availability of raw materials needed for the development or manufacture of our products. In addition, recent changes in patent laws in jurisdictions outside the United States may make it increasingly difficult to obtain raw materials for research and development prior to the expirations of the applicable United States or foreign patents.

 

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A relatively small group of products and customers may represent a significant portion of our net revenues or net earnings from time to time. If the volume or pricing of any of these products declines or we lose customers, it could have a material adverse effect on our business, financial condition and results of operations.

 

Sales of a limited number of our products often represent a significant portion of our net revenues or net earnings. This has been particularly relevant when a product has enjoyed a period of generic marketing exclusivity under the Hatch-Waxman Act as the first ANDA to be filed containing a paragraph iv certification for the listed patent. If the volume or pricing of our largest selling products declines in the future, our business, financial condition and results of operations could be materially adversely affected.

 

A significant portion of our net revenues are derived from sales to a limited number of foreign and domestic customers. Any significant reduction or loss of business with one or several of these customers could have a material adverse effect on our business, financial condition and results of operations.

 

We depend on our patents and proprietary rights and cannot be certain of their confidentiality and protection.

 

Our success with our proprietary products depends, in large part, on our ability to protect our current and future technologies and products and to defend our intellectual property rights. If we fail to adequately protect our intellectual property, competitors may manufacture and market products similar to ours. We have numerous patents covering our technologies. We have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in various countries, including the United States. The United States Patent and Trademark Office does not publish patent applications or make information about pending applications available to the public until it issues the patent. Since publication of discoveries in the scientific or patent literature tends to follow actual discovery by several months, we cannot be certain that we were the first to file patent applications on our discoveries. We cannot be sure that we will receive patents for any of our patent applications or that any existing or future patents that we receive or license will provide competitive advantages for our products. We also cannot be sure that competitors will not challenge, invalidate or void the application of any existing or future patents that we receive or license. In addition, patent rights may not prevent our competitors from developing, using or selling products that are similar or functionally equivalent to our products.

 

We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation. We use confidentiality agreements with licensees, suppliers, employees and consultants to protect our trade secrets, unpatented proprietary know-how and continuing technological innovation. We cannot assure you that these parties will not breach their agreements with us. We also cannot be certain that we will have adequate remedies for any breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, we cannot be sure that our trade secrets and proprietary technology will not otherwise become known or that our competitors will not independently develop our trade secrets and proprietary technology. We also cannot be sure, if we do not receive patents for products arising from research, that we will be able to maintain the confidentiality of information relating to our products.

 

Third parties may claim that we infringe their proprietary rights and may prevent us from manufacturing and selling some of our products.

 

The manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the pharmaceutical industry. These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. We may have to defend against charges that we violated patents or proprietary rights of third parties. This is especially true for the sale of the brand equivalent version of products on which the patent covering the branded product is expiring, an area where

 

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infringement litigation is prevalent. Our defense against charges that we infringed third party patents or proprietary rights could require us to incur substantial expense and to divert significant effort of our technical and management personnel. If we infringe on the rights of others, we could lose our right to develop or make some products or could be required to pay monetary damages or royalties to license proprietary rights from third parties.

 

Although the parties to patent and intellectual property disputes in the pharmaceutical industry have often settled their disputes through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot be certain that the necessary licenses would be available to us on terms we believe to be acceptable. As a result, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling a number of our products.

 

Our net revenues and profits will be negatively impacted if we are unable to replace or renew license fees, royalties and development service fees as the existing related agreements expire or are terminated.

 

As part of our ongoing business strategy we enter into collaborative alliances and license arrangements, which permit us to reduce our development costs and often involve the receipt of an up-front payment, payment of fees upon completion of certain development milestones and also provide for royalties based upon sales of the products after successful development. We have received significant payments in the past from these arrangements and expect that payments from these arrangements will continue to be an important part of our business. Our future net revenues and profits will depend and will fluctuate from period to period, in part, based upon:

 

  our ability to continue to enter into collaborative alliances and license agreements, which provide for up-front payments, milestone payments and royalties;

 

  our ability to replace or renew license fees, royalties and development service fees as the existing related agreements expire or are terminated; and

 

  our ability to achieve the milestones specified in our license and development agreements.

 

If we are unsuccessful in our collaborations or licensing arrangements our operating results could suffer.

 

We have made investments in certain collaborations and licensing arrangements and may use these and other methods to develop or commercialize products in the future. These arrangements typically involve other pharmaceutical companies as partners that may be competitors of ours in certain markets. In many instances, we will not control these collaborations or the commercial exploitation of the licensed products, and cannot assure you that these ventures will be profitable.

 

Our research and development expenditures will negatively impact our earnings in the short term.

 

We spent approximately $108.3 million during 2003 on our research and development efforts. This amount represents a significant increase in the amounts we allocated to research and development in prior periods. We may in the future increase the amounts we expend for research and development. As a result, our research and development expenditures may have an adverse impact on our earnings in the short term. Further, we cannot be sure that our research and development expenditures will, in the long term, result in the discovery or development of products which prove to be commercially successful.

 

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Disruption of production at our principal manufacturing facility could have a material adverse effect on our business, financial condition and results of operations.

 

Although we have other facilities, a significant amount of our brand equivalent products are produced at our largest manufacturing facility in Puerto Rico. A significant disruption at that facility, even on a short-term basis, could impair our ability to produce and ship products on a timely basis, which could have a material adverse effect on our business, financial condition and results of operations.

 

Our acquisitions may reduce our earnings, be difficult for us to combine into our operations or require us to obtain additional financing.

 

In the ordinary course of our business we evaluate potential business acquisition opportunities, some of which may be material. We seek acquisitions which will provide new product and market opportunities, benefit from and maximize our existing assets, and add critical mass. Acquisitions may expose us to additional risks and may have a material adverse effect on our results of operations. Any acquisitions we make may:

 

  fail to accomplish our strategic objectives;

 

  not be successfully combined with our operations;

 

  not perform as expected; and

 

  expose us to cross border risks.

 

In addition, based on current acquisition prices in the pharmaceutical industry, our acquisitions could initially reduce our per share earnings and add significant amortization expense of intangible assets. Our acquisition strategy may require us to obtain additional debt or equity financing, resulting in additional leverage, or increased debt obligations as compared to equity, and dilution of ownership. We may not be able to finance acquisitions on terms satisfactory to us.

 

We may be unable to manage our growth.

 

Over the past five years, our businesses and product offerings have grown substantially. This growth and expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. To manage our growth, we must continue to (i) expand our operational, customer support and financial control systems and (ii) hire, train and retain qualified personnel. We cannot assure you that we will be able to adequately manage our growth. If we are unable to manage our growth effectively, our business, results of operations and financial condition could be materially adversely affected.

 

A number of internal and external factors have caused and may continue to cause the market price of our stock to be volatile.

 

The market prices for securities of companies engaged in pharmaceutical development, including us, have been volatile. Many factors, including many over which we have no control, may have a significant impact on the market price of our common stock, including without limitation:

 

  our or our competitors’ announcement of technological innovations or new commercial products;

 

  changes in governmental regulation;

 

  our or our competitors’ receipt of regulatory approvals;

 

  our or our competitors’ developments relating to patents or proprietary rights;

 

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  publicity regarding actual or potential medical results for products that we or our competitors have under development; and

 

  period-to-period changes in financial results.

 

Sales of our products may be adversely affected by the continuing consolidation of our distribution network and the concentration of our customer base.

 

A significant amount of our sales are made to a relatively few foreign and domestic drug wholesalers, retail drug chains, managed care purchasing organizations, mail order and hospitals. These customers represent an essential part of the distribution chain of pharmaceutical products. These customers have undergone, and are continuing to undergo, significant consolidation. This consolidation may result in these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures facing our business. Additionally, the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions potentially enable those groups to attempt to extract price discounts on our products. The result of these developments may have a material adverse effect on our business, financial condition and results of operations.

 

Political and economic instability and foreign currency fluctuations may adversely affect the revenues generated by our foreign operations.

 

Our foreign operations may be affected by the following factors, among others:

 

  political and/or economic instability in some countries in which we currently do business or may do business in the future through acquisitions or otherwise;

 

  uncertainty as to the enforceability of, and government control over, commercial rights;

 

  expropriation by foreign governmental entities;

 

  limitations on the repatriation of investment income, capital and other assets;

 

  currency exchange fluctuations and currency restrictions; and

 

  other adverse regulatory or legislative developments.

 

We sell products in many countries that are susceptible to significant foreign currency risk. We sell many of these products for United States dollars, which eliminates our direct currency risk but increases our credit risk if the local currency devalues significantly and it becomes more difficult for customers to purchase the United States dollars required to pay us. We sell a growing number of products, particularly in Latin America, for local currency, which results in a direct currency risk to us if the local currency devalues significantly. Additional foreign acquisitions may increase our foreign currency risk and the other risks identified above.

 

In June 2000, we acquired Laboratorios Elmor S.A., a pharmaceutical company based in Venezuela. In the third quarter of 2001, we acquired 99.9% of Laboratorio Chile S.A., a Chilean pharmaceutical company with operations in Chile, Argentina and Peru. Venezuela was considered a hyperinflationary economic environment through June 30, 2001. Although Venezuela is no longer considered hyperinflationary, this economy continues to experience high inflation rates and devaluation of its currency. The continuing political and economic instability in Venezuela, particularly the labor strikes and other forms of political protest directed against the Hugo Chavez administration, may adversely impact our Venezuelan operations and our consolidated earnings. Approximately 18% of our net revenues for 2003 were attributable to our Latin American operations.

 

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Increased indebtedness may impact our financial condition and results of operations.

 

On December 31, 2003, we had approximately $931.7 million of consolidated indebtedness. As a result of our issuance of 1.5% Convertible Senior Notes on March 3, 2004, our consolidated indebtedness increased by $400.0 million. We may incur additional indebtedness in the future. Our level of indebtedness will have several important effects on our future operations, including, without limitation:

 

  we will be required to use a portion of our cash flow from operations for the payment of any principal or interest due on our outstanding indebtedness;

 

  our outstanding indebtedness and leverage will increase the impact of negative changes in general economic and industry conditions, as well as competitive pressures; and

 

  the level of our outstanding debt may affect our ability to obtain additional financing for working capital, capital expenditures or general corporate purposes.

 

General economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control, may affect our future performance. As a result, these and other factors may affect our ability to make principal and interest payments on our indebtedness. We anticipate that approximately $115.9 million of cash flow from operations will be required during 2004 to discharge our annual obligations on our indebtedness outstanding as of December 31, 2003. This requirement will increase by $3.0 million as a result of our issuance of $400.0 million of 1.5% Convertible Senior Notes on March 3, 2004. Our business might not continue to generate cash flow at or above current levels. If we cannot generate sufficient cash flow from operations in the future to service our debt, we may, among other things:

 

  seek additional financing in the debt or equity markets;

 

  refinance or restructure all or a portion of our indebtedness;

 

  sell selected assets;

 

  reduce or delay planned capital expenditures; or

 

  reduce or delay planned research and development expenditures.

 

These measures might not be sufficient to enable us to service our debt. In addition, any financing, refinancing or sale of assets might not be available on economically favorable terms.

 

Our policies regarding returns, allowances and chargebacks, and marketing programs adopted by wholesalers, may reduce our revenues in future fiscal periods.

 

Based on industry practice in the United States, brand equivalent product manufacturers, including us, have liberal return policies and have been willing to give customers post-sale inventory allowances. Under these arrangements, from time to time, we give our customers credits on our brand equivalent products that our customers hold in inventory after we have decreased the market prices of the same brand equivalent products. If new competitors enter the marketplace and significantly lower the prices of any of their competing products, we would likely reduce the price of our product. As a result, we would provide significant credits to our customers who are then holding inventories of such products, which could reduce sales revenue and gross margin for the period the credit is provided. Like our competitors, we also give credits for chargebacks to wholesale customers that have contracts with us for their sales to hospitals, group purchasing organizations, pharmacies or other retail customers. A chargeback is the difference between the price the wholesale customer pays and the price that the wholesale customer’s end-customer pays for a product. Although we establish reserves based on our prior experience and our best estimates of the impact that these policies may have in subsequent periods, we cannot ensure that our reserves are adequate or that actual product returns, allowances and chargebacks will not exceed our estimates.

 

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Investigations of the calculation of average wholesale prices may adversely affect our business.

 

Many government and third party payors, including Medicare, Medicaid, health maintenance organizations and managed care organizations, reimburse doctors and others for the purchase of certain prescription drugs based on a drug’s average wholesale price (AWP). In the past several years, state and federal government agencies have conducted ongoing investigations of manufacturers’ reporting practices with respect to AWP, in which they have suggested that reporting of inflated AWP’s have led to excessive payments for prescription drugs. A number of states and counties have sued us and certain of our subsidiaries, as well as numerous other pharmaceutical companies, alleging that certain products were sold at prices lower than the published AWP. Several of the suits also allege that we did not report to the states our best price for certain products under the Medicaid program. Each of these suits alleges, among other things, deceptive trade practices and fraud and seeks monetary and other relief, including civil penalties and treble damages. Although we believe that we have valid defenses to these claims, there can be no assurance as to the outcome of these matters, and a loss in any of these cases, or in similar cases which may be brought in the future, could materially affect future results of operations.

 

There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with GAAP. Any changes in estimates, judgments and assumptions used could have a material adverse effect on our business, financial position and results of operations.

 

The consolidated and condensed consolidated financial statements included in the periodic reports we file with the Securities and Exchange Commission are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in accordance with GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenues, expenses and income. This includes, but is not limited to, estimates, judgments and assumptions used in the adoption of the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible assets), liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on our financial position and results of operations.

 

The impact of new accounting principles could have a material adverse effect on our financial position or results of operations.

 

We account for stock options granted to employees under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Under this standard, no compensation cost is recorded for stock options granted to employees at fair market value on the date of grant. The Financial Accounting Standards Board is expected to issue a new accounting standard for stock options that would require the cost of stock options granted to employees to be expensed. This and other new accounting principles adopted in the future may have a material adverse effect on our financial position or results of operations.

 

Compliance with governmental regulation is critical to our business.

 

Our pharmaceutical and diagnostic operations are subject to extensive regulation by governmental authorities in the United States and other countries with respect to the testing, approval, manufacture, labeling, marketing and sale of pharmaceutical and diagnostic products. Our inability or delay in receiving, or the loss of any regulatory approval could have a material adverse effect on our results of operations. The evolving and complex nature of regulatory requirements, the broad authority

 

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and discretion of the FDA and the extremely high level of regulatory oversight result in a continuing possibility that we may be adversely affected by regulatory actions despite our efforts to maintain compliance with regulatory requirements.

 

The FDA may cause a recall or withdraw product approvals if regulatory standards are not maintained. The FDA approval to manufacture a drug is site-specific. In the event an approved manufacturing facility for a particular drug becomes inoperable, obtaining the required FDA approval to manufacture such drug at a different manufacturing site could result in production delays, which could adversely affect our business and results of operations.

 

We cannot predict the extent to which we may be affected by legislative and regulatory developments. We are dependent on receiving FDA and other governmental or third party approvals to manufacture, market and ship our products. Consequently, there is always a risk that we will not obtain FDA or other necessary approvals, or that the rate, timing and cost of such approvals, will adversely affect our product introduction plans or results of operations. We carry inventories of certain products in anticipation of launch and if such products are not subsequently launched or are not launched when anticipated, we may be required to write-off the related inventory.

 

The concentration of ownership among our executive officers and directors may permit those persons to influence our corporate matters and policies.

 

As of February 28, 2004, our executive officers, directors and one additional shareholder had or shared voting control over approximately 24.3% of our issued and outstanding common stock. As a result, these persons may have the ability to significantly influence the election of the members of our board of directors and other corporate decisions.

 

Rising insurance costs could negatively impact profitability.

 

The cost of insurance, including director and officer, workers compensation, property, product liability and general liability insurance, have risen significantly in the past year and are expected to continue to increase in 2004. In response, we may increase deductibles and/or decrease certain coverages to mitigate these costs. These increases, and our increased risk due to increased deductibles and reduced coverages, could have a negative impact on our results of operations, financial condition and cash flows.

 

We have enacted a shareholder rights plan and charter provisions that may have anti-takeover effects.

 

We have in place a shareholder rights plan under which we issued common stock purchase rights. As a result of the plan, each share of our common stock carries with it one common stock purchase right. Each common stock purchase right entitles the registered holder to purchase from us 0.9375 of a share of our common stock at a price of $12.00 per 0.9375 of a share, subject to adjustment. The common stock purchase rights are intended to cause substantial dilution to a person or group who attempts to acquire us on terms that our board of directors has not approved. The existence of the common stock purchase rights could make it more difficult for a third party to acquire a majority of our common stock. Other provisions of our articles of incorporation and bylaws may also have the effect of discouraging, delaying or preventing a merger, tender offer or proxy contest, which could have an adverse effect on the market price of our common stock.

 

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Risks Related to Our Industry

 

Legislative proposals, reimbursement policies of third parties, cost containment measures and health care reform could affect the marketing, pricing and demand for our products.

 

Various legislative proposals, including proposals relating to prescription drug benefits, could materially impact the pricing and sale of our products. Further, reimbursement policies of third parties may affect the marketing of our products. Our ability to market our products will depend in part on reimbursement levels for the cost of the products and related treatment established by health care providers, including government authorities, private health insurers and other organizations, such as health maintenance organizations (HMOs) and managed care organizations (MCOs). Insurance companies, HMOs, MCOs, Medicaid and Medicare administrators and others are increasingly challenging the pricing of pharmaceutical products and reviewing their reimbursement practices. In addition, the following factors could significantly influence the purchase of pharmaceutical products, which could result in lower prices and a reduced demand for our products:

 

  the trend toward managed health care in the United States;

 

  the growth of organizations such as HMOs and MCOs;

 

  legislative proposals to reform health care and government insurance programs; and

 

  price controls and non-reimbursement of new and highly priced medicines for which the economic therapeutic rationales are not established.

 

These cost containment measures and health care reform proposals could affect our ability to sell our products.

 

The reimbursement status of a newly approved pharmaceutical product may be uncertain. Reimbursement policies may not include some of our products. Even if reimbursement policies of third parties grant reimbursement status for a product, we cannot be sure that these reimbursement policies will remain in effect. Limits on reimbursement could reduce the demand for our products. The unavailability or inadequacy of third party reimbursement for our products could reduce or possibly eliminate demand for our products. We are unable to predict whether governmental authorities will enact additional legislation or regulation which will affect third party coverage and reimbursement that reduces demand for our products.

 

Marketed pharmaceutical products are subject to significant regulation in the United States.

 

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false claims statutes.

 

The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any health care item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.

 

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Recently, several pharmaceutical and other health care companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. The majority of states also

 

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have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines, and imprisonment.

 

Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition and results of operations.

 

If branded pharmaceutical companies are successful in limiting the use of brand equivalent products through their legislative and regulatory efforts, our sales of brand equivalent products may suffer.

 

Many branded pharmaceutical companies increasingly have used state and federal legislative and regulatory means to delay brand equivalent competition. These efforts have included:

 

  pursuing new patents for existing products which may be granted just before the expiration of one patent which could extend patent protection for additional years or otherwise delay the launch of brand equivalents products;

 

  using the Citizen Petition process to request amendments to FDA standards;

 

  seeking changes to United States Pharmacopeia, an organization which publishes industry recognized compendia of drug standards;

 

  attaching patent extension amendments to non-related federal legislation; and

 

  engaging in state-by-state initiatives to enact legislation that restricts the substitution of some brand equivalent drugs, which could have an impact on products that we are developing.

 

If branded pharmaceutical companies are successful in limiting the use of brand equivalent products through these or other means, our sales of brand equivalent products may decline. If we experience a material decline in brand equivalent product sales, our results of operations, financial condition and cash flows will suffer.

 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

 

This annual report on Form 10-K contains or incorporates by reference “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Generally, these statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts and can be identified by the use of terms such as “estimate,” “project,” “plan,” “intend,” “expect,” “expect,” “believe,” “anticipate,” “should,” “may,” “will,” and similar expressions. Specifically, this Form 10-K and the documents incorporated into this Form 10-K by reference contain forward-looking statements, including, among others, the following:

 

  our intention to generate growth through the introductions of new proprietary drugs, the expanded sale and distribution of our current products, the acquisition of new businesses and products and strategic collaborations;

 

  our intention to generate growth through discovering and developing and/or acquiring new products, developing and marketing selected brand equivalent pharmaceuticals, leveraging proprietary technology and development strengths, acquiring new businesses and products, and expanding sales and distribution of our proprietary and branded products;

 

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  the ability of our research programs to develop improved forms of drugs, novel compounds and new delivery systems;

 

  our ability to acquire additional manufacturing, sales and distribution capabilities, including in Europe and Latin America;

 

  our ability to establish additional joint ventures and sales and distribution channels, including in Asia;

 

  our ability to integrate operations and exploit opportunities among our subsidiaries;

 

  our capacity to become a worldwide leader in the asthma market;

 

  our ability to capitalize on current relationships in the oncology market to market new brand equivalent biotech drugs and our commercialization of Xorane and other oncology products;

 

  our ability to identify, acquire and successfully integrate new acquisitions of companies or products;

 

  the ability of our new patented oral administration system to provide patients effective doses of paclitaxel with more convenience and reduced side effects and the applicability of this system to other chemotherapeutic agents;

 

  our ability to develop Easi-Breathe for use with various compounds;

 

  our ability to develop and market Volare;

 

  our ability to develop and market Cervene for recurrent glioblastoma;

 

  our ability to develop and market Ampanel for epilepsy;

 

  our ability to further develop CFC-free inhalation aerosol products;

 

  our ability to develop and market etiprednol dicloacetate, an inhaled corticosteroid, in our multi-dose dry powder inhaler;

 

  our ability to develop a corticosteroid with minimal side effects to treat asthma and inflammatory diseases of the large intestine;

 

  our ability to develop new formulations and obtain marketing authorizations which will enable us to be the first, or among the first, to launch brand equivalent products;

 

  our ability to establish and maintain the bioequivalency and efficacy of our brand equivalent products;

 

  our ability to develop and market products to treat HIV infection, cystic fibrosis, recurrent glioblastoma, benign prostatic hypertrophy, postmenopausal syndrome, postmenopausal memory disorders and sexual disorders;

 

  our ability to further develop and market talampanel or other compounds for the treatment of epilepsy, Parkinson’s disease, multiple sclerosis, glioblastoma or other neurological diseases;

 

  our ability to develop and market Estredox;

 

  our ability to develop and market Cronaze for inflammatory bowel diseases, Respicort for asthma and Ethinase for allergic rhinitis;

 

  our ability to develop and market loteprednol etabonate for the treatment of allergic rhinitis and dermatological conditions;

 

  our ability to supplement our portfolio of brand equivalent products by emphasizing the development of selected brand equivalent products;

 

  our ability to develop or license proprietary products for indications having large patient populations, or for which limited or inadequate treatments exist;

 

  our capacity to accelerate product development and commercialization by in-licensing products and by developing new dosage forms or new therapeutic indications for existing products;

 

  anticipated trends in the pharmaceutical industry and the effect of technological advances on competition;

 

  our ability to reduce our backlog and manufacture, obtain and maintain a sufficient supply of products to meet market demand, retain our customers and meet contractual deadlines and terms;

 

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  that our proposed spending on facilities improvement and expansion may not be as projected;

 

  our ability to obtain and maintain FDA approval of our manufacturing facilities, the failure of which could result in production stoppage or delays;

 

  our estimates regarding the capacity of our facilities;

 

  our intention to fund 2004 capital expenditures and research and development from existing cash and internally generated funds;

 

  uncertainties regarding the outcome of pending investigations and litigation; and

 

  other matters.

 

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the following:

 

  difficulties in product development and uncertainties related to the timing or outcome of product development;

 

  the availability on commercially reasonable terms of raw materials, particularly raw materials for our paclitaxel product, and other third party sourced products;

 

  our ability to replace or renew license fees, royalties and development service fees as the related agreements expire or are terminated;

 

  difficulties in complying with governmental regulations;

 

  difficulties or delays in manufacturing products;

 

  efficacy or safety concerns with respect to marketed products, whether or not scientifically justified, leading to recalls, withdrawals or declining sales;

 

  our ability to identify potential acquisitions and to successfully acquire and integrate such operations or products;

 

  our ability to obtain approval from the FDA to market new pharmaceutical products;

 

  the acceptance of new products by the medical community as effective as alternative forms of treatment for indicated conditions;

 

  the outcome of any pending or future litigation (including patent, trademark and copyright litigation and the United Kingdom National Health Service Investigation), and the cost, expenses and possible diversion of management’s time and attention arising from such litigation or investigation;

 

  the impact of new regulations or court decisions or actions by our competitors regarding the protection of patents and the exclusivity period for the marketing of branded drugs;

 

  the impact of the adoption of certain accounting standards;

 

  our success in acquiring or licensing proprietary technologies that are necessary for our product development activities;

 

  the impact of political and economic instability in the countries in which we operate, particularly Venezuela and other Latin American countries;

 

  our successful compliance with extensive, costly, complex and evolving governmental regulations and restrictions;

 

  the use of estimates in the preparation of our financial statements;

 

  our ability to successfully compete in both the branded and brand equivalent pharmaceutical sectors;

 

  trade buying patterns;

 

  trends toward managed care and health care cost containment;

 

  possible United States legislation or regulatory action affecting, among other things, pharmaceutical pricing and reimbursement, including Medicaid and Medicare;

 

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  interest rate and foreign currency exchange rate fluctuation; and

 

  other risks and uncertainties detailed herein and from time to time in our Securities and Exchange Commission filings.

 

Forward-looking statements, therefore, should be considered in light of all of the information included or referred to in this annual report on Form 10-K, including the cautionary information set forth under the heading “Risk Factors” beginning on page 16. We caution you not to place significant reliance on these forward-looking statements, which speak only as of the date of this annual report on Form 10-K or the date of the incorporated document, as applicable, and we undertake no obligation to update or revise these statements.

 

Financial Information about Foreign and Domestic Operations

 

Specific financial information with respect to our foreign and domestic operations is provided in Note 13, Business Segment Information, in the Notes to Consolidated Financial Statements.

 

Item 2. Properties

 

Our corporate headquarters are located in Miami, Florida. We maintain offices, warehouses, research and development facilities and/or distribution centers in Argentina, Bulgaria, Chile, China, Costa Rica, Croatia, the Czech Republic, El Salvador, Estonia, Finland, France, Germany, Guatemala, Honduras, Hong Kong, Hungary, India, Ireland, Italy, Kazakhstan, Mexico, Latvia, Lithuania, The Netherlands, Nicaragua, Norway, Panama, Peru, Poland, Romania, Russia, the Slovak Republic, Sweden, Switzerland, Taiwan, Ukraine, Uruguay, Uzbekistan, Venezuela and various parts of the United States and the United Kingdom, most of which are held pursuant to leases. None of these leases are material to us.

 

We operate pharmaceutical manufacturing facilities in Buenos Aires, Argentina; Munro, Argentina; Santiago, Chile; Beijing, China; Opava, Czech Republic; Preston Brook, England; Runcorn, England; Miami, Florida; Falkenhagen, Germany; Budapest, Hungary; Mumbai, India; Waterford, Ireland; Mexico City, Mexico; Ramos Arizpe, Mexico; Northvale, New Jersey; Cidra, Puerto Rico; Guayama, Puerto Rico, St. Croix, the U.S. Virgin Islands; and Guacara, Venezuela. We own our Budapest, Buenos Aires, Cidra, Falkenhagen, Guayama, Guacara, Mexico City, Miami, Munro, Opava and Ramos Arizpe manufacturing facilities, and lease our remaining manufacturing facilities. In connection with the sale of the specialty chemicals business, we retained ownership of our manufacturing facilities in Rock Hill, South Carolina and Marion, Ohio which we are seeking to sell.

 

We believe our facilities are in satisfactory condition and are suitable for their intended use. We plan to spend between $100 million and $120 million in 2004 to improve and expand our pharmaceutical and other related facilities. A portion of our pharmaceutical manufacturing capacity and our research and development activities, as well as our corporate headquarters and other critical business functions are located in areas subject to hurricane and earthquake casualty risks. Although we have certain limited protection afforded by insurance, our business and our earnings could be materially adversely affected in the event of a major windstorm or earthquake.

 

Item 3. Legal Proceedings

 

Terazosin Litigation

 

On December 21, 1998, an action purporting to be a class action, styled Louisiana Wholesale Drug Co. vs. Abbott Laboratories, Geneva Pharmaceuticals, Inc. and Zenith Goldline Pharmaceuticals, Inc., was filed against IVAX Pharmaceuticals, Inc. (“IPI”) and others in the United States District Court for the Southern District of Florida, alleging a violation of Section 1 of the Sherman Antitrust Act. Plaintiffs purport to represent a class

 

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consisting of customers who purchased a certain proprietary drug directly from Abbott Laboratories during the period beginning on October 29, 1998. Plaintiffs allege that, by settling patent-related litigation against Abbott in exchange for quarterly payments, the defendants engaged in an unlawful restraint of trade. The complaint seeks unspecified treble damages and injunctive relief. Eighteen additional class action lawsuits containing allegations similar to those in the Louisiana Wholesale case were filed in various jurisdictions between July 1999 and February 2001, the majority of which have been consolidated with the Louisiana Wholesale case. On December 13, 2000, plaintiffs’ motion for summary judgment on the issue of whether the settlement agreement constituted a per se violation of Section 1 of the Sherman Antitrust Act in the Louisiana Wholesale case was granted, but on September 15, 2003, the United States Court of Appeals for the Eleventh Circuit reversed the order. On March 13, 2000 the Federal Trade Commission (“FTC”) announced that it had issued complaints against, and negotiated consent decrees with, Abbott Laboratories and Geneva Pharmaceuticals arising out of an investigation of the same subject matter that is involved in these lawsuits. The FTC took no action against IPI. To date, seventeen of the actions naming IPI have either been settled or dismissed.

 

Fen-Phen Litigation

 

IPI has been named in a number of individual and class action lawsuits in both state and federal courts involving the diet drug combination of fenfluramine and phentermine, commonly known as “fen-phen.” Generally, these lawsuits seek damages for personal injury, wrongful death and loss of consortium, as well as punitive damages, under a variety of liability theories including strict products liability, breach of warranty and negligence. IPI did not manufacture either fenfluramine or phentermine, but did distribute the brand equivalent version of phentermine manufactured by Eon Labs Manufacturing, Inc. (“Eon”) and Camall Company. Although IPI had a very small market share, to date, IPI has been named in approximately 5,542 cases and has been dismissed from approximately 4,966 of these cases, with additional dismissals pending. IPI intends to vigorously defend all of the lawsuits, and while management believes that its defense will succeed, as with any litigation, there can be no assurance of this. Currently Eon is paying for approximately 50% of IPI’s costs in defending these suits and is fully indemnifying IPI against any damages IPI may suffer as a result of cases involving product manufactured by Eon. In the event Eon discontinues providing this defense and indemnity, IPI has its own product liability insurance. While IPI’s insurance carriers have issued reservations of rights, IPI believes that it has adequate coverage. Although it is impossible to predict with certainty the outcome of litigation, we do not believe this litigation will have a material adverse impact on our financial condition or results of operation.

 

Average Wholesale Price Litigation

 

On July 12, 2002, an action purporting to be a class action styled John Rice v. Abbott Laboratories, Inc., et al. (the “Rice Action”) was filed against IPI and others in the Superior Court of the State of California, alleging violations of California’s Business & Professional Code §17200 et seq. with respect to the way pharmaceutical companies report their AWP. Plaintiffs allege that each defendant reported an AWP to Medicare and Medicaid which materially misrepresented the actual prices paid to defendants by physicians and pharmacies for prescription drugs. The complaint seeks unspecified damages, including punitive damages, and injunctive relief. Two other class actions, Thompson v. Abbott Laboratories, Inc., et al. (the “Thompson Action”) and Turner v. Abbott Laboratories, Inc., et al. (the “Turner Action”), containing similar allegations against IPI and others were filed in California courts in August and September 2002, respectively, as well. All three cases were removed to federal court and transferred to the Pharmaceutical Industry Average Wholesale Price Multi-District Litigation in the United States District Court for the District of Massachusetts. On November 23, 2003, the plaintiff in the Rice Action dismissed his action against IPI and other defendants without prejudice. On January 9, 2004, the court denied the motions filed by the plaintiffs in the Thompson Action and the Turner Action to remand the cases to state court and further ruled that

 

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the claims in these actions were preempted by ERISA. In February 2004, the plaintiffs in the Thompson Action and the Turner Action also dismissed their actions against IPI and other defendants.

 

On September 29, 2003, we received a copy of a Summons and Complaint filed by the Commonwealth of Massachusetts against IVAX Corporation, and various other manufacturers of generic pharmaceutical products, alleging that all defendant manufacturers inflated the prices of generic pharmaceutical products paid for by the Massachusetts Medicaid Program through alleged fraudulent promotion, marketing and sales practices, resulting in millions of dollars in overpayments. The Complaint also alleges that the defendant manufacturers reported understated drug pricing to the federal government, which had the effect of reducing rebate payments to the Commonwealth under rebate agreements. The complaint alleges violations of the Massachusetts Medicaid False Claims Act, the Massachusetts False Claims Act and common law fraud, along with claims for unjust enrichment, breach of contract and breach of the duty of good faith and fair dealing. The Commonwealth seeks injunctive relief, restitution, treble damages, civil penalties, attorneys’ fees, and investigative and litigation costs. A motion to dismiss this action was filed on January 29, 2004 and is pending. We intend to vigorously defend ourselves in this matter and against these allegations.

 

On September 15, 2003, IPI and we were served with an Amended Complaint filed in the United States District Court for the District of Massachusetts in the case styled County of Suffolk vs. Abbott Laboratories, Inc., et al. and on August 25, 2003, we were served with a similar complaint filed in the United States District Court for the Southern District of New York in the case styled County of Westchester vs. Abbott Laboratories, Inc. et al. In each of these cases, the plaintiffs allege that the defendants violated the Racketeering Influenced and Corrupt Organizations Act (“RICO”), the Federal Medicaid Statute, New York Social Services Law, New York Department of Health Regulations, and New York General Business Law. The plaintiffs also seek the recovery of damages for unfair trade practices, fraud, breach of contract and under the theory of unjust enrichment. The plaintiffs also seek unspecified damages, including treble and punitive damages, civil penalties, declaratory and injunctive relief and restitution, allegedly suffered by the plaintiffs as a result of the defendants’ alleged unlawful scheme to overcharge for prescription medications paid for by Medicaid. The plaintiffs allege that through promotional, discounting, and pricing practices, the defendants reported false and inflated average wholesale prices or wholesale acquisition costs and failed to report their best prices as required by federal and state rebate statutes resulting in the plaintiffs overpaying for certain medications. A motion to dismiss these actions was filed and remains pending. We intend to vigorously defend ourselves in these cases and against these allegations.

 

IPI, along with numerous other pharmaceutical companies, has received inquiries from and responded to requests for records and information from the Committee on Energy and Commerce of the United States House of Representatives in connection with the Committee’s investigation into certain industry and IPI practices regarding average wholesale price. IPI has also received correspondence from the States of Nevada, Kentucky, Florida and Illinois on behalf of itself and 8 other states indicating that the Office of the Attorney General (OAG) for these states are investigating allegations of purportedly improper pricing practices related to the average manufacturer price and best price calculations. We or our subsidiaries have not been named as a defendant in a suit filed by or on behalf or any state, but as a result of the investigation the OAG for the states have advised us that we are required to maintain all records related to the investigation. We are cooperating fully with these requests. The outcome of these investigations could include the imposition of substantial fines, penalties and injunctive or administrative remedies.

 

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United Kingdom Serious Fraud Office Investigation and Related Litigation

 

In April 2002, we received notice of an investigation by United Kingdom National Health Service officials concerning prices charged by generic drug companies, including Norton Healthcare Limited, trading as IVAX Pharmaceuticals UK, for penicillin-based antibiotics and warfarin sold in the United Kingdom from 1996 to 2000. This is an investigation by the Serious Fraud Office of the United Kingdom involving all pharmaceutical companies that sold these products in the United Kingdom during this period. According to statements by investigating agencies, this is a complex investigation expected to continue for some time and there is no indication from the agencies when or if charges will be made against any of these companies. We are cooperating fully with this investigation.

 

In December 2002, the Secretary of State for Health, on behalf of itself and others, filed a civil claim for damages and interest against Norton Healthcare, Norton Pharmaceuticals and other defendants alleging that certain of their actions adversely affected competition in the sale and supply of warfarin in the United Kingdom between 1996 and 2000. This claim seeks damages against all defendants in the approximate aggregate amount of 28.6 million Pounds Sterling (approximately $51.1 million at the December 31, 2003, currency exchange rate), plus interest and costs.

 

In December, 2003, the Secretary of State for Health, on behalf of itself and others, filed a civil claim for damages and interest against Norton Healthcare, Norton Pharmaceuticals and other defendants alleging that certain of their actions which adversely affected competition in the sale and supply of Penicillin in the United Kingdom between 1996 and 2000. This claim seeks damages against all defendants in the approximate amount of 30.5 million Pounds Sterling (approximately $54.5 million at the December 31, 2003, currency exchange rate), plus interest and costs.

 

On April 22, 2003, we received notice that we were named as a defendant along with approximately 25 other pharmaceutical manufacturers in a complaint filed in the US District Court for the Northern District of Texas by an individual who has filed the action purportedly in the name of the United States government, styled United States of America, ex. rel, Paul King v. Alcon Laboratories, Inc., et al. In this suit, the plaintiff seeks to recover damages from the defendants, including us, for allegedly defrauding and conspiring to defraud the United States government by having made sales of drugs to various federal governmental agencies or causing the United States government to reimburse individuals or entities for drug products that did not comply with Current Good Manufacturing Practices and other regulations and laws. The suit seeks the recovery of treble damages from us and the other defendants, jointly and severally, which plaintiff alleges exceeds thirty billion dollars, plus the recovery of attorneys’ fees, interest, civil penalties, costs, and other relief. On February 23, 2004, Plaintiff was granted leave to file a Second Amended Complaint, in response to which we intend to move to dismiss the action in its entirety. We intend to vigorously defend ourselves in this action and against these allegations.

 

On April 22, 2003, GenPharm, Inc. filed a complaint in the United States District Court for the District of Puerto Rico against ChemSource Corporation (currently API Industries, Inc., “API”) for damages and equitable relief, including declaratory relief and specific performance, arising out of API’s alleged breach of agreements and failure to supply GenPharm with an active pharmaceutical ingredient. The complaint also seeks the recovery of damages for API’s alleged negligence in failing to maintain production facilities in accordance with FDA standards. The plaintiff seeks to recover millions of dollars in damages, along with interest, costs and expenses, including attorneys’ fees and other fees and costs. The plaintiff also filed a motion for preliminary relief seeking the attachment of approximately 165,000 kilograms of the active pharmaceutical ingredient, which we vigorously opposed. API and Genpharm have agreed in principle to settle the litigation in its entirety, the details of which settlement are being finalized. The complaint has been tendered to the sellers of API for defense and indemnity based on the terms of the agreement by which API was sold to us, but the sellers have denied responsibility for the claim.

 

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Environmental Related Proceeding

 

On January 22, 2003, our subsidiary, API, received an Administrative Compliance Order issued by the United States Environmental Protection Agency dated January 2, 2003, alleging that API was not in compliance with certain conditions of the National Pollutant Discharge Elimination System Permit and certain pretreatment standards. The Order required that API submit particular certified documentation associated with achieving compliance with the given standards. The Order further required that API submit certified information concerning stormwater pollution control matters and costs. API filed its response to the Order and the EPA ordered the matter closed on August 30, 2003.

 

On April 4, 2003, API received an Order on Consent from The Puerto Rico Aqueduct and Sewer Authority (“PRASA”), which required that API follow a PRASA-approved compliance plan in order to achieve compliance with certain pretreatment standards. This Order also establishes interim limits applicable during the implementation of the compliance plan and attaches stipulated penalties for each day of non-compliance with the prescribed activities and reports schedule. On June 11, 2003, API submitted to PRASA certifications of compliance with two pretreatment standards identified in the Order on Consent. API negotiated with PRASA the final terms of the Order on Consent for the two remaining pretreatment standards, which was signed and finalized on June 30, 2003.

 

On April 28, 2003, API received an EPA issued Administrative Complaint dated April 15, 2003, which proposes that a civil penalty of approximately $19,000 be assessed against API for the alleged violation of certain conditions of its NPDES Multi-Sector General Permit. The complaint alleges that API failed to perform certain quarterly visual examinations and conduct an appropriate analysis of parameters during monitoring periods specified in the NPDES general permit. The complaint has been tendered to the sellers of API for defense and indemnity based on the terms of the agreement by which API was sold to us. API responded to the complaint and the parties agreed to settle the matter. A Final Consent Agreement and Final Order was signed by the EPA on November 23, 2003, and the settlement amount of $8,350 was paid by the sellers of API.

 

On July 16, 2003, API received an EPA letter requesting API to submit a revised Solid Waste Management Unit (SWMU) Plan, including additional sampling and investigation elements, concerning the alleged presence of isopropyl ether (IPE) in its facility. This matter was tendered to the sellers of API for indemnity based on the terms of the agreement by which API was sold to us, but sellers have denied responsibility for this claim. On November 7, 2003, API filed its response to the EPA’s July 16, 2003, letter and submitted a revised SWMU Plan to cooperate with the agency.

 

Other Litigation

 

We are involved in various other legal proceedings arising in the ordinary course of business, some of which involve substantial amounts. In order to obtain brand equivalent approvals prior to the expiration of patents on branded products, and to benefit from the exclusivity allowed to ANDA applicants that successfully challenge these patents, we frequently become involved in patent infringement litigation brought by branded pharmaceutical companies (see “Governmental Regulation”). Although these lawsuits involve products that are not yet marketed and therefore pose little or no risk of liability for damages, the legal fees and costs incurred in defending such litigation can be substantial. While it is not feasible to predict or determine the outcome or the total cost of these proceedings, in the opinion of management, based on a review with legal counsel, any losses resulting from such legal proceedings will not have a material adverse impact on our financial position or results of operations.

 

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We intend to vigorously defend each of the foregoing lawsuits, but their respective outcomes cannot be predicted. Any of such lawsuits, if determined adversely to us, could have a material adverse effect on our financial position and results of operations. Our ultimate liability with respect to any of the foregoing proceedings is not presently determinable.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

No matters were submitted to a vote of security holders during the quarter ended December 31, 2003.

 

Executive Officers of the Registrant

 

Set forth below are the names, ages, positions held and business experience during the past five years of our executive officers as of March 1, 2004. Officers serve at the discretion of the Board of Directors. There is no family relationship between any of the executive officers, and there is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected.

 

Thomas Beier

 

Thomas Beier, age 58, has served as our Senior Vice President - Finance and Chief Financial Officer since October 1997. From December 1996 to October 1997, he served as our Vice President - Finance. Prior to joining us, he served as Executive Vice President and Chief Financial Officer of Intercontinental Bank from 1989 until August 1996.

 

Rafick Henein, Ph.D.

 

Rafick Henein, age 63, has served as one of our Senior Vice Presidents and as the President and Chief Executive Officer of IVAX Pharmaceuticals, Inc., our principal United States-based brand equivalent pharmaceutical subsidiary, since July 1997. He held various positions in the Novopharm Limited organization (pharmaceuticals) since 1988, rising to the position of President and Chief Executive Officer of Novopharm International in 1996.

 

Neil Flanzraich

 

Neil Flanzraich, age 60, has served as our Vice Chairman and President since May 1998. He was a shareholder and served as Chairman of the Life Sciences Legal Practices Group of Heller Ehrman White & McAuliffe from 1995 to 1998. From 1981 to 1994, he served in various capacities at Syntex Corporation (pharmaceuticals), most recently as its Senior Vice President, General Counsel and a member of the Corporate Executive Committee. From 1994 to 1995, after Syntex Corporation was acquired by Roche Holding Ltd., he served as Senior Vice President and General Counsel of Syntex (U.S.A.) Inc., a Roche subsidiary. He is a director of IVAX Diagnostics, Inc. (diagnostic reagent kits), a subsidiary of ours, Continucare Corporation (health care) and RAE Systems, Inc. (gas detection and security monitoring systems).

 

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Phillip Frost, M.D.

 

Phillip Frost, age 67, has served as our Chairman of the Board of Directors and Chief Executive Officer since 1987. He served as our President from July 1991 until January 1995. He was the Chairman of the Department of Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami Beach, Florida from 1972 to 1990. Dr. Frost was Chairman of the Board of Directors of Key Pharmaceuticals, Inc. from 1972 to 1986. He is Chairman of the Board of Directors of IVAX Diagnostics, Inc. (diagnostic reagent kits), a subsidiary of ours. He is a director of Continucare Corporation (health care) and Northrop Grumman Corp. (aerospace). He is Chairman of the Board of Trustees of the University of Miami and a member of the Board of Governors of the American Stock Exchange.

 

Jane Hsiao, Ph.D.

 

Jane Hsiao, age 56, has served as our Vice Chairman-Technical Affairs since February 1995, as our Chief Technical Officer since July 1996, and as Chairman, Chief Executive Officer and President of DVM Pharmaceuticals, Inc., our veterinary products subsidiary, since March 1998. From 1992 until February 1995, she served as our Chief Regulatory Officer and Assistant to the Chairman, and as Vice President-Quality Assurance and Compliance of IVAX Research, Inc., our principal proprietary pharmaceutical subsidiary. From 1987 to 1992, Dr. Hsiao was Vice President-Quality Assurance, Quality Control and Regulatory Affairs of IVAX Research, Inc. She is a director of IVAX Diagnostics, Inc. (diagnostic reagent kits), a subsidiary of ours.

 

PART II

 

Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters

 

Our common stock is listed on the American Stock Exchange and is traded under the symbol “IVX” and on the London Stock Exchange under the symbol “IVX.L.” As of the close of business on February 28, 2004, there were approximately 3,832 holders of record of our common stock. The following table sets forth the high and low sales price of a share of our common stock for each quarter in 2003 and 2002 as reported by the American Stock Exchange:

 

2003


   High

   Low

First Quarter

   $ 13.65    $ 10.50

Second Quarter

     20.25      12.14

Third Quarter

     20.60      16.34

Fourth Quarter

     24.69      17.30

 

2002


   High

   Low

First Quarter

   $ 21.07    $ 15.40

Second Quarter

     15.90      10.53

Third Quarter

     14.49      10.05

Fourth Quarter

     13.59      10.84

 

We did not pay cash dividends on our common stock during 2002 or 2003 and we do not intend to pay any cash dividends in the foreseeable future.

 

Information regarding our stock option programs is set forth under page F-32 of this report.

 

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Item 6. Selected Financial Data

 

The following table sets forth selected historical financial data as of and for the years ended December 31, 2003, 2002, 2001, 2000 and 1999, that has been derived from, and is qualified by reference to, our audited consolidated financial statements. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes thereto included elsewhere in this report.

 

     Year Ended December 31,

 
     2003(1)

    2002

    2001(4)

    2000(5)

    1999

 
     (in thousands, except per share data)  

OPERATING DATA

                                        

Net revenues

   $ 1,420,339     $ 1,197,244     $ 1,215,377     $ 793,405     $ 656,482  

Cost of sales

     781,383       663,708       583,588       409,903       377,967  
    


 


 


 


 


Gross profit

     638,956       533,536       631,789       383,502       278,515  

Selling

     212,192       168,952       143,629       92,032       71,131  

General and administrative

     122,414       118,416       110,477       84,900       85,092  

Research and development

     108,347       76,041       88,015       65,331       53,403  

Amortization

     19,719       16,158       19,412       9,042       3,121  

Restructuring costs (reversal of accrual)

     3,706       4,242       2,367       (4,535 )     (612 )
    


 


 


 


 


Operating income

     172,578       149,727       267,889       136,732       66,380  

Interest income

     3,710       8,090       21,249       13,986       6,142  

Interest expense

     (43,608 )     (48,639 )     (41,791 )     (14,624 )     (5,556 )

Other income

     11,738       60,321       49,637       15,243       20,106  

Income taxes

     45,559       51,742       54,065       13,214       14,850  

Minority interest

     188       838       344       (608 )     (2,085 )
    


 


 


 


 


Income from continuing operations

     99,047       118,595       243,263       137,515       70,137  

Income from discontinued operations (2)

     22,204       —         —         —         585  

Cumulative effect of accounting change (3)

     —         4,161       —         (6,471 )     —    
    


 


 


 


 


Net income

   $ 121,251     $ 122,756     $ 243,263     $ 131,044     $ 70,722  
    


 


 


 


 


Basic earnings per common share:

                                        

Continuing operations

   $ 0.51     $ 0.61     $ 1.22     $ 0.70     $ 0.35  

Discontinued operations (2)

     0.11       —         —         —         —    

Cumulative effect of accounting change (3)

     —         0.02       —         (0.03 )     —    
    


 


 


 


 


Net earnings

   $ 0.62     $ 0.63     $ 1.22     $ 0.67     $ 0.35  
    


 


 


 


 


Diluted earnings per common share:

                                        

Continuing operations

   $ 0.50     $ 0.60     $ 1.19     $ 0.67     $ 0.34  

Discontinued operations (2)

     0.11       —         —         —         —    

Cumulative effect of accounting change (3)

     —         0.02       —         (0.03 )     —    
    


 


 


 


 


Net earnings

   $ 0.61     $ 0.62     $ 1.19     $ 0.64     $ 0.34  
    


 


 


 


 


Weighted average number of common shares outstanding:

                                        

Basic

     195,626       195,037       199,099       196,276       201,885  

Diluted

     198,900       197,378       204,639       204,058       205,501  

Cash dividends per common share

   $ —       $ —       $ —       $ —       $ —    

BALANCE SHEET DATA

                                        

Working capital

   $ 509,167     $ 447,154     $ 597,578     $ 438,490     $ 124,373  

Total assets

     2,372,934       2,047,759       2,105,449       1,068,186       634,514  

Total long-term debt, net of current portion

     855,335       872,339       913,486       253,755       93,473  

Shareholders’ equity

     962,311       684,863       718,354       484,120       292,371  

(1) Includes the post-acquisition results of companies acquired, primarily API Industries, Inc. on January 24, 2003, and a branded respiratory business in Europe on October 1, 2003.
(2) The discontinued operations in 2003 relates to a number of agreements, for certain patent and product rights and settlement of litigation related to a contingent sale price dispute from our 1997 sale of McGaw, Inc. to B. Braun Melsungen AG.
(3) The cumulative effect of a change in accounting principle relates to adoption of Statement of Financial Accounting Standards No. 142 in 2002 and Securities and Exchange Commission Staff Accounting Bulletin No. 101 in 2000.

 

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(4) Includes the post-acquisition results of companies acquired, primarily Laboratorio Chile S.A. on July 5, 2001, IVAX Scandinavia AB on March 13, 2001, and IVAX Pharmaceuticals Mexico, S.A. de C.V. on February 9, 2001, all of which were accounted for under the purchase method of accounting.
(5) Includes the post-acquisition results of companies acquired, IVAX Laboratories, Inc. on September 7, 2000, and Laboratorios Elmor, S.A. on June 19, 2000, both of which were accounted for under the purchase method of accounting.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Except for the historical information contained herein, the following discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. We discuss such risks, uncertainties and other factors throughout this report and specifically under the caption “Risk Factors” in Item 1 of this Form 10-K. In addition, the following discussion and analysis should be read in conjunction with the 2003 Consolidated Financial Statements and the related Notes to Consolidated Financial Statements included elsewhere in this report.

 

Our Business

 

We are a multinational company engaged in the research, development, manufacture and marketing of pharmaceutical products. We manufacture and/or market several brand name pharmaceutical products and a wide variety of brand equivalent and over-the-counter pharmaceutical products, primarily in the United States, Europe and Latin America. We also have subsidiaries located throughout the world, some of which are among the leading pharmaceutical companies in their markets.

 

Results of Operations

 

Year ended December 31, 2003 compared to the year ended December 31, 2002

 

Overview

 

We generated strong revenue growth in 2003 principally due to increased demand and higher prices in all regions. Our revenue growth was also driven by new product launches and the acquisition of businesses. The year ended December 31, 2003, was a year of investment in our future. We invested $43.2 million, an increase of 26%, more in sales and marketing than in 2002 and $32.3 million, an increase of 42%, more in research and development than in 2002. Despite these investments, our operating income increased by 15% from $149.7 million in 2002 to $172.6 million in 2003. We expect to continue to make significant investments in capital expenditures to increase our manufacturing capacity, in sales and marketing and in research and development.

 

On October 28, 2003, we received final approval and confirmation of our first to file status from the FDA on Metformin HCl Extended Release and on November 26, 2003, we reached agreement with Alpharma Inc. to share profits on an equal basis on all sales during the 180-day exclusivity period regarding this product. On February 19, 2004, we received final approval and confirmation of our first to file status on glyburide/metformin HCl tablets. Our 180-day exclusivity period will start to run when we launch the product. On March 10, 2004, we received approval from the European Commission for the extension of indication of the existing marketing authorization for Paxene® to include treatment of metastatic breast cancer and metastatic ovarian cancer in the 15 member states of the European Union.

 

As part of our ongoing business strategy, we enter into collaborative alliances, which allow us to exploit our drug discovery and development capabilities or provide us with intellectual property and technologies. Many of these alliances involve licenses to other companies relating to technologies or compounds under development and, in some cases, finished products. These licenses permit us to reduce our development costs and often involve the receipt of an up-front payment and fees upon completion of certain development milestones and also, generally, provide for royalties based on sales of the products. We have received significant payments in the past from these arrangements. We expect that milestone, developmental, royalty and other payments under existing and new collaboration and license agreements with other parties will continue to be an important part of our business. For example, we expect to receive a milestone payment of up to $26.0 million under a collaboration agreement, which will be recognized as other revenue in the first or second quarter of 2004, based on satisfaction of certain conditions. Our future net revenues and profits will depend and will fluctuate from period to period, in part, based upon our ability to replace or

 

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renew license fees, royalties and development service fees as the related agreements expire or are terminated. We expect that our future net revenues and profits will also depend upon:

 

  our ability to obtain and maintain FDA approval of our manufacturing facilities;

 

  our ability to maintain a pipeline of products in development;
  our ability to achieve the milestones specified in our license and development agreements;

 

  our ability to manufacture, obtain and maintain a sufficient supply of products to meet market demand, retain our customers and meet contractual deadlines and terms;

 

  our ability to develop and rapidly introduce new products and to introduce existing products into new territories;

 

  the timing of regulatory approval of such products;

 

  the availability and cost of raw materials required to manufacture such products;

 

  our ability to manufacture such products efficiently;

 

  the number and timing of regulatory approvals of competing products;

 

  the outcome and timing of legal proceedings, particularly those related to Hatch-Waxman exclusivity and patent infringement cases;

 

  our ability to forecast inventory levels and trends at our customers and their end-customers; and

 

  our and our competitors’ pricing and chargeback policies.

 

Net Revenues and Gross Profit

 

The composition of the change in net revenues by region is as follows (in millions):

 

     2003

    2002

   Change

    % Change

 

North America

   $ 650.6     $ 508.6    $ 142.0     28 %

Europe

     532.4       454.4      78.0     17 %

Latin America

     251.9       229.1      22.8     10 %

Corporate and other

     (14.6 )     5.1      (19.7 )   N.M. *
    


 

  


     

Total net revenues

   $ 1,420.3     $ 1,197.2    $ 223.1     19 %
    


 

  


     

* Not meaningful

 

The increase in North American net revenues was due to the impacts of price increases of $55.9 million (including the impact of the change in estimates discussed below) and volume increases of $94.3 million including the launch of new generic products, partially offset by a decrease in other revenues of $8.2 million, primarily product collaboration and development fees. North American subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $566.4 million in 2003 and $576.2 million in 2002.

 

The increase in European net revenues was primarily due to favorable effects of currency exchange rates of $55.1 million and the impact of volume increases of $56.2 million, partially offset by the impact of price decreases of $11.0 million and a decrease, net of currency effects, in other revenues of $22.3 million. The decrease in other revenues was primarily due to reduced product collaboration and development fees of $22.1 million and a decrease in various other revenues of $6.2 million, partially offset by a $6.0 million milestone payment received in the second quarter under a license and development agreement. European subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $41.1 million in 2003 and $51.2 million in 2002.

 

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The increase in Latin American net revenues was primarily due to the impacts of price increases of $18.3 million and volume increases of $26.2 million, partially offset by the unfavorable effects of currency devaluations of $21.4 million and a decrease, net of currency effects, in other revenues of $0.3 million. Latin American subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $36.3 million in 2003 and $33.8 million in 2002.

 

The composition of the change in our net revenues and gross profit is as follows (in millions):

 

     2003

    2002

    Change

   % Change

 

Net revenues

   $ 1,420.3     $ 1,197.2     $ 223.1    19 %

Cost of sales

     781.4       663.7       117.7    18 %
    


 


 

      

Gross profit

   $ 638.9     $ 533.5     $ 105.4    20 %
    


 


 

      

% of net revenues

     45.0 %     44.6 %             

 

As a result of our recent return, customer inventory experience, analysis of allowance for doubtful accounts and tax reserves, our estimates of product returns and other sales allowances, inventory obsolescence, allowance for doubtful accounts and income tax exposures decreased and, accordingly, we recognized increased net revenues, reduced cost of sales, reduced bad debt expense and reduced income tax provision during 2003. During the year ended December 31, 2003, these changes increased net revenues by $13.7 million, reduced cost of sales by $0.8 million, reduced bad debt expense by $3.7 million, reduced the income tax provision by $2.7 million, increased net income by $14.0 million and increased diluted earnings per share by $0.07.

 

Operating Expenses

 

The composition of the change in operating expenses is as follows (in millions):

 

     2003

    2002

    Change

    % Change

 

Selling

   $ 212.2     $ 169.0     $ 43.2     26 %

% of net revenues

     14.9 %     14.1 %              

General and administrative

     122.4       118.4       4.0     3 %

% of net revenues

     8.6 %     9.9 %              

Research and development

     108.3       76.0       32.3     43 %

% of net revenues

     7.6 %     6.4 %              

Amortization

     19.8       16.2       3.6     22 %

Restructuring

     3.7       4.2       (0.5 )   (13 )%
    


 


 


     

Total operating expenses

   $ 466.4     $ 383.8     $ 82.6     22 %
    


 


 


     

 

The increase in selling expenses was primarily attributable to higher expenses associated with the expansion of our United States proprietary respiratory sales force and an increase in the European sales force from the acquisition of a branded respiratory business on October 1, 2003.

 

The increase in general and administrative expenses is primarily attributable to general and administrative expenses from the operations of API Industries, Inc. (“API,” formerly ChemSource Corporation), which we acquired on January 24, 2003, and of the branded respiratory business in Europe, which was acquired on October 1, 2003, and a $1.5 million severance payment to an executive officer who retired during the year, partially offset by $5.4 million of net legal settlements we received during 2003 and changes in our allowance for doubtful accounts.

 

The increase in research and development expenses is primarily attributable to an increase in various research and development projects, bio-study costs and work force in North America and Europe. Our future level of research and development expenditures will depend on, among other things, the outcome of clinical testing of products under development, the timing and impact of patent challenges and litigation, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions, collaborative alliances and liquidity.

 

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During 2003, we incurred $3.7 million of restructuring costs in Europe and Chile, consisting primarily of employee termination benefits. During 2002, we incurred $4.2 million of restructuring costs, which were substantially paid out during the second quarter, at two subsidiaries, consisting primarily of employee termination benefits.

 

Other Income (Expense)

 

The composition of the change in other income (expense) is as follows (in millions):

 

     2003

    2002

    Change

    %
Change


 

Interest income

   $ 3.7     $ 8.1     $ (4.4 )   (54 )%

Interest expense

     (43.6 )     (48.6 )     5.0     (10 )%

Other income, net

     11.7       60.3       (48.6 )   (81 )%
    


 


 


     

Total other income (expense)

   $ (28.2 )   $ 19.8     $ (48.0 )   (242 )%
    


 


 


     

 

The decrease in interest income and interest expense compared to 2002 is primarily due to the early extinguishment of debt.

 

Other income, net decreased $48.6 million for the year ended December 31, 2003, compared to the prior year. During 2003, we realized gains of $2.3 million on the repurchase of subordinated notes compared to $17.3 million in 2002. We incurred $10.0 million of net foreign currency losses in 2003 compared to $1.1 million in 2002. During 2002, we realized a gain of $6.3 million on the sale of certain intangible assets in the Czech Republic. We earned $12.8 million in 2003 of royalty and other payments recorded as additional consideration for the 1997 sale of Elmiron® to ALZA Corporation compared to $35.2 million in 2002.

 

During the fourth quarter of 2002, we received $20.0 million in connection with certain amendments to the contract for the 1997 sale of Elmiron® with Ortho-McNeil Pharmaceutical, Inc. (“OMP”), a subsidiary of Johnson & Johnson, which acquired ALZA Corporation in 2002. We originally entered into an agreement to sell to ALZA Corporation certain rights in Elmiron® in 1997. This agreement provided, in part, for the payment of milestones and royalties on sales of Elmiron®. Upon acquisition of ALZA by OMP, representatives of OMP made it clear to us that they believed that the existing royalty structure, which provided for escalating royalties at certain sales levels, created a disincentive towards the continued growth of and their investment in the product. In order to address these issues, in exchange for minimum guaranteed royalties through 2006, we agreed to forego our rights to receive increased royalty payments upon sales of Elmiron® by OMP beyond certain sales levels and reduced the royalty rates we would receive at other sales levels. We also provided for the orderly transition of the manufacture of Elmiron® to OMP. As the $20.0 million payment was nonrefundable and since we have no other obligations under the agreement other than those related to the manufacture of Elmiron® on fair market terms, we determined that the $20.0 million up-front payment is the culmination of a separate earnings process and recorded the payment as additional proceeds from the 1997 sale of Elmiron® to OMP. We will continue to receive payments from OMP over the next several years based upon sales of Elmiron® by OMP.

 

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Income

 

The composition of the change in our income is as follows (in millions, except per share data):

 

     2003

   2002

   Change

    % Change

 

Income from continuing operations

   $ 99.1    $ 118.6    $ (19.5 )     (17 )%

Income from discontinued operations

     22.2      —        22.2          

Cumulative effect of accounting change

     —        4.2      (4.2 )        
    

  

  


       

Net income

   $ 121.3    $ 122.8    $ (1.5 )     (1 )%
    

  

  


       
     Basic

   Diluted

 
     2003

   2002

   2003

    2002

 

Earnings per common share:

                              

Continuing operations

   $ 0.51    $ 0.61    $ 0.50     $ 0.60  

Discontinued operations

     0.11      —        0.11       —    

Cumulative effect of accounting change

     —        0.02      —         0.02  
    

  

  


 


Net earnings

   $ 0.62    $ 0.63    $ 0.61     $ 0.62  
    

  

  


 


 

During the second quarter of 2003, we recorded income from discontinued operations in the amount of $22.2 million, net of tax of $12.8 million, or $0.11 per diluted share, resulting from a number of agreements, for certain patent and product rights and the settlement of litigation related to a contingent sale price dispute from our 1997 sale of McGaw, Inc. to B. Braun Melsungen AG. Under these agreements, we received $13.9 million of cash, net of related expenses incurred in 2003, and recorded a current tax payable of $5.1 million. In addition, the agreements provide for additional payments totaling $25.5 million due in five approximately equal annual installments, which were recorded as a receivable discounted at 4%. We also accrued $1.6 million of additional fees related to the settlement and a deferred tax liability of $7.7 million. As of January 1, 2002, we recorded a cumulative change in accounting principle credit in the amount of $4.2 million, or $0.02 per diluted share, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations.

 

Year ended December 31, 2002 compared to the year ended December 31, 2001

 

Net income for the year ended December 31, 2002, was $122.8 million, or $0.62 per diluted share, compared to $243.3 million, or $1.19 per diluted share, in 2001. Income from continuing operations was $118.6 million, or $0.60 per diluted share, for the year ended December 31, 2002, compared to $243.3 million, or $1.19 per diluted share, in 2001. As of January 1, 2002, we recorded a cumulative change in accounting principle credit in the amount of $4.2 million, or $0.02 per diluted share, in accordance with SFAS No. 141, Business Combinations.

 

Net Revenues and Gross Profit

 

Net revenues for the year ended December 31, 2002, totaled $1.2 billion consistent with the $1.2 billion reported in 2001. The net revenues decrease in North American subsidiaries was offset by increases from European subsidiaries, Latin American subsidiaries and other operations. As a result of exchange rate differences, net revenues decreased by $45.2 million in 2002 as compared to 2001.

 

North American subsidiaries generated net revenues of $508.6 million in 2002 compared to $595.0 million in 2001. The $86.4 million, or 15%, decrease in net revenues was primarily attributable to decreased volume and lower prices of our paclitaxel product and higher sales returns and allowances, partially offset by increased volume and prices of certain other brand equivalent pharmaceutical products, increased sales of proprietary respiratory products and the receipt of increased product development fees. North American subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $576.2 million in 2002 and $370.0 million in 2001. The increase of $206.2 million, or 56%, was primarily due to price changes on certain brand equivalent pharmaceutical products and changes in sales volume and product mix.

 

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European subsidiaries generated net revenues of $454.4 million in 2002 compared to $419.1 million in 2001. The $35.3 million, or 8%, increase in net revenues was primarily due to higher sales volumes and favorable effects of currency exchange rates and $5.8 million of other revenues from a previously deferred up-front payment received under a license agreement that was terminated during the third quarter of 2002, partially offset by reduced product development fees and lower prices for certain brand equivalent products. European subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $51.2 million in 2002 and $34.7 million in 2001. The increase of $16.5 million, or 47%, was primarily due to reduced prices on certain brand equivalent pharmaceutical products and increased financial discounts.

 

Latin American subsidiaries generated net revenues of $229.1 million in 2002 compared to $224.1 million in 2001. The $5.0 million, or 2%, increase was primarily due to revenue generated by Laboratorio Chile S.A. (“Lab Chile”), which we acquired on July 5, 2001, partially offset by unfavorable effects of currency exchange rates. Latin American subsidiaries recorded provisions for sales returns and allowances that reduced gross sales by $33.8 million in 2002 and $25.7 million in 2001. The increase of $8.1 million, or 32%, was primarily due to the inclusion of the operations of Lab Chile for the full year in 2002 as compared to only a partial period in 2001.

 

Gross profit for the year ended December 31, 2002, decreased $98.3 million, or 16%, to $533.5 million (44.6% of net revenues) from $631.8 million (52.0% of net revenues) in 2001. The decrease in gross profit percentage was primarily attributable to reduced volume and pricing of our paclitaxel product. We continued to experience increased competition for paclitaxel as well as our brand equivalent albuterol products and the resulting pricing and volume pressures had negatively impacted our revenues and gross profits. Our results for 2002 were also adversely impacted by significant currency devaluations in Argentina and Venezuela, reductions in government purchases of our products in Mexico and continued pricing pressures in the United States and the United Kingdom. Revenues from the sale of our paclitaxel product did not contribute significantly to our revenues and gross profits during 2002 and, because of the continuing price erosion and competition, are not likely to contribute significantly in the near future to our North American results.

 

Operating Expenses

 

Selling expenses increased $25.3 million, or 18%, to $169.0 million (14% of net revenues) in 2002 compared to $143.6 million (12% of net revenues) in 2001. The increase was due to higher expenses associated with the operations of Lab Chile, which we acquired on July 5, 2001, and IVAX Pharmaceuticals Mexico, S.A. de C.V. (“IVAX Mexico”), which we acquired on February 9, 2001, and increased sales and promotional expenses at IVAX Laboratories, Inc. (“Laboratories”), our United States proprietary respiratory subsidiary, and our European subsidiaries, partially offset by reduced sales and promotional expenses at Elvetium Argentina, which merged into IVAX Argentina, S.A. during 2002, and favorable effects of foreign currency rates.

 

General and administrative expenses increased $7.9 million, or 7%, to $118.4 million (10% of net revenues) in 2002 compared to $110.5 million (9% of net revenues) in 2001. The increase was primarily attributable to additional general and administrative expenses from the operations of Lab Chile and IVAX Mexico and increased expenses at Laboratories and our European subsidiaries, partially offset by reduced expenses at Elvetium Argentina, favorable effects of foreign currency rates and lower professional fees at our corporate level. In June 2002, we received $2.2 million in partial settlement of a vitamin price-fixing class action lawsuit. In addition, we paid $2.1 million to settle the Louisiana Wholesale Drug Co. v. Abbott Laboratories and Valley Drug Co. v. Abbott Laboratories et al. cases.

 

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Research and development expenses decreased $12.0 million, or 14%, to a total of $76.0 million (6% of net revenues) in 2002 compared to $88.0 million (7% of net revenues) in 2001. The decrease was primarily due to lower legal fees paid during 2002 related to patent challenges. Our future level of research and development expenditures will depend on, among other things, the outcome of clinical testing of products under development, delays or changes in government required testing and approval procedures, technological and competitive developments, strategic marketing decisions, collaborative alliances and liquidity.

 

During 2002, we incurred $4.2 million of restructuring costs, which were substantially paid out during the second quarter, at two subsidiaries, consisting primarily of employee termination benefits.

 

Other Income (Expense)

 

During 2002, interest income decreased $13.2 million and interest expense increased $6.8 million compared to 2001 primarily due to the cash purchases of Lab Chile on July 5, 2001, and Nasarel® and Nasalide® on October 16, 2001, and the issuance of $725.0 million of 4.5% Convertible Senior Subordinated Notes in 2001.

 

Other income, net increased $10.7 million for the year ended December 31, 2002, compared to the prior year. During 2002, we realized gains of $17.3 million on the repurchase of subordinated notes compared to $11.3 million in 2001. We incurred $1.1 million of net foreign currency losses in 2002 compared to net foreign currency gains of $2.7 million in 2001. During 2002, we realized a gain of $6.3 million on the sale of certain intangible assets in the Czech Republic. During 2001, we recorded a gain of $10.3 million on the partial sale of IVAX Diagnostics, Inc. (“IVAX Diagnostics”) in connection with IVAX Diagnostics’ March 2001 merger with b2bstores.com. During 2001, we recorded a gain of $21.7 million on derivative contracts due to the devaluation of the Argentine peso, partially offset by a $19.0 million loss on bank debt and other liabilities denominated in currencies foreign to the Argentine operations. During 2002, we earned $35.2 million of royalty and other payments compared to $13.8 million in 2001, which are recorded as additional consideration under the contract for the 1997 sale of Elmiron® with OMP.

 

Recently Issued Accounting Standards

 

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal operation of a long-lived asset, except for certain obligations of lessees. It requires that the fair value of an asset retirement obligation be recognized as a liability in the period in which it is incurred if a reasonable estimate can be made and that the associated retirement costs be capitalized as part of the carrying amount of the long-lived asset. It is effective for fiscal years beginning after June 15, 2002. The impact of adoption of this statement was not significant.

 

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and certain provisions of APB No. 30, Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. It also amends Accounting Research Bulletin No. 51, Consolidated Financial Statements. It establishes a single accounting model for the accounting for a segment of a business accounted for as a discontinued operation that was not addressed by SFAS No. 121 and resolves other implementation issues related to SFAS No. 121. It is effective for fiscal periods beginning after December 15, 2001. The impact of adoption of this statement was not significant.

 

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Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. Intangible assets that have indefinite lives and goodwill are no longer amortized. This increased net income by approximately $1.8 million per quarter, or $7.0 million per year. The life of one product intangible asset with a net book value of $6.5 million as of January 1, 2002, was extended based on a review of the expected remaining estimated useful life. During 2002, intangible assets with indefinite lives were tested for impairment resulting in the write-down of one intangible asset by $0.2 million. The initial test for impairment of goodwill as of January 1, 2002, was completed during the second quarter of 2002 and no impairments were indicated. During 2003, impairment testing of goodwill and intangible assets with indefinite lives was performed and no impairments were indicated.

 

During the second quarter of 2002, we elected to early adopt SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The impact of adoption was the reclassification into income from continuing operations of an extraordinary gain from the early retirement of subordinated notes of $7.1 million, net of taxes of $4.2 million, during the third quarter of 2001, an extraordinary gain of $3.4 million, net of taxes of $2.0 million, during the first quarter of 2002 and an extraordinary gain of $2.7 million, net of taxes of $1.5 million, during the second quarter of 2002.

 

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). It requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred (rather than when the exit or disposal decision is made). It also establishes fair value as the objective for the initial measurement of the liability. It is effective for fiscal years beginning after December 31, 2002. The impact of adoption of this statement was not significant.

 

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangement with Multiple Deliverables, which is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. It addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities and how arrangement considerations should be measured and allocated to the separate units of accounting in the arrangement. Reclassification of prior period amounts was required. The impact of adoption was not significant.

 

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities an interpretation of ARB No. 51, which addresses consolidation by business enterprises of variable interest entities (“VIE’s”). During December 2003, the FASB revised FASB Interpretation No. 46, deferring the effective date of application for public companies to the first reporting period ending after March 15, 2004, except for disclosure requirements and VIE’s that are special purpose entities. As part of the acquisition of Lab Chile, we acquired a note receivable secured by an option to acquire all of the outstanding shares of common stock of a company that owns 50.1% of a Latin American pharmacy chain, which had net revenues of $42.2 million during the year ended December 31, 2003. As a result of the adoption of the interpretation, we may be required to consolidate the pharmacy chain as of March 31, 2004. We expect that our maximum exposure to loss is the recorded value of the note receivable, which was $1.7 million at December 31, 2003.

 

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which amends and clarifies accounting for derivative instruments under SFAS No. 133. It is effective for contracts entered into after June 30, 2003. The impact of adoption of this statement was not significant.

 

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In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liability and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The impact of adoption of this statement was not significant.

 

In December 2003, the FASB issued SFAS No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits – an amendment of FASB Statements No. 87, 88 and 106 (revised 2003), that revised employers’ disclosures about pension plans and other postretirement benefits plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, 88 and 106. This statement retains the disclosure requirements in the original SFAS No. 132 and requires additional information on changes in the benefits obligations and fair values of plan assets. It requires additional disclosures including information describing the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. It is effective for financial statements with fiscal years ending after December 15, 2003. The interim period disclosure requirements are effective for interim periods beginning after December 15, 2003. Disclosure information about foreign plans required by paragraphs 5(d), 5(e), 5(g), and 5(k) of this statement is effective for fiscal years ending after June 15, 2004. The impact of adoption of this statement was not significant.

 

In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, which revises the existing revenue recognition SAB in Topic 13, Revenue Recognition, in order for the interpretive guidance to be consistent with current accounting guidance, primarily EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. The impact of adoption was not significant.

 

Liquidity and Capital Resources

 

At December 31, 2003, working capital was $509.2 million compared to $447.1 million at December 31, 2002, and $597.6 million at December 31, 2001. Cash and cash equivalents were $146.9 million at December 31, 2003, compared to $155.4 million at December 31, 2002, and $178.3 million at December 31, 2001. Short-term marketable securities were $10.5 million at December 31, 2003, compared to $28.9 million at December 31, 2002, and $154.8 million at December 31, 2001.

 

Net cash of $82.6 million was provided by operating activities during 2003 compared to $151.1 million in 2002 and $199.0 million in 2001. The decrease in cash provided by operating activities during 2003 was primarily due to an increase in inventory from managements’ desire to maintain higher levels of inventory and accounts receivable from increased sales and a decrease in income from continuing operations and payments of accounts payable. The decrease in cash provided by operating activities during 2002 was primarily the result of reduced operating earnings and increases in inventories, partially offset by increased collections of accounts receivable.

 

Net cash of $75.7 million was used for investing activities during 2003 compared to $28.3 million provided by investing activities in 2002 and $705.3 million used for investing activities in 2001. During the fourth quarter of 2002, we received $20.0 million in connection with certain amendments to the contract for the 1997 sale of Elmiron® with OMP. We will continue to receive payments from OMP over the next several years based upon sales of Elmiron® by OMP, with specified minimum royalty payments

 

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due for the period 2003 through 2006. During 2003, our capital expenditures were $95.4 million compared to $98.7 million in 2002 and $73.5 million in 2001. The increase in 2002 as compared to 2001 was due to improvement and expansion of certain facilities. During 2003, we received $2.0 million in proceeds from the sale of assets as compared to $1.6 million in 2002 and $41.7 million in 2001. During 2003, we spent $7.8 million to acquire intangible assets as compared to $38.3 million in 2002 and $133.9 million in 2001. During 2003, $23.5 million was used to acquire businesses and increase our ownership interest in affiliates as compared to no activity in 2002 and $480.2 million spent in 2001. During 2003, we received $27.2 million in net proceeds from the sale of marketable securities as compared to $128.6 million received in 2002 and $73.2 million used for the purchase of marketable securities in 2001. During December 2002, we purchased for $2.2 million the remaining outstanding minority interest shares of IVAX Pharmaceuticals s.r.o., our subsidiary in the Czech Republic.

 

During the second quarter of 2003, we recorded income from discontinued operations in the amount of $22.2 million, net of tax of $12.8 million, resulting from a number of agreements, for certain patent and product rights and the settlement of litigation related to a contingent sale price dispute from our 1997 sale of McGaw, Inc. to B. Braun Melsungen AG. Under these agreements, we received $13.9 million of cash, net of related expenses incurred in 2003, and recorded a current tax payable of $5.1 million. In addition, the agreements provide for additional payments totaling $25.5 million due in five approximately equal annual installments, which were recorded as a receivable discounted at 4%. We also accrued $1.6 million of additional fees related to the settlement and a deferred tax liability of $7.7 million.

 

On January 24, 2003, we acquired API in Puerto Rico from Chemo Iberica S.A. and Quimica Sintetica S.A. for 1.0 million shares of our common stock, valued at $12.4 million, and $0.1 million in cash. API develops, manufactures and sells active pharmaceutical ingredients for various pharmaceutical products, including many products that we sell or have under development. We acquired API to further our objective of complementing existing businesses and to provide new products and marketing opportunities.

 

On May 27, 2003, we entered into an agreement to acquire Advanced Tobacco Products, Inc. (“ATP”), for 0.2 million shares of our common stock, valued at $4.1 million. During the third quarter of 2003, the transaction to acquire ATP was approved by the shareholders of ATP and the transaction was completed. ATP is an inhalation technology company that developed a patent for nicotine impermeable copolymer technology marketed for smoking cessation, that it sold to Pharmacia in 1987. ATP receives payments from Pharmacia on the sales of those products. ATP also has an exclusive license to certain dry powder inhaler technology from Duke University. We acquired ATP because of the complementary nature of ATP’s technology to our product line and because of the anticipated payments from sales of Pharmacia’s products incorporating the patented nicotine technology sold by ATP to Pharmacia.

 

On October 1, 2003, we completed an agreement with 3M Pharmaceutical Division, 3M Innovative Properties Company and Riker Laboratories, Inc., to acquire exclusive rights to branded respiratory products, together with related marketing and sales people in nine European countries: United Kingdom, Ireland, France, Germany, Netherlands, Finland, Norway, Denmark and Sweden. The agreement covers the products QVAR® (CFC-free beclomethasone dipropionate), Airomir® (CFC-free salbutamol, known in the United States as albuterol) in Autohaler® and MDI devices, and over 200 professionals to market and sell these products. The total consideration due from us under the agreement, including minimum annual royalty payments, is $77.0 million, of which we paid $26.0 million on closing, $24.0 million is due on the first and second anniversaries of the closing date and $3.0 million is due on the third anniversary. We are also required to make additional royalty payments on achieving certain annual sales levels up to a maximum of $1.3 million per year, or $6.6 million in total.

 

Net cash of $29.5 million was used by financing activities during 2003 compared to $179.3 million used in 2002 and $492.9 million provided by financing activities in 2001. During 2003, we made

 

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$28.6 million of new borrowings, repaid $41.9 million of long-term debt, repurchased $28.3 million of our convertible debentures for $25.4 million, and reduced our repurchases of common stock by $50.4 million compared to 2002.

 

On April 22, 2002, we acquired an exclusive United States license to the patent rights to market QVAR® (beclomethasone dipropionate HFA), an aerosol inhaler prescribed to treat asthma. In addition, we have an option to obtain ownership of the United States QVAR® trademark, as well as related patents and the New Drug Application on April 21, 2007. The total consideration due from us under the contract, including options and extensions, is $105.0 million, of which $21.0 million was paid on the effective date and $20.0 million was paid on the first anniversary. We are entitled to reduce the purchase price by $4.0 million for required pediatric trials. The remaining payments due from us are: $30.0 million on the second anniversary, $25.0 million on the third anniversary and $5.0 million on the fifth anniversary upon exercise of the option, subject to reimbursement of all or a portion of the $4.0 million in the event we do not continue the pediatric trials.

 

On August 22, 2003, we executed a mortgage note and borrowed $15.0 million from a financial institution. The note matures on August 21, 2008, and bears interest at an annual rate of 4.3% through August 21, 2005. Thereafter, through the maturity date, the interest rate is adjusted annually based on a variable rate of twenty-five basis points over the prime rate. The note requires monthly principal payments of $0.04 million plus interest, with a balloon payment of $12.9 million due August 21, 2008. The mortgage covers the land and building at our corporate headquarters in Miami.

 

Between August 2000 and March 2002, our Board of Directors increased its authorization of share repurchases under the share repurchase program by 22.5 million shares. We repurchased (including shares repurchased via the physical settlement method disclosed below) 0.7 million shares of our common stock in 2003 at a total cost, including commissions, of $9.0 million, 3.9 million shares in 2002 for $59.4 million and 6.8 million shares in 2001 for $155.1 million. At December 31, 2003, we had the authority to purchase a remaining 13.2 million shares of our common stock or a like-valued amount of our convertible debentures under the March 2002 authorization. During 2001, in connection with our share repurchase program, we received $4.7 million in premiums on the issuance of eight freestanding put options for 1.9 million shares of our common stock, which was credited to “Capital in excess of par value,” of which one put option for 0.2 million shares expired unexercised prior to December 31, 2001. We also received $0.2 million upon renewal/rollforward of three put options for 0.9 million shares into two put options for 0.9 million shares. Five put options for 1.6 million shares were exercised by the holders at strike prices ranging from $27.68 to $31.50 during 2001. We elected the physical settlement method upon exercise of one put option for 0.3 million shares and paid $7.8 million in exchange for the underlying shares. We elected the net share settlement method upon exercise of the remaining four put options for 1.4 million shares and issued 0.3 million shares of our common stock in settlement of the obligation. In the event the put options were exercised, we had the right to elect to settle by one of three methods: physical settlement by payment in exchange for our shares, net cash settlement or net share settlement. During 2002, five put options were exercised for 1.2 million shares by the holders at strike prices ranging from $19.00 to $32.28. We elected the physical settlement method upon the exercise of two put options for 0.5 million shares and paid $12.7 million in exchange for the underlying shares. We elected the net share settlement method for the exercises of the remaining three put options for 0.7 million shares and issued 1.0 million shares of our common stock in settlement of the obligation.

 

On March 3, 2004, we issued $400.0 million of our 1.5% Convertible Senior Notes due 2024. Under certain circumstances, the 1.5% Notes are convertible, unless previously redeemed, into 33.4874 shares of our common stock per $1,000 of principal amount of the 1.5% Notes. This ratio results in a conversion price of approximately $29.86 per share. We may redeem the 1.5% Notes on or after March 1, 2011. Beginning with the six-month period commencing on March 1, 2011, we will pay contingent interest on the 1.5% Notes during a six-month interest period if the average trading price of the 1.5% Notes is above a specified level. In addition, holders of the 1.5% Notes may require us to repurchase the notes on each of March 1, 2011, 2014, and 2019 and upon certain events.

 

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Net proceeds from the offering of the 1.5% Notes of approximately $390.5 million are expected to be used to redeem our outstanding 5.5% Convertible Senior Subordinated Notes and for general corporate purposes, including potential acquisitions of, and investments in, products, technologies and companies, capital expenditures and working capital. At December 31, 2003, we had approximately $249.0 million of our 5.5% Notes outstanding. The 5.5% Notes are, unless previously redeemed, convertible into 33.6 shares of our common stock per $1,000 principal amount. In the event the 5.5% Notes are redeemed between May 16, 2004 and May 16, 2005, we expect that approximately $254.9 million in cash will be used to redeem the notes, and that a one-time financial charge of approximately $8.6 million will be incurred in connection with the redemption.

 

We plan to spend between $120 million and $140 million in 2004 to continue the research and development of pharmaceutical products. Research and development expenses may fluctuate from quarter to quarter and from year to year based on the timing of clinical studies, regulatory filings and litigation. Accordingly, we cannot assure that our level of research and development spending will be at these levels. In addition, we plan to spend between $100 million and $120 million in 2004 to improve and expand our pharmaceutical and other related facilities.

 

Contractual Obligations

 

Additional long-term cash obligations are presented, by period due, in tabular format below (in thousands):

 

Obligation


   Total

   Due in Less
Than 1
Year


  

Due in

1-3  Years


  

Due in

4-5 Years


  

Due
After

5 Years


Long-term debt

   $ 913,942    $ 58,608    $ 54,739    $ 799,195    $ 1,400

Loans payable

     17,804      17,804      —        —        —  

Capital lease obligations

     3,478      1,908      1,570      —        —  

Operating leases

     19,856      6,183      5,847      3,041      4,785

Unconditional purchase obligations

     442      442      —        —        —  

Other long-term obligations

     27,660      2,372      15,744      3,739      5,805
    

  

  

  

  

Total cash obligations

   $ 983,182    $ 87,317    $ 77,900    $ 805,975    $ 11,990
    

  

  

  

  

 

Our principal sources of short-term liquidity are existing cash and internally generated funds, which we believe will be sufficient to meet our operating needs and anticipated capital expenditures over the short term. For the long term, we intend to principally utilize internally generated funds, which are anticipated to be derived primarily from the sale of existing pharmaceutical products, pharmaceutical products currently under development and pharmaceutical products we license or acquire. There can be no assurance that we will successfully complete products under development, that we will be able to obtain regulatory approval for any such products, or that any approved product will be produced in commercial quantities, at reasonable costs, and be successfully marketed or that we will acquire any such products. We may consider issuing debt or equity securities in the future to fund potential acquisitions and growth.

 

We filed a shelf registration statement on Form S-4, which was declared effective in March 2001, registering up to a total of 18.8 million shares of common stock that can be issued in connection with the acquisition of businesses, assets or securities. During 2003, we issued an aggregate of 1.0 million shares under the shelf registration statement in connection with the acquisition of API. In conjunction with the availability under our previous shelf registration statement on Form S-4, as of the date of this report, we have the ability to issue up to 39.3 million shares of our common stock under our shelf registration statements in connection with the acquisition of businesses, assets or securities.

 

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We filed a universal shelf registration statement on Form S-3, which was declared effective in March 2001, registering the sale of up to $400.0 million of any combination of debt securities or common stock. During 2001, we issued an aggregate of 0.3 million shares under the universal shelf registration statement in connection with the net settlement of the put options discussed above. Under this registration statement, as of the date of this report, we have the ability to issue any combination of debt securities or common stock in an aggregate amount of $382.5 million.

 

Income Taxes

 

We recognized a $45.6 million tax provision for 2003 compared to $51.7 million in 2002 and $54.1 million in 2001. Our effective tax rate was 32% for 2003, 31% for 2002 and 18% for 2001. In 2003 and 2002, the effective tax rate was less than the statutory rate primarily due to low tax rates applicable to our Puerto Rico and Waterford, Ireland manufacturing operations and our Swiss and Chilean operations. In 2001, the effective tax rate was lower than the United States statutory income tax rate, principally due to net operating loss and tax credit carryforwards and tax incentives in certain jurisdictions where our manufacturing facilities are located. The domestic current provision was favorably impacted by $29.6 million during 2001 from utilization of previously reserved net operating loss and tax credit carryforwards. The 2001 domestic current provision was also favorably impacted by the non-taxable gain on the partial sale of IVAX Diagnostics. Payment of the current tax provision will be reduced by $1.9 million for our domestic operations and $2.3 million for our foreign operations for the year ended December 31, 2003, were reduced by $1.4 million for our domestic operations and $0.4 million for our foreign operations for the year ended December 31, 2002, and were reduced by $8.0 million for our domestic operations and $2.6 million for our foreign operations for the year ended December 31, 2001, representing the incremental impact of compensation expense deductions associated with non-qualified stock option exercises during those years. In addition, during 2001 we recorded $7.4 million of tax effect of prior years’ stock option exercises. These amounts were credited to “Capital in excess of par value” in the accompanying consolidated balance sheet. We recognized $20.0 million in 2001 of United States taxable income on the intercompany assignment of a contract. For financial reporting purposes this transaction was eliminated in consolidation.

 

Valuation allowances previously recorded against the foreign and domestic net deferred tax assets of $2.6 million in 2003, $3.6 million in 2002 and $11.2 million in 2001 were reversed due to management’s expectation of increased domestic taxable income in the coming year. The domestic net deferred tax asset was $79.2 million at December 31, 2003, and $108.7 million at December 31, 2002, and the aggregate net deferred tax asset in foreign countries was $14.9 million at December 31, 2003, and $7.5 million at December 31, 2002. As of December 2003 and 2002, the domestic deferred tax asset was not reserved. As of December 31, 2003, the aggregate foreign net deferred tax asset was approximately 66% reserved. Realization of the net deferred tax assets is dependent upon generating sufficient future domestic and foreign taxable income. Although realization is not assured, management believes it is more likely than not that the net deferred tax assets will be realized. Our estimates of future taxable income are subject to revision due to, among other things, regulatory and competitive factors affecting the pharmaceutical industries in the markets in which we operate.

 

Our future effective tax rate will depend on the mix between foreign and domestic taxable income or losses and the statutory tax rates of the related tax jurisdictions. The mix between our foreign and domestic taxable income may be significantly affected by the jurisdiction in which new products are developed and manufactured.

 

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Income from IVAX Pharmaceuticals’ Puerto Rico manufacturing operations is subject to certain tax exemptions under the terms of a grant from the Puerto Rican government, which will expire on January 1, 2021. The grant reduced tax expense by approximately $6.2 million in 2003, $3.5 million in 2002 and $4.5 million in 2001. Under the terms of the grant, IVAX Pharmaceuticals is required to maintain certain employment levels. We have historically received a United States tax credit under Section 936 of the Internal Revenue Code for certain income generated by our Puerto Rico and Virgin Islands operations. These credits were approximately $6.1 million in 2003, $3.9 million for 2002 and $6.3 million for 2001 and offset the United States tax liability of such operations. In 2002, the Section 936 tax credit began to be phased out over four years.

 

Risk of Product Liability Claims

 

Testing, manufacturing and marketing pharmaceutical products subject us to the risk of product liability claims. We are a defendant in a number of product liability cases, none of which we believe will have a material adverse effect on our business, results of operations or financial condition. We believe that we maintain an adequate amount of product liability insurance, but there can be no assurance that our insurance will cover all existing and future claims or that we will be able to maintain existing coverage or obtain additional coverage at reasonable rates. There can be no assurance that claims arising under any pending or future product liability cases, whether or not covered by insurance, will not have a material adverse effect on our business, results of operations or financial condition (See Note 14, Commitments and Contingencies, in the Notes to Consolidated Financial Statements).

 

Critical Accounting Policies

 

The consolidated financial statements include the accounts of IVAX Corporation and all majority-owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. We periodically evaluate estimates and assumptions used in the preparation of the financial statements and make changes on a prospective basis when adjustments are necessary. Significant estimates include amounts for accounts receivable exposures, deferred tax asset allowances, inventory reserves, environmental reserves, litigation and sales returns and allowances, including, but not limited to, chargebacks, rebates, returns and shelf-stock adjustments, and the useful lives of intangible assets. As a result of our recent return, customer inventory experience, analysis of allowance for doubtful accounts and tax reserves, our estimates of product returns and other sales allowances, inventory obsolescence, allowance for doubtful accounts and income tax exposures decreased and, accordingly, we recognized increased net revenues, reduced cost of sales, reduced bad debt expense and reduced income tax provision during 2003. During the year ended December 31, 2003, these changes increased net revenues by $13.7 million, reduced cost of sales by $0.8 million, reduced bad debt expense by $3.7 million, reduced the income tax provision by $2.7 million, increased net income by $14.0 million and increased diluted earnings per share by $0.07.

 

Revenue Recognition, Sales Returns and Allowances – Revenues and the related cost of sales are recognized at the time title to our products and the risks and rewards of ownership passes to our customers. Our pharmaceutical revenues are affected by the level of provisions for estimated returns, inventory credits, discounts, promotional allowances, rebates, chargebacks, reimbursements relating to Medicaid and Medicare and other allowances. The custom in the United States pharmaceutical industry is

 

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generally to grant customers the right to return purchased goods. In the generic pharmaceutical industry, this custom has resulted in a practice of suppliers issuing inventory credits (also known as shelf-stock adjustments) to customers based on the customers’ existing inventory following decreases in the market price of the related generic pharmaceutical product. We have contractual agreements with many of our customers, which require that we grant these customers inventory credit following a price decrease. In other cases, the determination to grant a credit to a customer following a price decrease is at our discretion. These credits allow customers with established inventories to compete with those buying product at the current market price, and allow us to maintain shelf space, market share and customer loyalty.

 

Provisions for estimated returns, inventory credits and chargebacks, as well as other sales allowances, are established by us concurrently with the recognition of revenue. The provisions are established in accordance with accounting principles generally accepted in the United States based upon consideration of a variety of factors, including actual return and inventory credit experience for products during the past several years, the number and timing of regulatory approvals for the product by our competitors (both historical and projected), the market for the product, expected sell-through levels by our wholesale customers to customers with contractual pricing arrangements with us, estimated customer inventory levels and projected economic conditions. Actual product returns and inventory credits incurred are, however, dependent upon future events, including remaining shelf-life and price competition and the level of customer inventories at the time of any price decreases. We continually monitor the factors that influence the pricing of our products and customer inventory levels and make adjustments to these provisions when we believe that actual product returns, inventory credits and other allowances may differ from established reserves.

 

Royalty and license fee income are recognized when obligations associated with earning the royalty or licensing fee have been satisfied and are included in “Net revenues” in the accompanying consolidated statements of operations. In accordance with EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, our accounting policy is to review each contract to determine if there are multiple revenue-generating activities that constitute more than one unit of accounting. Revenue is recognized for each unit of accounting based on revenue recognition criteria relevant to that unit. Up-front payments are deferred, if appropriate, and recognized into revenues over the obligation period.

 

Gain on Sale of Product Rights – During 1997, we entered into an agreement to sell to OMP certain rights in Elmiron®. The agreement required an up-front payment, as well as milestones and royalties on sales of Elmiron®. A portion of the up-front and milestone payments that we have received and included in other income in prior years, $34.0 million as of January 1, 2004, is refundable through December 31, 2004, and then ratably decreases through 2009, if our patent rights are found to be invalid and a brand equivalent of Elmiron® is introduced by another company.

 

We believe that the probability of occurrence of our patent rights being found invalid and a brand equivalent of Elmiron® being introduced by another company is remote, because substantially all agreements for the sale and licensing of a product contain representations and warranties by the seller that the underlying patent is valid. Elmiron® possesses strong patent protection and exclusive use legal protections and Elmiron®’s current and expected future market size makes it uneconomical for another company to incur the substantial cost to develop a generic equivalent, perform the long FDA clinical trials and litigate with OMP and us to obtain generic status. If the patent were to be challenged, then we, as the owner of the patent rights, would be entitled to a 30-month statutory delay, during which we would maintain exclusive right to sell Elmiron®. The active ingredient for Elmiron® is manufactured by only one source in the world and is subject to a “know-how” license held by us and because of the unique aspects of Elmiron®, we believe that there is no reliable means for a competitor to demonstrate the bio-equivalence that would be required for approval of a potential generic. The potential refund represents a warranty provision, which is not inconsistent with representations and warranties (typically without

 

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quantification of damages) that are present in most sales and licensing agreements. When conducting our analysis of the amount to record of the warranty obligation, we first assessed the chance of an adverse outcome under the warranty arrangement. Since we determined the chance of an adverse outcome to be remote, no provision for the warranty was recorded.

 

During the fourth quarter of 2002, we received $20.0 million in connection with certain amendments to the contract. Upon acquisition of ALZA by OMP, representatives of OMP made it clear to us that they believed that the existing royalty structure, which provided for escalating royalties at certain sales levels, created a disincentive towards the continued growth of and their investment in the product. In order to address these issues, in exchange for minimum guaranteed royalties through 2006, we agreed to forego our rights to receive increased royalty payments upon sales of Elmiron® by OMP beyond certain sales levels and reduced the royalty rates we would receive at other sales levels. We also provided for the orderly transition of the manufacture of Elmiron® to OMP. As the $20.0 million payment was nonrefundable and since we have no other obligations under the agreement other than those related to the manufacture of Elmiron® on fair market terms, we determined that the $20.0 million up-front payment is the culmination of a separate earnings process and recorded the payment as additional proceeds from the 1997 sale of Elmiron® to OMP. We will continue to receive payments from OMP over the next several years based upon sales of Elmiron® by OMP.

 

Royalty and milestone payments from the 1997 sale of rights in Elmiron® and certain other urology products in the United States and Canada to OMP totaled $12.8 million in 2003, $35.2 million in 2002 and $13.8 million in 2001 and are included in other income as additional gain on the sale of product rights. Royalties and milestone payments receivable from OMP included in “Other current assets” in the accompanying consolidated balance sheets totaled $8.3 million at December 31, 2003, $12.3 million at December 31, 2002, and $11.1 million at December 31, 2001.

 

Inventory - Inventories are stated at the lower of cost (first-in, first-out) or market. Components of inventory cost include materials, labor and manufacturing overhead. In evaluating whether inventory is stated at the lower of cost or market, we consider such factors as the amount of inventory on hand, estimated time required to sell such inventory, remaining shelf life of the inventory and current market price of the inventory. We have made, are in the process of making and/or will scale-up and make commercial quantities of certain of our product candidates prior to the date we anticipate that such products will receive final FDA or foreign governmental marketing approval and/or satisfactory resolution of patent infringement litigation involving them (i.e., pre-launch inventory). The scale-up and commercial production of pre-launch inventories involves the risk that such products may not be approved for marketing by the governmental agencies on a timely basis, or ever, and/or that the outcome of related litigation may not be satisfactory. This risk notwithstanding, we plan to continue to scale-up and build pre-launch inventories of certain products that have not yet received final governmental approval and/or satisfactory resolution of patent infringement litigation when we believe that such action is appropriate in relation to the commercial value of the product launch opportunity. As of December 31, 2003, we had approximately $24.8 million of inventories related to certain products pending final approval and/or satisfactory resolution of litigation.

 

Impairment of Long-Lived Assets – We continually evaluate whether events and circumstances have occurred that indicate that the remaining estimated useful life of long-lived assets may require revision or that the remaining net book value may not be recoverable. When factors indicate that an asset may be impaired, we use various methods to estimate the asset’s future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized based on the excess of the carrying amount over the estimated fair value of the asset. Any impairment amount is charged to operations.

 

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Intangible Assets – Intangible assets with definite lives are amortized and carried at cost less accumulated amortization. Goodwill and intangible assets with indefinite lives are carried at cost, are not amortized and are tested for impairment annually. No impairments were identified during 2003.

 

Sale of Subsidiary Stock – During 2001, we elected income statement recognition as our accounting policy for sales of subsidiary stock and recorded a gain of $10.3 million related to the merger of IVAX Diagnostics with b2bstores.com, which is included in “Other income, net” in the consolidated statements of operations.

 

Legal Costs – Legal charges are recorded for the costs anticipated to be incurred in connection with litigation and claims against us when we can reasonably estimate these costs. We intend to vigorously defend each of the lawsuits described in Note 14, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, but their respective outcomes cannot be predicted. Any of such lawsuits or investigations, if determined adversely to us, could have a material adverse effect on our financial position and results of operations. Our ultimate liability with respect to any of these proceedings is not presently determinable.

 

We are involved in various other legal proceedings arising in the ordinary course of business, some of which involve substantial amounts. In order to obtain brand equivalent approvals prior to the expiration of patents on branded products, and to benefit from the exclusivity allowed to Abbreviated New Drug Application applicants that successfully challenge these patents, we frequently become involved in patent infringement litigation brought by branded pharmaceutical companies. Although these lawsuits involve products that are not yet marketed and therefore pose little or no risk of liability for damages, the legal fees and costs incurred in defending such litigation can be substantial. While it is not feasible to predict or determine the outcome or the total cost of these proceedings, in our opinion, based on a review with legal counsel, any losses resulting from such legal proceedings will not have a material adverse impact on our financial position or results of operations.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk represents the risk of loss that may impact our consolidated financial position, results of operations or cash flows. We, in the normal course of doing business, are exposed to the risks associated with foreign currency exchange rates and changes in interest rates.

 

Foreign Currency Exchange Rate Risk – We have subsidiaries in more than 20 countries worldwide. During 2003, sales outside the United States accounted for approximately 51% of our worldwide sales. The majority of these sales were denominated in currencies of the local country. As such, our reported profits and cash flows are exposed to changing exchange rates. If the United States dollar weakens relative to the foreign currency, the earnings generated in the foreign currency will, in effect, increase when converted into United States dollars and vice versa. Although we do not speculate in the foreign exchange market, we do from time to time manage exposures that arise in the normal course of business related to fluctuations in foreign currency exchange rates by entering into offsetting positions through the use of foreign exchange forward contracts. As a result of exchange rate differences, net revenues increased by $34.8 million in 2003 as compared to 2002 and decreased by $45.2 million in 2002 compared to 2001. The effects of inflation on consolidated net revenues and operating income were not significant. Certain firmly committed transactions are hedged with foreign exchange forward contracts. As exchange rates change, gains and losses on the exposed transactions are partially offset by gains and losses related to the hedging contracts. Both the exposed transactions and the hedging contracts are translated at current spot rates, with gains and losses included in earnings.

 

Our derivative activities, which primarily consist of foreign exchange forward contracts, are initiated primarily to hedge forecasted cash flows that are exposed to foreign currency risk. The foreign

 

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exchange forward contracts generally require us to exchange local currencies for foreign currencies based on pre-established exchange rates at the contracts’ maturity dates. If the counterparties to the exchange contracts do not fulfill their obligations to deliver the contracted currencies, we could be at risk for currency related fluctuations. We enter into these contracts with counterparties that we believe to be creditworthy and do not enter into any leveraged derivative transactions. We had $16.2 million at December 31, 2003, and $19.6 million at December 31, 2002, in foreign exchange forward contracts outstanding, primarily to hedge Euro-based operating cash flows against Pounds Sterling. As exchange rates change, gains and losses on these contracts are generated based on the change in the exchange rates that are recognized in the consolidated statement of operations at maturity, and offset the impact of the change in exchange rates on the foreign currency cash flows that are hedged. As of December 31, 2001, we had $68.7 million in foreign exchange forward contracts outstanding, of which $55.0 million related to United States dollar denominated bank loans of $48.0 million of our Argentine based subsidiary, IVAX Argentina. The $48.0 million of bank loans were repaid in January 2002 resulting in a pretax loss of $2.8 million.

 

Interest Rate Risk – Our only material debt obligations relate to the 1.5%, 4.5% and 5.5% Convertible Notes, which bear fixed rates of interest, and the amounts we owe for the purchase of QVAR® and other respiratory products, which carry no stated interest rate. We believe that our exposure to market risk relating to interest rate risk is not material.

 

Item 8. Financial Statements and Supplementary Data

 

Our Financial Statements and supplementary data are on pages F-1 through F-43.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

The disclosure required by this item has been previously reported in our current report on Form 8-K dated May 22, 2002, as amended on a Form 8-K/A dated May 24, 2002, and in our annual report on Form 10-K for the year ended December 31, 2002.

 

Item 9A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We have evaluated the design and operation of our disclosure controls and procedures to determine whether they are effective in ensuring that the disclosure of required information is timely made in accordance with the Exchange Act and the rules and forms of the Securities and Exchange Commission. This evaluation was made under the supervision and with the participation of management, including our principal executive officer and principal financial officer as of the end of the period covered by this Annual Report on Form 10-K. The principal executive officer and principal financial officer have concluded, based on their review and subject to the limitations noted below, that our disclosure controls and procedures, as defined at Exchange Act Rules 13a-14(c) and 15d-14(c), are effective to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

Changes in Internal Controls

 

No significant changes were made to our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation.

 

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Limitations on the Effectiveness of Controls

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

 

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Information Contained in Certifications

 

Exhibits 31.1 and 31.2 to this annual report on Form 10-K are Certifications of our Chief Executive Officer and Chief Financial Officer which are required under the Sarbanes-Oxley Act of 2002. This item 9A, Controls and Procedures, is information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

 

PART III

 

Item 10. Directors and Executive Officers of the Registrant

 

The information required by item 10 is incorporated by reference to our Proxy Statement for our 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the close of our 2003 year end. However, the information concerning executive officers required by item 10 is contained in the discussion entitled “Executive Officers of the Registrant” in Part I hereof.

 

Item 11. Executive Compensation

 

The information required by item 11 is incorporated by reference to our Proxy Statement for our 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the close of our 2003 year end.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

 

The information required by item 12 is incorporated by reference to our Proxy Statement for our 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the close of our 2003 year end.

 

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Item 13. Certain Relationships and Related Transactions

 

The information required by item 13 is incorporated by reference to our Proxy Statement for our 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the close of our 2003 year end.

 

Item 14. Principal Accountant Fees and Services

 

The information required by item 14 is incorporated by reference to our Proxy Statement for our 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the close of our 2003 year end.

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K

 

(a)(1) Financial Statements

 

See Item 8. “Financial Statements and Supplementary Data” for Financial Statements included with this Annual Report on Form 10-K.

 

(a)(2) Financial Statement Schedule

 

The following financial statement schedule is filed as a part of this report:

 

Schedule II

  

Valuation and Qualifying Accounts for the three years ended December 31, 2003

 

All other schedules have been omitted because the required information is not applicable or the information is included in the consolidated financial statements or the notes thereto.

 

The independent auditors’ report with respect to Schedule II is also filed as part of this report.

 

(a)(3) Exhibits

 

Exhibit

Number


  

Description


  

Method of Filing


3.1    Articles of Incorporation.    Incorporated by reference to our Form 8-B dated July 28, 1993.
3.2    Amended and Restated Bylaws.    Incorporated by reference to our Form 10-Q for the quarter ended June 30, 2002.
3.3    Articles of Amendment to Articles of Incorporation of IVAX Corporation.    Incorporated by reference to our Form 10-Q for the quarter ended March 31, 2001.

 

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4.1    Indenture dated May 12, 2000, between IVAX Corporation and U.S. Bank Trust National Association, as Trustee, with respect to IVAX Corporation’s 5 1/2% Convertible Subordinated Notes due May 15, 2007.    Incorporated by reference to our Form S-3 dated August 7, 2000.
4.2    Form of 5 1/2% Convertible Subordinated Notes due May 15, 2007 in Global Form.    Incorporated by reference to our Form S-3 dated August 7, 2000.
4.3    Rights Agreement, dated December 29, 1997, between IVAX Corporation and ChaseMellon Shareholder Services, L.L.C., with respect to the IVAX Corporation Shareholder Rights Plan.    Incorporated by reference to our Form 8-K dated December 19, 1997.
4.4    Indenture, dated as of May 4, 2001, between IVAX Corporation and U.S. Bank Trust National Association, as Trustee, with respect to the $725,000,000 4 1/2% Convertible Senior Subordinated Notes due 2008.    Incorporated by reference to our Form S-3 dated July 31, 2001.
4.5    Form of 4 1/2% Convertible Senior Subordinated Notes due 2008.    Incorporated by reference to our Form S-3 dated July 31, 2001.
4.6    Indenture, dated as of March 3, 2004, between IVAX Corporation and U.S. Bank Trust National Association, as Trustee, with respect to the $400,000,000 1 1/2% Convertible Senior Notes due 2024.    Filed herewith.
4.7    Form of 1 1/2% Convertible Senior Notes due 2024.    Filed herewith.
10.1    IVAX Corporation 1985 Stock Option Plan.    Incorporated by reference to our Form 10-K for the year ended December 31, 1997.
10.2    IVAX Corporation 1994 Stock Option Plan.    Incorporated by reference to our Form 10-K for the year ended December 31, 1997.
10.3    Form of Indemnification Agreement for Directors.    Incorporated by reference to our Form 8-B dated July 28, 1993.
10.4    Form of Indemnification Agreement for Officers.    Incorporated by reference to our Form 8-B dated July 28, 1993.
10.5    Agreement Containing Consent Order, dated December 6, 1994, between IVAX Corporation and the United States Federal Trade Commission.    Incorporated by reference to our Form 10-K for the year ended December 31, 1994.
10.6    Employment Agreement, dated November 28, 1997, between IVAX Corporation and Phillip Frost, M.D.    Incorporated by reference to our Form 10-K for the year ended December 31, 1997.

 

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10.7    Employment Agreement, dated November 28, 1997, between IVAX Corporation and Isaac Kaye.    Incorporated by reference to our Form 10-K for the year ended December 31, 1997.
10.8    Employment Agreement, dated January 19, 1998, between IVAX Corporation and Jane Hsiao, Ph.D.    Incorporated by reference to our Form 10-K for the year ended December 31, 1997.
10.9    Employment Agreement, dated July 28, 1997, between IVAX Corporation and Rafick G. Henein, Ph.D.    Incorporated by reference to our Form 10-Q for the quarter ended June 30, 1997.
10.10    Employment Agreement, dated as of May 26, 1998, between IVAX Corporation and Neil Flanzraich.    Incorporated by reference to our Form 10-Q for the quarter ended September 30, 1998.
10.11    Form of Employment Agreement (Change in Control) between IVAX Corporation and certain of its executive officers.    Incorporated by reference to our Form 10-K for the year ended December 31, 1998.
10.12    IVAX Corporation 1999 Employee Stock Purchase Plan.    Incorporated by reference to our Form 10-K for the year ended December 31, 1999.
10.13    IVAX Corporation 1997 Stock Option Plan.    Incorporated by reference to our Form S-8 dated December 22, 1997.
10.14    Warrant to Purchase Shares of Common Stock of IVAX Corporation dated November 18, 1999 between IVAX Corporation and Frost-Nevada Limited Partnership.    Incorporated by reference to our Form 10-K for the year ended December 31, 2000.
10.15   

Registration Rights Agreement dated May 12, 2000

by and between IVAX Corporation, UBS Warburg LLC and ING Baring L.L.C.

   Incorporated by reference to our Form S-3 dated August 7, 2000.
10.16    Form of Registration Rights Agreement between the Company and UBS AG.    Incorporated by reference to our Form S-3 dated April 10, 2001.
10.17    Registration Rights Agreement, dated May 4, 2001, between IVAX Corporation and UBS Warburg LLC, as the Initial Purchaser, with respect to the $725,000,000 4 1/2% Convertible Senior Subordinated Notes due 2008.    Incorporated by reference to our Form S-3 dated July 31, 2001.

 

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10.18    Registration Rights Agreement, dated March 3, 2004, between IVAX Corporation and UBS Securities LLC, as the Initial Purchaser and as agent for the other Initial Purchasers, with respect to the $400,000,000 1 1/2% Convertible Senior Notes due 2024.    Filed herewith.
10.19    Agreement to Tender dated as of May 18, 2001, among IVAX Corporation, Comercial e Inversiones Portfolio Limitada and Inversiones Portfolio S.A.    Incorporated by reference to our Form 8-K dated May 18, 2001.
10.20    Termination Agreement dated March 20, 1998 by and among NaPro BioTherapeutics, Inc., IVAX Corporation, Baker Norton Pharmaceuticals, Inc. and D & N Holding Company (Confidential Treatment Requested).    Incorporated by reference to our Form 10-K for the year ended December 31, 2001.
10.21    Retirement Agreement, dated as of May 8, 2003, between IVAX Corporation and Isaac Kaye.    Incorporated by reference to our Form 10-Q for the quarter ended March 31, 2003.
10.22    Amendment dated June 12, 2003, to Employment Agreement between IVAX Corporation and Rafick G. Henein, Ph.D.    Incorporated by reference to our Form 10-Q for the quarter ended June 30, 2003.
21    Subsidiaries of IVAX Corporation.    Filed herewith.
23.1    Consent of Ernst & Young LLP.    Filed herewith.
23.2    Information Regarding Consent of Arthur Andersen LLP.    Filed herewith.
31.1    Certificate of the Chief Executive Officer of IVAX Corporation pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).    Filed herewith.
31.2    Certificate of the Chief Financial Officer of IVAX Corporation pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).    Filed herewith.
32.1    Certificate of the Chief Executive Officer of IVAX Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    Filed herewith.
32.2    Certificate of the Chief Financial Officer of IVAX Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    Filed herewith.

 

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(b) Reports on Form 8-K

 

On October 30, 2003, we furnished a current report on Form 8-K to provide our earnings release for the third quarter of 2003. Such information shall not be deemed “filed” for purpose of Section 18 of the Exchange Act.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   

IVAX CORPORATION

Dated: March 12, 2004

 

By:

 

/s/ Phillip Frost, M.D.


       

Phillip Frost, M.D.

       

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.

 

Name


  

Capacity


 

Date


/s/ Phillip Frost, M.D.


Phillip Frost, M.D.

  

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

 

March 12, 2004

/s/ Thomas E. Beier


Thomas E. Beier

  

Chief Financial Officer

(Principal Financial Officer)

 

March 12, 2004

/s/ Thomas E. McClary


Thomas E. McClary

  

Vice President – Accounting

(Principal Accounting Officer)

 

March 12, 2004

/s/ Betty G. Amos


Betty G. Amos

  

Director

 

March 12, 2004

/s/ Mark Andrews


Mark Andrews

  

Director

 

March 12, 2004

/s/ Ernst Biekert, Ph.D.


Ernst Biekert, Ph.D.

  

Director

 

March 12, 2004

/s/ Paul L. Cejas


Paul L. Cejas

  

Director

 

March 12, 2004

 

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/s/ Jack Fishman, Ph.D.


Jack Fishman, Ph.D.

  

Director

 

March 12, 2004

/s/ Neil Flanzraich


Neil Flanzraich

  

Director, President and Vice Chairman

 

March 12, 2004

/s/ Bruce W. Greer


Bruce W. Greer

  

Director

 

March 12, 2004

/s/ Jane Hsiao, Ph.D.


Jane Hsiao, Ph.D.

  

Director and Vice Chairman-

Technical and Regulatory Affairs

 

March 12, 2004

/s/ David A. Lieberman


David A. Lieberman

  

Director

 

March 12, 2004

/s/ Modesto A. Maidique, Ph.D.


Modesto A. Maidique, Ph.D.

  

Director

 

March 12, 2004

/s/ Richard C. Pfenniger, Jr.


Richard C. Pfenniger, Jr.

  

Director

 

March 12, 2004

/s/Bertram Pitt, M.D.


Bertram Pitt, M.D.

  

Director

 

March 12, 2004

 

 

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

 

To the Board of Directors and Shareholders

of IVAX Corporation:

 

We have audited the accompanying consolidated balance sheets of IVAX Corporation and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of IVAX Corporation and subsidiaries for the year ended December 31, 2001, were audited by other auditors who have ceased operations and whose report dated February 12, 2002, expressed an unqualified opinion on those statements prior to the revision described in Note 2.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the 2003 and 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of IVAX Corporation and subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for business combinations and goodwill and its method of reporting gains and losses on the extinguishment of debt during the year ended December 31, 2002.

 

As discussed above, the financial statements of IVAX Corporation and subsidiaries as of December 31, 2001 and for the year then ended, were audited by other auditors who have ceased operations. As described in Note 2, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards (Statement) No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 2 with respect to 2001 include (a) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those periods related to goodwill, intangible assets that are no longer being amortized, and changes in amortization periods for intangible assets that will continue to be amortized as a result of initially applying Statement No. 142 (including any related tax effects) to the Company’s underlying records obtained from management and (b) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related earnings-per-share amounts. In our opinion, the disclosures for 2001 in Note 2 described above are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

 

/s/ Ernst & Young LLP

 

Miami, Florida

February 18, 2004, except for Note 17, as

to which the date is March 3, 2004

 

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Table of Contents

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

 

To the Board of Directors and Shareholders

of IVAX Corporation:

 

We have audited the accompanying consolidated balance sheets of IVAX Corporation (a Florida corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IVAX Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

 

As explained in Note 2 to the financial statements, effective January 1, 2000, IVAX Corporation changed its method of accounting for up-front licensing fees to comply with Securities and Exchange Commission Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.

 

As explained in Note 2 to the financial statements, effective January 1, 2001, IVAX Corporation changed its method of accounting for derivative instruments to comply with Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities.

 

As explained in Note 2 to the financial statements, effective January 1, 2001, IVAX Corporation changed its method of accounting for equity derivative contracts to comply with Emerging Issues Task Force No. 00-19, Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In, a Company’s Own Stock.

 

ARTHUR ANDERSEN LLP

 

Miami, Florida,

        February 12, 2002 (except with respect to

        the matters discussed in Note 16, as to

        which the date is March 15, 2002).

 

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with IVAX Corporation’s filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.

 

F-2


Table of Contents

IVAX CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

     December 31,

 
     2003

    2002

 
ASSETS                 

Current assets:

                

Cash and cash equivalents

   $ 146,870     $ 155,408  

Marketable securities

     10,470       28,873  

Accounts receivable, net of allowances for doubtful accounts of $17,675 in 2003 and $21,719 in 2002

     264,317       224,768  

Inventories

     413,872       309,655  

Other current assets

     160,187       162,513  
    


 


Total current assets

     995,716       881,217  

Property, plant and equipment, net

     502,942       420,246  

Goodwill, net

     489,665       407,403  

Intangible assets, net

     314,361       283,298  

Other assets

     70,250       55,595  
    


 


Total assets

   $ 2,372,934     $ 2,047,759  
    


 


LIABILITIES AND SHAREHOLDERS’ EQUITY                 

Current liabilities:

                

Accounts payable

   $ 139,990     $ 111,590  

Current portion of long-term debt

     58,607       28,617  

Loans payable

     17,804       14,935  

Accrued income taxes payable

     27,990       50,555  

Accrued expenses and other current liabilities

     242,158       228,366  
    


 


Total current liabilities

     486,549       434,063  

Long-term debt, net of current portion

     855,335       872,339  

Other long-term liabilities

     56,208       46,115  

Minority interest

     12,531       10,379  

Commitments and contingencies – see Note 14

                

Shareholders’ equity:

                

Common stock, $0.10 par value, authorized 437,500 shares, issued and outstanding 196,708 shares in 2003 and 194,372 in 2002

     19,671       19,437  

Capital in excess of par value

     341,231       311,367  

Retained earnings

     690,476       569,225  

Accumulated other comprehensive loss

     (89,067 )     (215,166 )
    


 


Total shareholders’ equity

     962,311       684,863  
    


 


Total liabilities and shareholders’ equity

   $ 2,372,934     $ 2,047,759  
    


 


 

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

 

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Table of Contents

IVAX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

     Year Ended December 31,

 
     2003

    2002

    2001

 

Net revenues

   $ 1,420,339     $ 1,197,244     $ 1,215,377  

Cost of sales

     781,383       663,708       583,588  
    


 


 


Gross profit

     638,956       533,536       631,789  
    


 


 


Operating expenses:

                        

Selling

     212,192       168,952       143,629  

General and administrative

     122,414       118,416       110,477  

Research and development

     108,347       76,041       88,015  

Amortization of intangible assets

     19,719       16,158       19,412  

Restructuring costs

     3,706       4,242       2,367  
    


 


 


Total operating expenses

     466,378       383,809       363,900  
    


 


 


Operating income

     172,578       149,727       267,889  

Other income (expense):

                        

Interest income

     3,710       8,090       21,249  

Interest expense

     (43,608 )     (48,639 )     (41,791 )

Other income, net

     11,738       60,321       49,637  
    


 


 


Total other income (expense)

     (28,160 )     19,772       29,095  
    


 


 


Income before income taxes and minority interest

     144,418       169,499       296,984  

Provision for income taxes

     45,559       51,742       54,065  
    


 


 


Income before minority interest

     98,859       117,757       242,919  

Minority interest

     188       838       344  
    


 


 


Income from continuing operations

     99,047       118,595       243,263  

Income from discontinued operations, net of tax of $12,763

     22,204       —         —    

Cumulative effect of accounting change

     —         4,161       —    
    


 


 


Net income

   $ 121,251     $ 122,756     $ 243,263  
    


 


 


Basic earnings per common share:

                        

Continuing operations

   $ 0.51     $ 0.61     $ 1.22  

Discontinued operations

     0.11       —         —    

Cumulative effect of accounting change

     —         0.02       —    
    


 


 


Net income

   $ 0.62     $ 0.63     $ 1.22  
    


 


 


Diluted earnings per common share:

                        

Continuing operations

   $ 0.50     $ 0.60     $ 1.19  

Discontinued operations

     0.11       —         —    

Cumulative effect of accounting change

     —         0.02       —    
    


 


 


Net income

   $ 0.61     $ 0.62     $ 1.19  
    


 


 


Weighted average number of common shares outstanding:

                        

Basic

     195,626       195,037       199,099  
    


 


 


Diluted

     198,900       197,378       204,639  
    


 


 


 

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

 

F-4


Table of Contents

IVAX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

 

    

Common Stock


   

Capital in

Excess of

Par Value


   

Put

Options


   

Retained

Earnings


  

Accumulated

Other

Comprehensive

Loss


    Total

 
    

Number of

Shares


    Amount

            

BALANCE, January 1, 2001

   198,546     $ 19,855     $ 315,039     $ —       $ 203,206    $ (53,980 )   $ 484,120  

Comprehensive income:

                                                     

Net income

   —         —         —         —         243,263      —         243,263  

Translation adjustment

   —         —         —         —         —        (57,613 )     (57,613 )

Unrealized net gain on available-for-sale equity securities and derivatives, net of tax

   —         —         —         —         —        1,081       1,081  
                                                 


Comprehensive income

                                                  186,731  

Exercise of stock options

   1,531       153       13,870       —         —        —         14,023  

Tax benefit of option exercises

   —         —         18,001       —         —        —         18,001  

Employee stock purchases

   38       4       823       —         —        —         827  

Repurchase of common stock

   (6,779 )     (678 )     (146,634 )     (7,785 )     —        —         (155,097 )

Shares issued in acquisitions

   2,873       287       79,963       —         —        —         80,250  

Reclassification of put options from temporary equity

   —         —         —         84,503       —        —         84,503  

Put options issued – net of premium received

   —         —         (74,202 )     79,025       —        —         4,823  

Expired put options

   —         —         80,608       (80,608 )     —        —         —    

Shares issued to settle put options

   314       31       40,454       (40,485 )     —        —         —    

Value of stock options issued to non-employees

   —         —         173       —         —        —         173  
    

 


 


 


 

  


 


BALANCE, December 31, 2001

   196,523       19,652       328,095       34,650       446,469      (110,512 )     718,354  

Comprehensive income:

                                                     

Net income

   —         —         —         —         122,756      —         122,756  

Translation adjustment

   —         —         —         —         —        (104,816 )     (104,816 )

Unrealized net gain on available-for-sale equity securities and derivatives, net of tax

   —         —         —         —         —        162       162  
                                                 


Comprehensive income

                                                  18,102  

Exercise of stock options

   681       68       5,188       —         —        —         5,256  

Tax benefit of option exercises

   —         —         1,467       —         —        —         1,467  

Employee stock purchases

   79       8       920       —         —        —         928  

Repurchase of common stock

   (3,882 )     (388 )     (46,315 )     (12,725 )     —        —         (59,428 )

Shares issued to settle put options

   971       97       21,828       (21,925 )     —        —         —    

Value of stock options issued to non-employees

   —         —         184       —         —        —         184  
    

 


 


 


 

  


 


BALANCE, December 31, 2002

   194,372     $ 19,437     $ 311,367     $ —       $ 569,225    $ (215,166 )   $ 684,863  
    

 


 


 


 

  


 


 

(Continued)

 

F-5


Table of Contents

IVAX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(Continuation)

 

     Common Stock

   

Capital in

Excess of

Par Value


   

Put

Options


  

Retained

Earnings


  

Accumulated

Other

Comprehensive

Loss


    Total

 
              
  

Number of

Shares


    Amount

             

BALANCE, December 31, 2002

   194,372     $ 19,437     $ 311,367     $ —      $ 569,225    $ (215,166 )   $ 684,863  

Comprehensive income:

                                                    

Net income

   —         —         —         —        121,251      —         121,251  

Translation adjustment

   —         —         —         —        —        125,651       125,651  

Unrealized net gain on available-for-sale equity securities and derivatives, net of tax

   —         —         —         —        —        448       448  
                                                


Comprehensive income

                                                 247,350  

Exercise of stock options

   1,710       171       17,004       —        —        —         17,175  

Tax benefit of option exercises

   —         —         4,278       —        —        —         4,278  

Employee stock purchases

   89       9       1,029       —        —        —         1,038  

Repurchase of common stock

   (700 )     (70 )     (8,927 )     —        —        —         (8,997 )

Shares issued in acquisitions

   1,237       124       16,366       —        —        —         16,490  

Value of stock options issued to non-employees

   —         —         114       —        —        —         114  
    

 


 


 

  

  


 


BALANCE, December 31, 2003

   196,708     $ 19,671     $ 341,231     $ —      $ 690,476    $ (89,067 )   $ 962,311  
    

 


 


 

  

  


 


 

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

 

F-6


Table of Contents

IVAX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Year Ended December 31,

 
     2003

    2002

    2001

 

Cash flows from operating activities:

                        

Net income

   $ 121,251     $ 122,756     $ 243,263  

Adjustments to reconcile net income to net cash flows from operating activities:

                        

Restructuring accrual

     3,706       4,242       2,367  

Depreciation and amortization

     76,808       59,877       52,158  

Deferred tax provision (benefit)

     17,099       (8,110 )     (43,645 )

Tax benefit of stock option exercises

     4,278       1,467       18,001  

Value of stock options issued to non-employees

     114       184       173  

Provision for (reversal of) doubtful accounts

     (1,948 )     4,239       1,143  

Provision for inventory obsolescence

     31,017       15,446       25,397  

Interest accretion on notes receivable and payable, net

     2,378       1,935       —    

Minority interest in earnings

     (188 )     (838 )     (344 )

Equity in earnings of unconsolidated affiliates

     (1,645 )     (877 )     (1,070 )

Gains (loss) on sale of marketable securities

     1,106       (4 )     (3,807 )

Gains on sale of product rights

     (12,835 )     (35,150 )     (13,792 )

Losses (gain) on sale of assets, net

     119       2,930       (12,328 )

Gains on extinguishment of debt

     (2,323 )     (17,346 )     (11,302 )

Income from discontinued operations

     (22,204 )     —         —    

Cumulative effect of accounting change

     —         (4,161 )     —    

Changes in operating assets and liabilities:

                        

Accounts receivable

     (18,465 )     12,493       (37,643 )

Inventories

     (111,953 )     (68,591 )     (45,920 )

Other current assets

     671       (293 )     (34,680 )

Other assets

     753       5,800       3,059  

Accounts payable, accrued expenses and other current liabilities

     (3,880 )     48,318       62,547  

Other long-term liabilities

     (1,261 )     6,821       (4,540 )
    


 


 


Net cash flows from operating activities

     82,598       151,138       199,037  
    


 


 


Cash flows from investing activities:

                        

Proceeds from sale of product rights

     12,835       35,150       13,792  

Capital expenditures

     (95,358 )     (98,670 )     (73,484 )

Proceeds from sales of assets

     2,025       1,602       41,668  

Acquisitions of intangible assets

     (7,798 )     (38,274 )     (133,864 )

Acquisitions of businesses, net of cash acquired

     (27,110 )     3,629       (466,153 )

Investment in affiliates

     3,658       (3,677 )     (14,052 )

Purchases of marketable securities

     (36,095 )     (445,864 )     (378,176 )

Proceeds from sales of marketable securities

     63,296       574,429       304,955  

Net proceeds from discontinued operations

     8,824       —         —    
    


 


 


Net cash flows from investing activities

     (75,723 )     28,325       (705,314 )
    


 


 


Cash flows from financing activities:

                        

Borrowings on long-term debt and loans payable

     28,598       12,745       723,818  

Payments on long-term debt and loans payable

     (67,298 )     (138,812 )     (95,533 )

Exercise of stock options and employee stock purchases

     18,213       6,184       14,850  

Repurchase of common stock, net of put option premium

     (8,997 )     (59,428 )     (150,274 )
    


 


 


Net cash flows from financing activities

     (29,484 )     (179,311 )     492,861  
    


 


 


Effect of exchange rate changes on cash and cash equivalents

     14,071       (23,008 )     16,886  
    


 


 


Net (decrease) increase in cash and cash equivalents

     (8,538 )     (22,856 )     3,470  

Cash and cash equivalents at the beginning of the year

     155,408       178,264       174,794  
    


 


 


Cash and cash equivalents at the end of the year

   $ 146,870     $ 155,408     $ 178,264  
    


 


 


 

(Continued)

 

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IVAX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Continuation)

 

     Year Ended December 31,

 
     2003

    2002

   2001

 

Supplemental disclosures:

                       

Interest paid, net of capitalized interest

   $ 39,619     $ 44,671    $ 12,563  
    


 

  


Income tax payments

   $ 51,907     $ 46,585    $ 50,890  
    


 

  


Supplemental schedule of non-cash investing and financing activities:

                       

Purchase of intangible assets through the issuance of debt

           $ 80,054         
            

        

Information with respect to acquisitions accounted for under the purchase method of accounting is summarized as follows:

                       

Fair value of assets acquired

   $ 55,890            $ 238,862  

Liabilities assumed

     (4,874 )            (180,834 )
    


        


Net assets acquired

     51,016              58,028  
    


        


Purchase price:

                       

Cash, net of cash acquired

     25,592              459,788  

Acquisition costs

     1,518              6,365  

Present value of future minimum royalty payments

     48,638              —    

Fair market value of stock and options issued

     16,490              79,750  
    


        


Total

     92,238              545,903  
    


        


Goodwill

   $ 41,222            $ 487,875  
    


        


 

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.

 

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Table of Contents

IVAX CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

 

(1) Organization:

 

IVAX Corporation is a multinational company engaged in the research, development, manufacture and marketing of pharmaceutical products. These products are sold primarily to customers within the United States, Europe and Latin America. All references to “IVAX,” “our,” “us” or “we” mean IVAX Corporation and its subsidiaries unless otherwise required by the context.

 

(2) Summary of Significant Accounting Policies:

 

Principles of Consolidation – The accompanying consolidated financial statements include the accounts of IVAX Corporation and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in affiliates representing 20% to 50% ownership interests are recorded under the equity method of accounting. Investments in affiliates representing less than 20% ownership interests are recorded at cost. The minority interest held by third parties in majority owned subsidiaries is separately stated. For purposes of these financial statements, North America includes the United States and Canada. Mexico is included within Latin America. Certain amounts presented in the accompanying consolidated financial statements for prior periods have been reclassified to conform to the current year presentation.

 

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. We periodically evaluate estimates and assumptions used in the preparation of the financial statements and make changes on a prospective basis when adjustments are necessary. Significant estimates include amounts for accounts receivable exposures, deferred tax asset allowances, inventory reserves, environmental reserves, litigation and sales returns and allowances, including, but not limited to, chargebacks, rebates, returns and shelf-stock adjustments, and the useful lives of intangible assets.

 

As a result of our recent return, customer inventory experience, analysis of allowance for doubtful accounts and tax reserves, our estimates of product returns and other sales allowances, inventory obsolescence, allowance for doubtful accounts and income tax exposures decreased and, accordingly, we recognized increased net revenues, reduced cost of sales, reduced bad debt expense and reduced income tax provision during 2003. During the year ended December 31, 2003, these changes increased net revenues by $13,733, reduced cost of sales by $824, reduced bad debt expense by $3,673, reduced the income tax provision by $2,700, increased net income by $14,029 and increased diluted earnings per share by $0.07.

 

Cash and Cash Equivalents – We consider all investments with a maturity of three months or less as of the date of purchase to be cash equivalents.

 

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Marketable Securities – Short-term investments in marketable debt securities generally mature between three months and three years from date of purchase or are auction rate securities with final maturities longer than three years, but with interest rate auctions occurring every 28 or 35 days. These short-term marketable securities consist primarily of taxable municipal bonds, corporate bonds, government agency securities and commercial paper. It is our intent to maintain a liquid portfolio to take advantage of investment opportunities; therefore, most securities are deemed short-term, are classified as available for sale securities and are recorded at market value using the specific identification method. Unrealized gains and losses, net of tax, are reflected in “Accumulated other comprehensive loss” in the accompanying consolidated balance sheets. Realized gains and losses are included in “Other income” in the accompanying consolidated statements of operations using the specific identification method.

 

Investments in marketable securities consist of the following:

 

     December 31, 2003

     Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


    Market
Value


Mutual funds

   $ 8,776    $ —      $ —       $ 8,776

Auction rate securities

     1,660      —        —         1,660

Equity securities

     1,016      434      —         1,450
    

  

  


 

Total marketable securities

     11,452      434      —         11,886

Less: Short-term marketable securities

     10,470      —        —         10,470
    

  

  


 

Long-term marketable securities

   $ 982    $ 434    $ —       $ 1,416
    

  

  


 

     December 31, 2002

     Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


    Market
Value


Mutual funds

   $ 2,667    $ 19    $ —       $ 2,686

Auction rate securities

     21,150      —        —         21,150

Corporate bonds

     5,084      —        (47 )     5,037

Equity securities

     9,264      88      (51 )     9,301
    

  

  


 

Total marketable securities

     38,165      107      (98 )     38,174

Less: Short-term marketable securities

     28,901      19      (47 )     28,873
    

  

  


 

Long-term marketable securities

   $ 9,264    $ 88    $ (51 )   $ 9,301
    

  

  


 

 

Long-Term Investments – We have investments in three marketable securities that are deemed long-term, available for sale, which are marked to market value using the specific identification method. Unrealized gains and losses, net of tax, are reflected in “Accumulated other comprehensive loss” in the accompanying consolidated balance sheets. Realized gains and losses are included in “Other income” in the accompanying consolidated statements of operations using the specific identification method. In addition, we have one investment in a limited investment partnership. In accordance with Emerging Issues Task Force (“EITF”) Topic D-46, Accounting for Limited Partnership Investments, investments in limited investment partnerships representing greater than 5% ownership interests are considered to be more than minor and are accounted for under the equity method; otherwise, they are carried at cost. These investments are included in “Other assets” in the accompanying consolidated balance sheets.

 

Inventories – Inventories are stated at the lower of cost (first-in, first-out) or market. Components of inventory cost include materials, labor and manufacturing overhead. In evaluating whether inventory is stated at the lower of cost or market, we consider such factors as the amount of inventory on hand, estimated time required to sell such inventory, remaining shelf life of the inventory and current market price of the inventory.

 

Inventories consist of the following:

 

     December 31,

     2003

   2002

Raw materials

   $ 155,159    $ 117,485

Work-in-process

     65,194      50,678

Finished goods

     193,519      141,492
    

  

Total inventories

   $ 413,872    $ 309,655
    

  

 

As of December 31, 2003, we had approximately $24,778 in inventories relating to products pending launch while we await receipt of final FDA or foreign governmental marketing approval and/or satisfactory resolution of patent infringement litigation.

 

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Property, Plant and Equipment – Property, plant and equipment are carried at cost less accumulated depreciation and amortization and consist of the following:

 

     December 31,

     2003

   2002

Land

   $ 24,758    $ 21,881

Buildings and improvements

     255,863      202,894

Machinery and equipment

     323,210      246,397

Furniture and computer equipment

     92,875      78,576

Construction in process

     84,428      77,862
    

  

Total cost

     781,134      627,610

Less: Accumulated depreciation and amortization

     278,192      207,364
    

  

Property, plant and equipment, net

   $ 502,942    $ 420,246
    

  

 

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: buildings and improvements (10 - 40 years), machinery and equipment (3 - 20 years) and furniture and computer equipment (2 - 10 years). Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease or their estimated useful lives. Costs of major additions and improvements are capitalized and expenditures for maintenance and repairs that do not extend the life of the assets are expensed. Upon sale or disposition of property, plant and equipment, the cost and related accumulated depreciation or amortization are eliminated from the accounts and any resulting gain or loss is credited or charged to operations. Depreciation expense was $56,387 in 2003, $42,848 in 2002 and $32,062 in 2001.

 

Capitalization of Software Development Costs – Costs associated with software developed or obtained for internal use are capitalized when (1) the preliminary project stage is completed and (2) management has authorized further funding for the project, it is probable that the project will be completed and the software will be used for the intended purpose. Costs capitalized include (1) external direct costs of materials and services consumed, (2) payroll and payroll-related costs for employees directly associated with or who devote time to the project and (3) interest costs incurred while developing the software. Upgrades and enhancements that add functionality are capitalized. Costs of training, maintenance, data conversion and nonspecific upgrades and enhancements are expensed.

 

Capitalization of Interest – Interest capitalized on certain construction projects was $2,109 in 2003 and $430 in 2002.

 

Intangible Assets – Effective July 1, 2001, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, relating to the amortization of goodwill. Goodwill of companies acquired prior to June 30, 2001, was amortized through December 31, 2001. Amortization of goodwill of companies acquired after June 30, 2001, is no longer allowed. Effective January 1, 2002, all goodwill amortization ceased and goodwill is evaluated for impairment annually. No goodwill impairments were identified during 2003 or 2002.

 

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Intangible assets with definite lives are amortized and carried at cost less accumulated amortization. Intangible assets with indefinite lives are carried at cost, are not amortized and are tested for impairment annually. Intangible assets consist of the following:

 

     December 31,

     2003

   2002

     Gross
Carrying
Amount


   Accumulated
Amortization


   Gross
Carrying
Amount


   Accumulated
Amortization


Amortized intangible assets:

                           

Patents and related licenses

   $ 75,642    $ 48,468    $ 71,716    $ 40,989

Trademarks

     131,688      13,855      113,160      7,518

Licenses and other intangibles

     161,548      17,473      132,457      7,205
    

  

  

  

Total

   $ 368,878    $ 79,796    $ 317,333    $ 55,712
    

  

  

  

Unamortized intangible assets:

                           

Trademarks and product registrations

   $ 25,279           $ 21,677       
    

         

      

 

Patents, trademarks, licenses and other intangible assets with finite lives are amortized using the straight-line method over their respective estimated lives (ranging from 1 - 20 years), while those with indefinite lives are not amortized. On an annual basis by region, we evaluate the recoverability of intangible assets and evaluate events or circumstances that have occurred that warrant revising estimates of useful lives or that indicate that an impairment exists. The weighted average life of patents, trademarks, licenses and other intangibles was 15.6 years at December 31, 2003, and 13.0 years at December 31, 2002. Amortization expense was $20,421 in 2003, $17,029 in 2002 and $20,096 in 2001.

 

Estimated intangible assets amortization expense for the next five years is approximately $23,117 in 2004, $22,640 in 2005, $21,360 in 2006, $23,147 in 2007, and $21,177 in 2008.

 

On July 1, 2002, in connection with the termination of a license granted by us to specified products in our proprietary dry powder inhaler device (“MDPI”), we entered into an agreement to acquire the technical files, trademark and related rights invented or produced by the licensee in connection with the commercialization of products under the license. The total consideration due was 5,000 Pounds Sterling ($7,665 at the July 1, 2002, currency exchange rate), of which 1,400 Pounds Sterling ($2,232 at the January 2, 2003, currency exchange rate) was paid in 2003. The purchase price was allocated to other intangible assets and is being amortized over its estimated useful life of ten years. An additional payment of between 250 to 1,100 Pounds Sterling will be paid to the licensee upon the receipt of marketing approval and launch of a specified product using the acquired rights and data.

 

On April 22, 2002, we acquired an exclusive United States license to the patent rights to market QVAR® (beclomethasone dipropionate HFA), an aerosol inhaler prescribed to treat asthma. In addition, we have an option to obtain ownership of the United States QVAR® trademark, as well as related patents and the New Drug Application on April 21, 2007. 3M Drug Delivery Systems will manufacture the QVAR® product for us under a long-term contract. We also acquired a non-exclusive worldwide license to certain 3M patents covering HFA formulations of various asthma drugs. The purchase price was allocated to the fair values of the assets acquired resulting in a value of $27,140 for the license agreement, which is being amortized over its five-year life, and $67,141 for the option, which is not being amortized. If the option is exercised, the value of the option will be allocated to the underlying assets acquired by the exercise and appropriate lives determined. The total consideration due from us under the contract, including options and extensions, is $105,000, of which $21,000 was paid on the effective date and $20,000 was paid on the first anniversary. We are entitled to reduce the purchase price by $4,000 for required pediatric trials. The remaining payments due from us are: $30,000 on the second anniversary, $25,000 on the third anniversary and $5,000 on the fifth anniversary upon exercise of the option, subject to reimbursement of all or a portion of the $4,000 in the event we do not continue the pediatric trials. The present value of the payments due are recorded as long-term debt.

 

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On April 2, 2002, we entered into an agreement to acquire the technical files and French marketing authorizations to substantially all of the products comprising the generic pharmaceutical business of Merck & Co., Inc.’s subsidiary in France. The total consideration due was 5,641 Euros ($4,917 at the March 31, 2002, currency exchange rate), one-half of which was paid upon signing and the remainder in four months. The purchase price was recorded as other intangible assets, which is being amortized over its estimated useful life of ten years. On July 19, 2002, the agreement was amended reducing the second payment to 2,565 Euros ($2,531 as of the August 2, 2002, payment date).

 

On March 1, 2002, we acquired from Syntex Pharmaceuticals International Ltd. the non-United States rights to pharmaceutical products containing flunisolide hemihydrate, sold under the trademarks Syntaris, Nasalide®, Rhinalar, Locasyn and Lokilan, for 10,156 Swiss francs ($5,986 at the February 28, 2002, currency exchange rate). As of December 31, 2003, the final allocation of the intangible assets, net of accumulated amortization, is $3,970 of trademarks, $562 of patents and related licenses and $504 of licenses and other intangibles. These intangible assets are amortized over their fourteen-year weighted average life.

 

Impairment of Long-Lived Assets – We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may require revision or the remaining net book value may not be recoverable. When factors indicate that an asset may be impaired, we use various methods to estimate the asset’s future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized based on the excess of the carrying amount over the estimated fair value of the asset. Any impairment amount is charged to operations.

 

Foreign Currencies – Our operations include subsidiaries which are located outside of the United States. Assets and liabilities as stated in local currencies are translated at the rate of exchange prevailing at the balance sheet date. The gains or losses that result from this process are shown in “Accumulated other comprehensive loss” in the accompanying consolidated balance sheets. Amounts in the statements of operations are translated at the average rates for the period. Foreign currency transaction gains and losses arising from cash transactions are credited to or charged against current earnings. Laboratorios Elmor, S.A. is located in Venezuela, which was considered a hyperinflationary economic environment through June 30, 2001. Prior to July 1, 2001, its local currency financial statements were remeasured into the United States dollar by translating monetary assets and liabilities at the current exchange rate, non-monetary assets and expenses related to non-monetary assets at the historical rates, and revenues and expenses at the average exchange rate in effect during the year. The resulting translation adjustment was included in the results of operations.

 

Financial Instruments – The carrying amounts of cash and cash equivalents, accounts receivable, loans payable and accounts payable approximate fair value due to the short maturity of the instruments and reserves for potential losses, as applicable. The disclosed fair value of marketable securities, other assets and long-term debt is estimated using quoted market prices, whenever available, or an appropriate valuation method (See Note 7, Investments In and Advances to Unconsolidated Affiliates, and Note 8, Debt).

 

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We do not speculate in the foreign exchange market. We may, however, from time to time, manage exposures that arise in the normal course of business related to fluctuations in foreign currency rates by entering into foreign exchange forward contracts. We enter into these contracts with counterparties that we believe to be creditworthy and do not enter into any leveraged derivative transactions. These foreign exchange forward contracts generally require us to exchange local currencies for foreign currencies based on pre-established exchange rates at the contracts’ maturity date. As the exchange rates change, gains and losses on these contracts are generated based on the change in the exchange rates that are generally recognized in the consolidated statements of operations at maturity. Costs associated with entering into these contracts are amortized over the contracts’ lives, which typically are less than one year. We held foreign exchange forward contracts with notional principal amounts of $16,188 at December 31, 2003, which mature in January 2004 through July 2004, and $19,586 at December 31, 2002, which matured from January 2003 through August 2003, primarily to hedge Euro-based operating cash flows against Pounds Sterling.

 

Prior to its acquisition by us, Laboratorio Chile S.A. (“Lab Chile”) engaged in a partial hedge of its then $63,000 United States dollar denominated loans against a possible devaluation of the Argentine peso, by entering into forward contracts in early 2001 to purchase $55,000 United States dollars at contract prices ranging from 1.0405 pesos to 1.0412 pesos with expiration dates in January 2002. If the contracts expired unexercised, a fee of $2,247 would have been paid. Due to the lack of liquidity in the currency forwards market in Argentina on July 5, 2001, (the date we acquired Lab Chile), the most reliable indicator of fair value was the amortized amount of the original contract fee. Accordingly, these contracts were recorded as an asset and a liability at the original contract fee amount and the asset was amortized over the life of the contracts. Due to the devaluation of the Argentine peso and the Argentine government halting foreign exchange transactions from mid-December 2001 through approximately January 11, 2002, the contracts were valued at December 31, 2001, at the negotiated amounts at which the contracts were settled during January 2002 resulting in a pretax gain of $21,655 recorded at December 31, 2001, which was recorded in other income.

 

In addition, we have short-term balances that are denominated in foreign currencies. A portion of these balances are hedged, from time to time, using foreign exchange forward contracts, and gains and losses on these contracts are included in the consolidated statements of operations as they arise. We incurred net foreign exchange transaction losses of $10,013 in 2003 and $1,056 in 2002, and net foreign exchange transaction gains of $2,728 in 2001, which are included in “Other income, net” in the accompanying consolidated statements of operations.

 

Concentration of Credit Risk – We sell a significant amount of United States brand equivalent pharmaceutical products to a relatively small number of retail drug chains and drug wholesalers, which represents an essential part of the distribution chain of pharmaceutical products in the United States. Credit is extended based on an evaluation of the customer’s financial condition and collateral is generally not required. We monitor the credit worthiness of our customers and review outstanding receivable balances for collectibility on a regular basis and record allowances for doubtful accounts as necessary.

 

We follow an investment policy that limits investments in individual issuers that meet certain minimum credit rating and size requirements, generally, to the lesser of $10,000 or 10% of program size.

 

Revenue Recognition – Revenues and the related cost of sales are recognized at the time title to our products and the risks and rewards of ownership passes to customers. Net revenues are comprised of gross revenues less provisions for expected customer returns, inventory credits, discounts, promotional allowances, rebates, chargebacks, reimbursements relating to Medicaid and Medicare and other

 

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allowances. These sales provisions totaled $647,264 in 2003, $664,565 in 2002 and $433,653 in 2001. The reserve balances related to these provisions are included in the following balance sheet accounts:

 

     December 31,

     2003

   2002

Accounts receivable

   $ 136,475    $ 147,580

Accrued expenses

     110,079      94,937
    

  

Total sales returns and allowances reserves

   $ 246,554    $ 242,517
    

  

 

The custom in the United States pharmaceutical industry is generally to grant customers the right to return purchased goods. In the generic pharmaceutical industry, this custom has resulted in a practice of suppliers issuing inventory credits (also known as shelf-stock adjustments) to customers based on the customers’ existing inventory following decreases in the market price of the related generic pharmaceutical product. Contractual agreements with many customers require that we grant these customers inventory credit following a price decrease. In other cases, the determination to grant a credit to a customer following a price decrease is at our discretion. These credits allow customers with established inventories to compete with those buying product at the current market price, and allow us to maintain shelf space, market share and customer loyalty.

 

We establish provisions for estimated returns, inventory credits and chargebacks, as well as other sales allowances, concurrently with the recognition of revenue. The provisions are established in accordance with accounting principles generally accepted in the United States based upon consideration of a variety of factors, including actual return and inventory credit experience for products during the past several years, the number and timing of regulatory approvals for the product by our competitors (both historical and projected), the market for the product, expected sell-through levels by our wholesale customers to customers with contractual pricing arrangements with us, estimated customer inventory levels and projected economic conditions. Actual product returns and inventory credits incurred are, however, dependent upon future events, including remaining shelf-life, price competition and the level of customer inventories at the time of any price decreases. We continually monitor the factors that influence the pricing of our products and customer inventory levels and make adjustments to these provisions when we believe that actual product returns, inventory credits and other allowances may differ from established reserves.

 

Royalty and license fee income are recognized when obligations associated with earning the royalty or licensing fee have been satisfied and are included in “Net revenues” in the accompanying consolidated statements of operations. Royalties earned under license agreements were $1,837 in 2003, $745 in 2002 and $879 in 2001. In accordance with EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, our accounting policy is to review each contract to determine if there are multiple revenue-generating activities that constitute more than one unit of accounting. Revenue is recognized for each unit of accounting based on revenue recognition criteria relevant to that unit. Up-front payments are deferred, if appropriate, and recognized into revenues over the obligation period. Other revenues included $318 in 2002 and $879 in 2001 of amortization of revenue deferred in accordance with SAB No. 101. Upon termination of a license agreement, during 2002, the remaining $5,981 of deferred revenue was recognized in income.

 

Shipping and handling fees billed to customers are recognized in net revenues. Shipping and handling costs are included in cost of sales.

 

Legal Costs – Legal charges are recorded for the costs anticipated to be incurred in connection with litigation and claims against us when we can reasonably estimate these costs.

 

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Research and Development Costs – Research and developments costs related to future products are expensed currently.

 

Sale of Subsidiary Stock – We elected income statement recognition as our accounting policy for sales of subsidiary stock. Accordingly, gains and losses on sales are recorded in “Other income” in the consolidated statement of operations.

 

Income Taxes – The provision for income taxes is based on the consolidated United States entities’ and individual foreign companies’ estimated tax rates for the applicable year. Deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax basis of assets and liabilities under the applicable tax laws. Deferred income tax provisions and benefits are based on the changes in the deferred tax asset or tax liability from period to period (See Note 10, Income Taxes).

 

Earnings Per Common Share – A reconciliation of the denominator of the basic and diluted earnings per share computation for income from continuing operations is as follows:

 

     Year Ended December 31,

     2003

   2002

   2001

Basic weighted average number of shares outstanding

   195,626    195,037    199,099

Effect of dilutive securities – stock options and warrants

   3,274    2,341    5,540
    
  
  

Diluted weighted average number of shares outstanding

   198,900    197,378    204,639
    
  
  

Not included in the calculation of diluted earnings per share because their impact is antidilutive:

              

Stock options outstanding

   9,017    13,669    2,784

Convertible debt

   21,895    23,643    24,891

 

Accumulated Other Comprehensive Loss – Other comprehensive loss refers to revenues, expenses, gains and losses that under accounting principles generally accepted in the United States are excluded from net income as these amounts are recorded directly as an adjustment to shareholders’ equity. Accumulated other comprehensive loss is comprised of the cumulative effects of foreign currency translation and unrealized gains and losses on available for sale equity securities and derivatives.

 

Stock-Based Compensation Plans – As permissible under SFAS No. 123, Accounting for Stock-Based Compensation, we account for all stock-based compensation arrangements using the intrinsic value method prescribed by Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, as interpreted by Financial Accounting Standards Board (“FASB”) Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, and disclose pro forma net earnings and earnings per share amounts as if the fair value method had been adopted. Accordingly, no compensation cost is recognized for stock option awards granted to employees at or above fair market value.

 

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Our pro forma net income, pro forma net income per common share and pro forma weighted average fair value of options granted, with related assumptions, assuming we had adopted the fair value method of accounting for all stock-based compensation arrangements consistent with the provisions of SFAS No. 123, using the Black-Scholes option pricing model for all options granted after January 1, 1995, are indicated below:

 

     Year Ended December 31,

 
     2003

    2002

    2001

 

Net income as reported

   $ 121,251     $ 122,756     $ 243,263  

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects

     20,702       19,034       20,139  
    


 


 


Pro forma net income

   $ 100,549     $ 103,722     $ 223,124  

Basic net income per share as reported

     0.62       0.63       1.22  

Pro forma basic net income per share

     0.51       0.53       1.12  

Diluted net income per share as reported

     0.61       0.62       1.19  

Pro forma diluted net income per share

     0.51       0.53       1.09  

Pro forma weighted average fair value of options granted

   $ 16.60     $ 7.99     $ 12.03  

Expected life (years)

     4.8       5.3       5.6  

Risk-free interest rate

     2.7-4.0 %     3.4-4.8 %     3.9-5.2 %

Expected volatility

     26 %     27 %     30 %

Dividend yield

     0 %     0 %     0 %

 

As the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. In addition, valuations are based on highly subjective assumptions about the future, including stock price volatility and exercise patterns.

 

Recently Issued Accounting Standards – In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal operation of a long-lived asset, except for certain obligations of lessees. It requires that the fair value of an asset retirement obligation be recognized as a liability in the period in which it is incurred if a reasonable estimate can be made and that the associated retirement costs be capitalized as part of the carrying amount of the long-lived asset. It is effective for fiscal years beginning after June 15, 2002. The impact of adoption of this statement was not significant.

 

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and certain provisions of APB No. 30, Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. It also amends Accounting Research Bulletin No. 51, Consolidated Financial Statements. It establishes a single accounting model for the accounting for a segment of a business accounted for as a discontinued operation that was not addressed by SFAS No. 121 and resolves other implementation issues related to SFAS No. 121. It is effective for fiscal periods beginning after December 15, 2001. The impact of adoption of this statement was not significant.

 

Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. Intangible assets that have indefinite lives and goodwill are no longer amortized. This increased net income by approximately $1,750 per quarter, or $7,000 per year. The life of one product intangible asset with a net book value of $6,519 as of January 1, 2002, was extended based on a review of the expected remaining estimated useful life. During 2002, intangible assets with indefinite lives were tested for

 

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impairment resulting in the write-down of one intangible asset by $177. The initial test for impairment of goodwill as of January 1, 2002, was completed during the second quarter and no impairments were indicated. During 2003, impairment testing of goodwill and intangible assets with indefinite lives was performed and no impairments were indicated.

 

Goodwill and Other Intangible Assets – Adoption of SFAS No. 142:

 

     Year Ended December 31,

     2003

   2002

   2001

Reported net income

   $ 121,251    $ 122,756    $ 243,263

Addback: Goodwill amortization

     —        —        5,209

Addback: Workforce in place amortization

     —        —        216

Adjust: Product intangible amortization

     —        —        3,611
    

  

  

Adjusted net income

   $ 121,251    $ 122,756    $ 252,299
    

  

  

Basic earnings per common share:

                    

Reported net income

   $ 0.62    $ 0.63    $ 1.22

Goodwill amortization

     —        —        0.03

Product intangible amortization

     —        —        0.02
    

  

  

Adjusted net income

   $ 0.62    $ 0.63    $ 1.27
    

  

  

Diluted earnings per common share:

                    

Reported net income

   $ 0.61    $ 0.62    $ 1.19

Goodwill amortization

     —        —        0.03

Product intangible amortization

     —        —        0.02
    

  

  

Adjusted net income, diluted

   $ 0.61    $ 0.62    $ 1.24
    

  

  

 

The following table displays the changes in the carrying amounts of goodwill, net, by geographic segment:

 

     North
America


    Europe

   Latin
America


    Corporate
and Other


    Consolidated
Goodwill, Net


 

January 1, 2002

   $ 3,972     $ 24,200    $ 427,157     $ 46,748     $ 502,077  

Foreign exchange and other

     —         8,639      (104,020 )     707       (94,674 )
    


 

  


 


 


December 31, 2002

   $ 3,972     $ 32,839    $ 323,137     $ 47,455     $ 407,403  

Acquisitions

     —         41,222      —         —         41,222  

Foreign exchange and other

     (2,500 )     7,792      35,859       (111 )     41,040  
    


 

  


 


 


December 31, 2003

   $ 1,472     $ 81,853    $ 358,996     $ 47,344     $ 489,665  
    


 

  


 


 


 

During the second quarter of 2002, we elected to early adopt SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. The impact of adoption was the reclassification into income from continuing operations of an extraordinary gain from the early retirement of subordinated notes of $7,120, net of taxes of $4,182, during the third quarter of 2001, an extraordinary gain of $3,413, net of taxes of $1,962, during the first quarter of 2002 and an extraordinary gain of $2,664, net of taxes of $1,531, during the second quarter of 2002.

 

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement nullifies EITF Issue No. 94-3, Liability Recognition for Certain

 

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Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). It requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred (rather than when the exit or disposal decision is made). It also establishes fair value as the objective for the initial measurement of the liability. It is effective for fiscal years beginning after December 31, 2002. The impact of adoption of this statement was not significant.

 

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangement with Multiple Deliverables, which is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. It addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities and how arrangement considerations should be measured and allocated to the separate units of accounting in the arrangement. Reclassification of prior period amounts was required. The impact of adoption was not significant.

 

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities an interpretation of ARB No. 51, which addresses consolidation by business enterprises of variable interest entities (“VIE’s”). During December 2003, the FASB revised FASB Interpretation No. 46, deferring the effective date of application for public companies to the first reporting period ending after March 15, 2004, except for disclosure requirements and VIE’s that are special purpose entities. As part of the acquisition of Lab Chile, we acquired a note receivable secured by an option to acquire all of the outstanding shares of common stock of a company that owns 50.1% of a Latin American pharmacy chain, which had net revenues of $42,249 during the year ended December 31, 2003. As a result of the adoption on the interpretation, we may be required to consolidate the pharmacy chain as of March 31, 2004. We expect that our maximum exposure to loss is the recorded value of the note receivable, which was $1,728 at December 31, 2003.

 

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which amends and clarifies accounting for derivative instruments under SFAS No. 133. It is effective for contracts entered into after June 30, 2003. The impact of adoption of this statement was not significant.

 

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liability and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The impact of adoption of this statement was not significant.

 

In December 2003, the FASB issued SFAS No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits – an amendment of FASB Statements No. 87, 88 and 106 (revised 2003), that revised employers’ disclosures about pension plans and other postretirement benefits plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, 88 and 106. This statement retains the disclosure requirements in the original SFAS No. 132 and requires additional information on changes in the benefits obligations and fair values of plan assets. It requires additional disclosures including information describing the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. It is effective for financial statements with fiscal years ending after December 15, 2003. The interim period disclosure requirements are effective for interim periods beginning after December 15, 2003. Disclosure information about foreign plans required by paragraphs 5(d), 5(e), 5(g), and 5(k) of this statement is effective for fiscal years ending after June 15, 2004. The impact of adoption of this statement was not significant.

 

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In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, which revises the existing revenue recognition SAB in Topic 13, Revenue Recognition, in order for the interpretive guidance to be consistent with current accounting guidance, primarily EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. The impact of adoption was not significant.

 

(3) Mergers and Acquisitions:

 

On January 24, 2003, we acquired ChemSource Corporation in Puerto Rico from Chemo Iberica S.A. and Quimica Sintetica S.A. for 1,000 shares of our common stock, valued at $12,393, and $100 in cash. ChemSource Corporation was subsequently renamed API Industries, Inc. (“API”). The total purchase price, including acquisition costs of $315, less cash acquired of $358, was $12,450. API develops, manufactures and sells active pharmaceutical ingredients for various pharmaceutical products, including many products that we sell or have under development. We acquired API to further our objective of complementing existing businesses and to provide new products and marketing opportunities. The operating results of API are included in the consolidated financial statements subsequent to the January 24, 2003, acquisition date.

 

On May 27, 2003, we entered into an agreement to acquire Advanced Tobacco Products, Inc. (“ATP”), for 237 shares of our common stock, valued at $4,097. On September 23, 2003, the transaction to acquire ATP was approved by the shareholders of ATP and the transaction was completed. The total purchase price, including acquisition costs of $254, less cash acquired of $332, was $4,183. ATP is an inhalation technology company that developed a patent for nicotine impermeable copolymer technology marketed for smoking cessation, that it sold to Pharmacia in 1987. ATP receives payments from Pharmacia on the sales of those products. ATP also has an exclusive license to certain dry powder inhaler technology from Duke University. We acquired ATP because of the complementary nature of ATP’s technology to our product line and because of the anticipated payments from sales of Pharmacia’s products incorporating the patented nicotine technology sold by ATP to Pharmacia. The operating results of ATP are included in the consolidated financial statements subsequent to the consummation of the acquisition on September 23, 2003.

 

On October 1, 2003, we acquired a branded respiratory business including license rights to certain branded respiratory products and the related marketing and sales forces in nine European countries. This acquisition was treated for accounting purposes as the acquisition of a business, rather than the acquisition of assets, since it meets the definition of a business under EITF Issue No. 98-3, Determining Whether a Nonmonetary Transaction Involves the Receipt of Productive Assets or of a Business. The total consideration due from us under the agreement, including minimum annual royalty payments, is $77,000, of which we paid $26,000 on closing, $24,000 is due on the first and second anniversaries of the closing date and $3,000 is due on the third anniversary. We are also required to make additional royalty payments on achieving certain annual sales levels up to a maximum of $1,265 per year, or $6,575 in total. The total purchase price, including acquisition costs of $949, plus the present value of future minimum royalty payments, which is treated as part of the purchase price, is $75,605. The present value of the payments due are recorded as long-term debt. As part of the acquisition, we assumed certain defined benefit obligations, which were recorded as long-term liabilities in the amount of the estimated projected benefit obligation. In addition, a receivable from the sellers was recorded for the amount of the estimated projected benefit obligation pending resolution of the amount that will be funded by the sellers into the pension plan or to us. The preliminary allocation of the purchase price is subject to adjustment based on receipt of final information on the fair value of assets acquired and liabilities assumed. The operating results of the acquired business are included in the consolidated financial statements subsequent to the consummation of the acquisition on October 1, 2003.

 

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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the dates of acquisition, the purchase price paid and resulting goodwill.

 

Current assets, excluding cash acquired

   $ 7,446

Property, plant and equipment

     11,599

Intangible assets

     33,730

Other assets

     3,115
    

Total assets acquired

     55,890
    

Current liabilities

     2,413

Long-term debt

     2,461
    

Total liabilities assumed

     4,874
    

Net assets acquired

   $ 51,016
    

Purchase price:

      

Cash, net of cash acquired

   $ 25,592

Acquisition costs

     1,518

Present value of future minimum royalty payments

     48,638

Fair market value of stock issued

     16,490
    

Total

   $ 92,238
    

Goodwill

   $ 41,222
    

 

The results of operations prior to the acquisitions were not significant in relation to our results of operations.

 

During 2002, IVAX Pharmaceuticals s.r.o., our subsidiary in the Czech Republic, acquired the remaining outstanding shares owned by minority interests for $2,151, resulting in IVAX Pharmaceuticals s.r.o. becoming wholly-owned.

 

On August 30, 2002, we acquired for $6,000 in cash Glaxo Wellcome S.A. (subsequently renamed “IVAX Manufacturing Argentina S.A.”), an Argentine manufacturing pharmaceutical company consisting primarily of a manufacturing facility, in order to consolidate manufacturing operations in Argentina. The operating results of this company are included in the consolidated financial statements subsequent to its acquisition date.

 

(4) Partial Sale of IVAX Diagnostics, Inc.:

 

On March 14, 2001, our wholly-owned subsidiary, IVAX Diagnostics, Inc. (“IVAX Diagnostics”), merged with b2bstores.com, a non-operating company with approximately $22,285 of cash, resulting in our owning approximately 70% of the newly merged public company. We received 20,000 shares of b2bstores.com common stock in exchange for all of the outstanding shares of IVAX Diagnostics and b2bstores.com’s name was changed to IVAX Diagnostics. For accounting purposes, this transaction is treated as a partial sale of IVAX Diagnostics in exchange for cash of b2bstores.com. We elected income statement recognition as our accounting policy for sales of subsidiary stock and recorded a gain of $10,278, which is included in “Other income, net” in the consolidated statements of operations. Deferred taxes have not been recorded related to the gain as it represents an outside basis difference and we expect we can recover our investment in IVAX Diagnostics tax-free. Also recorded was $1,041 of nondeductible compensation expense from outstanding options under the IVAX Diagnostics 1999 Stock Option Plan converting to a fair value plan as a result of the merger. IVAX Diagnostics is engaged in the development, manufacture and marketing of diagnostic test kits, reagents and instruments.

 

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(5) Income from Discontinued Operations:

 

During June 2003, we recorded income from discontinued operations in the amount of $22,204, net of tax of $12,763, or $0.11 per diluted share, resulting from a number of agreements, for certain patent and product rights and the settlement of litigation related to a contingent sale price dispute from our 1997 sale of McGaw, Inc. to B. Braun Melsungen AG. Under these agreements, we received $13,896 of cash, net of related expenses incurred in 2003 and recorded a current tax payable of $5,072. In addition, the agreements provide for additional payments totaling $25,500 due in five approximately equal annual installments, which were recorded as a receivable discounted at 4%. We also accrued $1,622 of additional fees related to the settlement and a deferred tax liability of $7,691.

 

(6) Sale of Product Rights:

 

During 1997, we entered into an agreement to sell to Ortho-McNeil Pharmaceutical, Inc. (“OMP”), a subsidiary of Johnson & Johnson, which acquired ALZA Corporation in 2002, certain rights in Elmiron®. The agreement required an up-front payment, as well as milestones and royalties on sales of Elmiron®. A portion of the up-front and milestone payments that we have received and included in other income in prior years, $33,975 as of January 1, 2004, is refundable through December 31, 2004, and then ratably decreases through 2009, if our patent rights are found to be invalid and a brand equivalent of Elmiron® is introduced by another company.

 

We believe that the probability of occurrence of our patent rights being found invalid and a brand equivalent of Elmiron® being introduced by another company is remote, because substantially all agreements for the sale and licensing of a product contain representations and warranties by the seller that the underlying patent is valid. Elmiron® possesses strong patent protection and exclusive use legal protections and Elmiron®’s current and expected future market size makes it uneconomical for another company to incur the substantial cost to develop a generic equivalent, perform the long FDA clinical trials and litigate with OMP and us to obtain generic status. If the patent were to be challenged, then we, as the owner of the patent rights, would be entitled to a 30-month statutory delay, during which we would maintain exclusive right to sell Elmiron®. The active ingredient for Elmiron® is manufactured by only one source in the world and is subject to a “know-how” license held by us and because of the unique aspects of Elmiron®, we believe that there is no reliable means for a competitor to demonstrate the bio-equivalence that would be required for approval of a potential generic. The potential refund represents a warranty provision, which is not inconsistent with representations and warranties (typically without quantification of damages) that are present in most sales and licensing agreements. When conducting our analysis of the amount to record of the warranty obligation, we first assessed the chance of an adverse outcome under the warranty arrangement. Since we determined the chance of an adverse outcome to be remote, no provision for the warranty was recorded.

 

During the fourth quarter of 2002, we received $20,000 in connection with certain amendments to the contract. Upon acquisition of ALZA by OMP, representatives of OMP made it clear to us that they believed that the existing royalty structure, which provided for escalating royalties at certain sales levels, created a disincentive towards the continued growth of and their investment in the product. In order to address these issues, in exchange for minimum guaranteed royalties through 2006, we agreed to forego our rights to receive increased royalty payments upon sales of Elmiron® by OMP beyond certain sales levels and reduced the royalty rates we would receive at other sales levels. We also provided for the orderly transition of the manufacture of Elmiron® to OMP. As the $20,000 payment was nonrefundable and since we have no other obligations under the agreement other than those related to the manufacture of Elmiron® on fair market terms, we determined that the $20,000 up-front payment is the culmination of a separate earnings process and recorded the payment as additional proceeds from the 1997 sale of Elmiron® to OMP. We will continue to receive payments from OMP over the next several years based upon sales of Elmiron® by OMP.

 

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Royalty and milestone payments from the 1997 sale of rights in Elmiron® and certain other urology products in the United States and Canada to OMP totaled $12,835 in 2003, $35,150 in 2002 and $13,792 in 2001, and are included in other income as additional gain on the sale of product rights. Royalties and milestone payments receivable from OMP included in “Other current assets” in the accompanying consolidated balance sheets totaled $8,307 at December 31, 2003, $12,276 at December 31, 2002, and $11,070 at December 31, 2001.

 

(7) Investments in and Advances to Unconsolidated Affiliates:

 

We have ownership interests of 50% or less in various unconsolidated affiliates. Non-marketable investments in these affiliates totaled $9,625 at December 31, 2003, and $6,638 at December 31, 2002, and are included in “Other assets” in the accompanying consolidated balance sheets. Undistributed earnings of these affiliates, as well as our equity in their earnings, were not significant in any of the periods presented in the accompanying consolidated financial statements.

 

(8) Debt:

 

Long-term debt consists of the following:

 

     December 31,

     2003

   2002

4.5% Convertible Senior Subordinated Notes due 2008. Interest payable semi-annually. 4.8% effective interest rate.

   $ 533,900    $ 561,200

5.5% Convertible Senior Subordinated Notes due 2007. Interest payable semi-annually. 5.9% effective interest rate.

     249,000      250,000

QVAR® related payables

     55,368      75,086

European respiratory business related payables

     49,003      —  

Mortgage note, due August 21, 2008, 4.3% interest rate through August 21, 2005, thereafter prime plus 0.25%

     14,857      —  

Other international subsidiaries’ debt, due from 2004 to 2010, at interest rates ranging from 3.5% to 5.5%

     11,814      14,670
    

  

Total long-term debt

     913,942      900,956

Less: Current portion of long-term debt

     58,607      28,617
    

  

Long-term debt, net of current portion

   $ 855,335    $ 872,339
    

  

 

The 4.5% Notes are convertible at any time prior to maturity, unless previously redeemed, into 24.96875 shares of our common stock per $1,000 of principal amount of the 4.5% Notes. This results in a conversion price of approximately $40.05 per share. As of December 31, 2003, the 4.5% Notes could convert into 13,331 shares of our common stock. We may redeem the 4.5% Notes on or after May 29, 2004. Unamortized debt issuance costs related to the 4.5% Notes was $8,816 at December 31, 2003, and $11,390 at December 31, 2002, which is being amortized using the effective interest method to interest expense over the life of the 4.5% Notes. During 2003, we repurchased $27,300 of 4.5% Notes for $24,496, plus accrued interest of $346, and wrote off debt issuance costs of $530. This resulted in a gain on the extinguishment of debt of $2,274. During 2002, we repurchased $98,800 of 4.5% Notes for $79,252, plus accrued interest of $1,257, and wrote off debt issuance costs of $2,202, resulting in a gain on extinguishment of debt of $17,346. During 2001, we repurchased $65,000 of 4.5% Notes for $52,070, plus accrued interest of $1,155, and wrote off debt issuance costs of $1,628. This resulted in a gain on the extinguishment of debt of $11,302.

 

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The 5.5% Notes are convertible at any time prior to maturity, unless previously redeemed, into 33.6 shares of our common stock per $1,000 of principal amount of the 5.5% Notes. This results in a conversion price of approximately $29.72 per share. As of December 31, 2003, the 5.5% Notes could convert into 8,378 shares of our common stock. We may redeem the 5.5% Notes on or after May 29, 2003. Unamortized debt issuance costs related to the 5.5% Notes was $2,925 at December 31, 2003, and $3,905 at December 31, 2002, which is being amortized using the effective interest method to interest expense over the life of the 5.5% Notes. During 2003, we repurchased $1,000 of 5.5% Notes for $935, plus accrued interest of $12, and wrote off debt issuance costs of $16. This resulted in a gain on the extinguishment of debt of $49.

 

As described in Note 2, payments for the acquisition of QVAR® are due through the third anniversary of the effective date. The payments carried no stated interest rate and were discounted at a 3.7% rate resulting in amounts that were recorded as long-term debt in the accompanying consolidated balance sheets of $55,368 at December 31, 2003, and $75,086 at December 31, 2002. The current portion of this debt was $31,000 at December 31, 2003. In addition, payments for the technical files, trademark and related rights to the MDPI are due through June 30, 2005. The payments carried no stated interest rate and were discounted at a 3.5% rate resulting in long-term debt of $5,868 at December 31, 2003, and $7,359 at December 31, 2002. The current portion of this debt was $0 at December 31, 2003.

 

As described in Note 3, the present value of future minimum royalty payments for the acquisition of a branded respiratory business including license rights and the related marketing and sales forces in nine European countries are due through the third anniversary of the effective date. The payments carried no stated interest rate and were discounted at a 3.0% rate resulting in $49,003 at December 31, 2003, that was recorded as additional long-term debt in the accompanying consolidated balance sheet. The current portion of this debt was $24,000 at December 31, 2003.

 

On August 22, 2003, we executed a mortgage note and borrowed $15,000 from a financial institution. The note matures on August 21, 2008, and bears interest at an annual rate of 4.3% through August 21, 2005. Thereafter, through the maturity date, the interest rate is adjusted annually based on a variable rate of twenty-five basis points over the prime rate. The note requires monthly principal payments of $36 plus interest, with a balloon payment of $12,888 due August 21, 2008. The mortgage covers the land and building at our corporate headquarters in Miami which had a net book value of $7,921 at December 31, 2003.

 

During January 2002, we repaid $48,000 of United States denominated loans held by an Argentine subsidiary resulting in a pretax foreign exchange loss of $2,824.

 

Certain of our international subsidiaries maintain relationships with foreign banks providing short-term lines of credit in the aggregate amount of approximately $23,000 at December 31, 2003, and $22,000 at December 31, 2002. Short-term borrowings totaled $17,804 at December 31, 2003, and $14,935 at December 31, 2002, and are included as “Loans payable” in the accompanying consolidated balance sheets.

 

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The estimated fair values of long-term debt and notes payable are as follows:

 

     December 31,

     2003

   2002

4.5% Convertible Senior Subordinated Notes due 2008

   $ 538,924    $ 461,893

5.5% Convertible Senior Subordinated Notes due 2007

     255,701      224,173

QVAR® related payables

     55,368      75,086

European respiratory business related payables

     49,003      —  

Mortgage note

     14,857      —  

Other international subsidiaries’ debt

     11,814      14,671
    

  

Total

   $ 925,667    $ 775,823
    

  

 

Fair value of the 4.5% and 5.5% Convertible Senior Subordinated Notes is based on available quoted market prices. We believe that the carrying amounts of other debt approximate the fair value due to it being recently incurred or the short-term nature of the debt.

 

The stated future maturities of all long-term debt for the next five years and thereafter are approximately $58,608 for 2004, $51,968 for 2005, $2,771 for 2006, $251,139 for 2007, $548,056 for 2008 and $1,400 thereafter.

 

(9) Restructuring Costs:

 

During 2003, we incurred $3,706 of restructuring costs, primarily employee termination benefits, related to restructuring in Europe and Chile.

 

During 2002, we incurred $4,242 of restructuring costs, which were substantially paid out during the second quarter, at two subsidiaries, consisting primarily of employee termination benefits.

 

During 2001, we incurred $2,367 of restructuring costs, primarily severance, related to the integration of our Argentine operations with the Argentine operations of Lab Chile, which were expensed when paid. In addition, we recorded $887 of accruals for restructuring the operations of Lab Chile, which are included in non-cash activity in 2001 in the table below.

 

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The components of the restructuring costs, spending and other activity, as well as the remaining restructuring reserve balances at December 31, 2003, 2002 and 2001 are shown in the table below. These restructuring costs are shown as “Restructuring costs” in the accompanying consolidated statements of operations. The restructuring reserve balances are included in “Accrued expenses and other current liabilities” in the accompanying consolidated balance sheets.

 

     Employee
Termination
Benefits


    Plant
Closures


    Total

 

Balance at January 1, 2001

   $ 110     $ 619     $ 729  

Accrual of restructuring costs

     2,395       (28 )     2,367  

Cash payments during 2001

     (2,756 )     (344 )     (3,100 )

Non-cash activity

     718       143       861  
    


 


 


Balance at December 31, 2001

     467       390       857  

Accrual of restructuring costs

     4,398       (156 )     4,242  

Cash payments during 2002

     (4,291 )     (241 )     (4,532 )

Non-cash activity

     84       7       91  
    


 


 


Balance at December 31, 2002

     658       —         658  

Accrual of restructuring costs

     3,485       221       3,706  

Cash payments during 2003

     (2,522 )     —         (2,522 )

Non-cash activity

     106       21       127  
    


 


 


Balance at December 31, 2003

   $ 1,727     $ 242     $ 1,969  
    


 


 


 

(10) Income Taxes:

 

The provision for income taxes on continuing operations before minority interest consists of the following:

 

     Year Ended December 31,

 
     2003

    2002

    2001

 

Current:

                        

United States Federal

   $ 7,148     $ 34,635     $ 75,547  

State

     2,764       2,267       4,520  

Puerto Rico and the U.S. Virgin Islands

     (1,010 )     854       860  

Foreign

     19,558       22,096       16,783  

Deferred

                        

United States

     19,894       (7,491 )     (48,777 )

Foreign

     (2,795 )     (619 )     5,132  
    


 


 


Total

   $ 45,559     $ 51,742     $ 54,065  
    


 


 


 

The components of income from continuing operations before income taxes and minority interest are as follows:

 

     Year Ended December 31,

     2003

   2002

   2001

United States

   $ 87,938    $ 83,539    $ 209,443

Puerto Rico and the U.S. Virgin Islands

     19,417      11,693      17,928

Foreign

     37,063      74,267      69,613
    

  

  

Total

   $ 144,418    $ 169,499    $ 296,984
    

  

  

 

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Table of Contents

A reconciliation of the difference between the expected provision for income taxes using the statutory United States Federal tax rate and our actual provision is as follows:

 

     Year Ended December 31,

 
     2003

    2002

    2001

 

Tax using statutory United States Federal tax rate at 35%

   $ 50,547     $ 59,324     $ 104,171  

Effect of state income taxes

     1,797       1,474       2,938  

Write-down of non-deductible cost in excess of net assets of acquired companies

     —         —         18  

Utilization of previously reserved net operating loss and tax credit carryforwards

     —         —         (29,590 )

Tax effect of intercompany income eliminated on books

     —         —         7,600  

Reduction of valuation allowance on deferred tax assets

     (2,611 )     (3,565 )     (11,216 )

Foreign tax rate differential

     (3,555 )     (10,131 )     (20,253 )

Effect of Puerto Rico taxes and tollgate

     (1,010 )     854       860  

Puerto Rico and U.S. possessions tax incentives

     (6,057 )     (3,881 )     (6,275 )

Foreign operating losses not benefited

     9,692       5,615       13,984  

Tax claims and other matters

     (2,700 )     —         (6,333 )

Other

     (544 )     2,052       (1,839 )
    


 


 


Total

   $ 45,559     $ 51,742     $ 54,065  
    


 


 


 

In 2003 and 2002, the effective tax rate was less than the statutory rate primarily due to low tax rates applicable to our Puerto Rico and Waterford, Ireland manufacturing operations and our Swiss and Chilean operations. In 2001, the effective tax rate was lower than the United States statutory income tax rate, principally due to net operating loss and tax credit carryforwards and tax incentives in certain jurisdictions where our manufacturing facilities are located. The domestic current provision was favorably impacted by $29,590 during 2001 from utilization of previously reserved net operating loss (“NOL”) and tax credit carryforwards. The 2001 domestic current provision was also favorably impacted by the non-taxable gain on the partial sale of IVAX Diagnostics. Payment of the current tax provision will be reduced by $1,930 for our domestic operations and $2,303 for our foreign operations for the year ended December 31, 2003, were reduced by $1,411 for our domestic operations and $421 for our foreign operations the for the year ended December 31, 2002, and were reduced by $8,040 for our domestic operations and $2,571 for our foreign operations for the year ended December 31, 2001, representing the incremental impact of compensation expense deductions associated with non-qualified stock option exercises during those years. In addition, during 2001 we recorded $7,390 of tax effect of prior years’ stock option exercises. These amounts were credited to “Capital in excess of par value.” During 2001, we recognized $20,000 United States taxable income on the intercompany assignment of a contract. For financial reporting purposes this transaction was eliminated in consolidation.

 

Valuation allowances previously recorded against the foreign and domestic net deferred tax assets of $2,611 in 2003, $3,565 in 2002 and $11,216 in 2001 were reversed due to management’s expectation of increased taxable income in the coming year. The domestic net deferred tax asset was $79,187 at December 31, 2003, and $108,654 at December 31, 2002, and the aggregate net deferred tax asset in foreign countries was $14,930 at December 31, 2003, and $7,508 at December 31, 2002. As of December 31, 2003 and 2002, the domestic deferred tax asset was not reserved. As of December 31, 2003, the aggregate foreign net deferred tax asset was approximately 66% reserved. Realization of the net deferred tax assets is dependent upon generating sufficient future domestic and foreign taxable income. Although realization is not assured, management believes it is more likely than not that the unreserved portion of the net deferred tax assets will be realized.

 

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Table of Contents

Deferred taxes arise due to temporary differences in reporting of certain income and expense items for book purposes and income tax purposes. A detail of the significant components of deferred tax assets (liabilities) in the accompanying consolidated balance sheets is as follows:

 

     December 31,

 
     2003

    2002

 

Accounts receivable allowances

   $ 66,542     $ 77,755  

Reserves and accruals

     13,039       16,969  

Differences in capitalization of inventory costs

     243       406  

Other

     6,918       4,809  
    


 


Amount included in “Other current assets”

     86,742       99,939  
    


 


Basis differences on fixed assets

     —         513  

Recognition of revenue

     219       146  

Carrying value of long-term assets

     1,340       1,978  

Other

     4,035       10,564  

Tax credits

     1,600       1,600  

Net operating losses – United States

     4,790       5,850  

Net operating losses – foreign

     34,009       27,783  
    


 


Amount included in “Other assets”

     45,993       48,434  
    


 


Other, amount included in “Accrued expenses and other current liabilities”

     (5,012 )     (6,732 )
    


 


Fixed assets basis difference

     (1,631 )     (3,055 )

Other

     (17,124 )     (17,374 )
    


 


Other, amount included in “Other long-term liabilities”

     (18,755 )     (20,429 )
    


 


Deferred tax asset

     108,968       121,212  

Valuation allowance

     (34,009 )     (27,783 )
    


 


Net deferred tax asset

   $ 74,959     $ 93,429  
    


 


 

United States income taxes have not been provided on undistributed earnings of Puerto Rican operations or foreign subsidiaries, as such earnings are being retained indefinitely by such subsidiaries for reinvestment. The cumulative amount of such undistributed earnings is approximately $304,449 as of December 31, 2003. Any United States tax amounts due would be reduced by allowable foreign tax credits.

 

Income from IVAX Pharmaceuticals’ Puerto Rico manufacturing operations is subject to certain tax exemptions under the terms of a grant from the Puerto Rican government, which will expire on January 1, 2021. The grant reduced tax expense by approximately $6,217 in 2003, $3,515 in 2002 and $4,499 in 2001. Under the terms of the grant, IVAX Pharmaceuticals is required to maintain certain employment levels.

 

We have historically received a United States tax credit under Section 936 of the Internal Revenue Code for certain income generated by our Puerto Rico and Virgin Islands operations. This credit was approximately $6,057 for 2003, $3,881 for 2002 and $6,275 for 2001, and offset the United States tax liability of such operations. In 1996, Congress repealed the Section 936 tax credit and it will be phased out over four years beginning in 2002. Under the current tax law, no tax credit will be available after December 31, 2005.

 

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Table of Contents

At December 31, 2003, we had a limited United States NOL carryforward, which can be used only at an annual rate of $3,028, and foreign NOL carryforwards, which are comprised of:

 

Expire


   United
States


   Foreign

2004

   $ —      $ 5,940

2005

     —        14,686

2006

     6,056      10,468

2007

     2,733      52,772

2008

     4,896      14,061

2009

     —        6,348

2010

     —        10,940

2011

     —        497

2012

     —        7,200

2013

     —        1,408

Indefinite

     —        57,417
    

  

Total

   $ 13,685    $ 181,737
    

  

 

Minority interest included in the accompanying consolidated statements of operations is net of a provision for income taxes of $29 in 2003, $37 in 2002 and $(67) in 2001.

 

(11) Retirement Plans:

 

401(k) Plans - Our employees within the United States and the Virgin Islands are eligible to participate in a 401(k) retirement plan and Puerto Rico employees are eligible to participate in a 165(e) plan, which permit pre-tax employee payroll contributions (subject to certain limitations) and discretionary employer matching contributions. Total matching contributions were $2,010 in 2003, $1,454 in 2002 and $1,275 in 2001.

 

Pension Plans – Our employees within Ireland are eligible to participate in a defined benefit pension plan. The plan requires employees to share in the costs. As of December 31, 2003, 544 employees were covered by this plan and 145 former members have retained entitlements to deferred benefits. As of December 31, 2002, 560 employees were covered by this plan.

 

Actuarial assumptions for the plan include: (a) 7.0% for the expected long-term rate of return on plan assets, (b) 5.25% for 2003, 5.5% for 2002 and 6.0% for 2001 for the discount rate calculating the projected benefit obligation and (c) 4.0% for the rate of average future increases in compensation levels.

 

Net periodic pension costs, representing our contributions to the plan, for the twelve months ended December 31, 2003 and 2002, were as follows:

 

     December 31,

 
     2003

    2002

 

Net Periodic Pension Cost:

                

Service cost

   $ 2,028     $ 994  

Interest cost

     846       533  

Expected return on plan assets

     (675 )     (578 )

Amortization of transition obligation

     233       45  
    


 


Net periodic pension cost

   $ 2,432     $ 994  
    


 


 

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Table of Contents

A reconciliation of the projected benefit obligation for the pension plan to the recorded accrued pension liability is as follows:

 

     December 31,

 
     2003

    2002

 

Projected benefit obligation for service rendered to date

   $ (21,296 )   $ (14,315 )

Plan assets at fair value, primarily mutual funds

     13,176       8,262  
    


 


Projected benefit obligation in excess of plan assets

     (8,120 )     (6,053 )

Unrecognized net gain

     (404 )     —    

Unrecognized net obligation

     7,007       6,053  
    


 


Accrued pension liability

   $ (1,518 )   $ —    
    


 


 

A reconciliation of the pension benefit obligation is as follows:

 

     December 31,

 
     2003

    2002

 

Pension Benefit Obligations:

                

Start of year

   $ 14,315     $ 8,416  

Service cost

     2,028       1,606  

Employee contribution

     659       586  

Interest cost

     846       533  

Benefits paid

     (242 )     (251 )

Unrecognized actuarial gain

     404       1,482  

Translation adjustment

     3,286       1,943  
    


 


At end of year

   $ 21,296     $ 14,315  
    


 


 

A reconciliation of the fair value of the pension assets is as follows:

 

     December 31,

 
     2003

    2002

 

Fair Value of Pension Assets:

                

Start of year

   $ 8,262     $ 7,206  

Employer contribution

     1,069       994  

Employee contribution

     659       585  

Actual return

     1,442       (1,542 )

Benefits paid

     (242 )     (252 )

Translation adjustment

     1,986       1,271  
    


 


At end of year

   $ 13,176     $ 8,262  
    


 


 

The accumulated benefit obligation was $15,310, of which $10,514 was vested, at December 31, 2003, and $6,494, of which $5,569 was vested, at December 31, 2002.

 

We sponsored a defined benefit pension plan for employees within the United Kingdom, which was closed in 1998 and contributions to the plan were ceased. As a result of closing the plan, the accumulated benefit obligation, all of which was vested, equals the projected benefit obligation. In addition, we have initiated the process of terminating the pension plan and agreed with the trustees that any excess assets over the Minimum Funding Requirement will not revert to us, which is treated as a plan amendment. A valuation of the funded status of the plan in relation to the Minimum Funding Requirement under United Kingdom regulations for termination purposes is in process.

 

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Table of Contents

Net pension expenses for the United Kingdom plan were $482 for 2003 and $0 for 2002.

 

A reconciliation of the projected benefit obligation for the United Kingdom pension plan to the recorded accrued pension liability is as follows:

 

     December 31,

 
     2003

    2002

 

Projected benefit obligation for service rendered to date

   $ (15,985 )   $ (16,008 )

Plan assets at fair value, primarily mutual funds

     15,985       13,651  
    


 


Projected benefit obligation in excess of plan assets

     —         (2,357 )

Unrecognized net obligation

     3,939       2,357  

Prior service cost

     (4,684 )     —    
    


 


Accrued pension liability

   $ (745 )   $ —    
    


 


 

As discussed in Note 3, on October 1, 2003, we assumed a defined benefit pension plan in Germany related to the purchase of a branded respiratory business in Europe. As of December 31, 2003, 12 employees were covered by this plan. A receivable from the sellers of $2,645 as of December 31, 2003, was recorded for the amount of the estimated projected benefit obligation pending resolution of the amount that will be funded by the sellers into the pension plan or to us. In addition, the projected benefit obligation of $2,746 as of December 31, 2003, is recorded in other long-term liabilities. During the fourth quarter of 2003, $95 of pension expense was recorded related to the plan.

 

(12) Shareholders’ Equity:

 

Equity Compensation Plan Information - The following table summarizes information about equity compensation plans (number of shares in thousands):

 

Plan Category


  

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights

(a)


  

Weighted-average
exercise price of
outstanding
options, warrants
and rights

(b)


  

Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))

(c)


Equity compensation plan approved by security holders:

                

1994 Plan

   8,450    $ 15.56    1,405

Equity compensation plans not approved by security holders:

                

1997 Plan

   11,299      17.40    4,681

1985 Plan

   28      9.00    —  
    
         

Total

   19,777    $ 16.60    6,086
    
         

 

We administer and have stock options outstanding under our 1997 Employee Stock Option Plan (“1997 Plan”), our 1994 Stock Option Plan (“1994 Plan”) and our 1985 Stock Option Plan (“1985 Plan”). The options outstanding under the plans assumed in business acquisitions were converted into options to acquire our common stock using the applicable exchange ratios. No additional stock options may be issued under the 1985 Plan. On July 28, 2003, our Board of Directors approved an increase to 23,000 shares of our common stock that may be issued under the 1997 Plan. The 1994 Plan permits the issuance of options to employees, non-employee directors and consultants to purchase up to 13,125 shares of our common stock. Both plans provide that the exercise price of the issued options shall be no less than the fair market value of the common stock on the date of grant and that the option terms shall not exceed ten years.

 

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Table of Contents

The following table presents additional information concerning the activity in the stock option plans (number of shares in thousands):

 

     2003

   2002

   2001

     Number
of
Shares


    Weighted
Average
Exercise
Price


   Number
of
Shares


    Weighted
Average
Exercise
Price


   Number
of
Shares


    Weighted
Average
Exercise
Price


Balance at beginning of year

   19,040     $ 17.40    16,756     $ 16.98    13,685     $ 11.88

Granted

   4,196       11.85    3,874       17.78    5,097       27.97

Exercised

   (1,710 )     10.04    (681 )     7.72    (1,531 )     9.18

Terminated/exchanged

   (1,749 )     20.30    (909 )     20.65    (495 )     13.20
    

        

        

     

Balance at end of year

   19,777       16.60    19,040       17.40    16,756       16.98
    

        

        

     

Exercisable at December 31,

   10,133     $ 15.93    8,771     $ 13.07    5,804     $ 9.60

 

The following table summarizes information about fixed stock options outstanding at December 31, 2003 (number of shares in thousands):

 

     Options Outstanding

   Options Exercisable

Range of

Exercise Prices


   Number
Outstanding
at 12/31/03


   Weighted
Average
Remaining
Contractual
Life


   Weighted
Average
Exercise
Price


   Number
Exercisable
at 12/31/03


   Weighted
Average
Exercise
Price


$ 0.00 - $3.94

   22    0.8    $ 3.73    22    $ 3.73

$ 3.95 - $7.88

   3,246    1.8      5.16    3,246      5.16

$ 7.89 - $11.82

   3,800    6.8      10.92    239      9.73

$ 11.83 - $15.76

   3,397    4.9      14.19    2,063      14.47

$ 15.77 - $19.70

   4,281    5.4      18.91    1,773      18.81

$ 19.71 - $23.64

   278    4.2      21.58    149      21.75

$ 23.65 - $27.58

   2,112    4.0      26.06    1,001      26.01

$ 27.59 - $31.52

   2,109    5.9      28.77    1,277      28.77

$ 31.53 - $35.46

   313    3.6      34.35    229      34.39

$ 35.47 - $39.40

   219    4.6      38.19    134      38.24
    
              
      
     19,777    4.8    $ 16.60    10,133    $ 15.93
    
              
      

 

Employee Stock Purchase Program – On June 17, 1999, the IVAX Corporation 1999 Employee Stock Purchase Plan (“ESPP”) was approved at the Annual Meeting of Shareholders. Our Board of Directors also approved the purchase of common stock in the open market, as needed, for the ESPP. The maximum number of shares available for sale under the ESPP is 5,250, subject to future increases as stated in the plan. The ESPP became effective January 1, 2000, for employees based in the United States and Puerto Rico, and allows them to purchase our common stock at 85% of the fair market value on the enrollment date or exercise date, whichever is lower. The maximum amount of stock an employee may purchase in a year is $25 and subsequent resale is restricted as stated in the plan. The ESPP is accounted for as a non-compensatory plan.

 

Share Repurchase Program – On March 15, 2002, our Board of Directors expanded the authorization of our share repurchase program by an additional 10,000 shares of common stock or a like-valued amount of our convertible debentures, bringing the total authorized for repurchase to 67,500 shares. From December 31, 1997, through December 31, 2003, we repurchased 54,324 shares of common stock at a total cost, including commissions, of $562,410. Under Florida law, unless otherwise designated by our Board of Directors, repurchased shares constitute authorized but unissued shares.

 

We repurchased (including shares repurchased via the physical settlement method disclosed below) 700 shares of our common stock in 2003 at a total cost, including commissions, of $8,997, 3,882 shares in 2002 for $59,391 and 6,779 shares in 2001 for $155,097.

 

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Table of Contents

Put Options – Prior to adopting EITF Issue No. 00-19 in 2001, we reclassified the maximum repurchase obligation for outstanding put options under the physical settlement method of $84,503 from “Capital in excess of par value” into a separate temporary equity account “Put options.”

 

During 2001, we issued eight free-standing put options for 1,850 shares, bearing strike prices ranging from $19.00 to $31.50, expiring from November 2001 through April 2002, and collected premiums totaling $4,670 that were credited to “Capital in excess of par value” in the accompanying consolidated balance sheet at December 31, 2001. In addition, we rolled forward (renewed) three put options for 875 shares into two put options for 875 shares prior to expiration, bearing strike prices ranging from $29.80 to $31.80, expiring from May 2001 through January 2002 and collected premiums totaling $153 that were credited to “Capital in excess of par value” in the accompanying consolidated balance sheet at December 31, 2001. In the event the put options were exercised, we had the right to elect to settle by one of three methods: physical settlement by payment in exchange for our shares, net cash settlement or net share settlement. These European style options were exercisable only on the respective expiration dates and would be exercised “in the money” once the strike price per option exceeded the market value of our common stock on the expiration date of the option.

 

During 2001, seven freestanding put options for 2,063 shares of our common stock expired unexercised, one of which was issued in 2001 for 200 shares. Five put options were exercised for 1,638 shares by the holders at strike prices ranging from $27.68 to $31.50 during 2001. We elected the physical settlement method upon the exercise of one put option for 281 shares and paid $7,785 in exchange for the underlying shares. We elected the net share settlement method for the exercises of the remaining four put options for 1,356 shares and issued 314 shares of our common stock in settlement of the obligation.

 

During 2002, five put options were exercised for 1,200 shares by the holders at strike prices ranging from $19.00 to $32.28. We elected the physical settlement method upon the exercise of two put options for 500 shares and paid $12,725 in exchange for the underlying shares. We elected the net share settlement method for the exercises of the remaining three put options for 700 shares and issued 971 shares of our common stock in settlement of the obligation.

 

Diagnostics Warrants – As of December 31, 2003, IVAX Diagnostics has warrants outstanding that expire in February 2005 to purchase up to 400 shares of IVAX Diagnostics’ common stock at a price of $13.20 per share.

 

Diagnostics Stock Option and Performance Plans – Effective June 29, 1999, the Board of Directors of IVAX Diagnostics, a wholly-owned subsidiary of ours at the time, approved the IVAX Diagnostics 1999 Stock Option Plan. The plan permits the issuance of options to employees, non-employee directors and consultants of IVAX Diagnostics to purchase up to 2,000 shares of the 50,000 authorized shares of IVAX Diagnostics. In June and August 1999, non-qualified options of 1,145 shares of common stock were granted to employees of IVAX Diagnostics with an exercise price of $0.73 per share, a vesting schedule of 50% at the end of year two, 25% at the end of years three and four and an expiration date of June to August 2006. On September 30, 1999, prior to the merger of IVAX Diagnostics with b2bstores.com, the Board of Directors of b2bstores.com approved the 1999 Performance Equity Plan (the “Performance Plan”). The Performance Plan authorizes the grant of up to 2,000 shares of common stock to key employees, officers, directors and consultants. Both incentive and non-qualified options may be issued under the Performance Plan. Prior to the creation of the Performance Plan, options to purchase an additional 1,000 shares of common stock were granted by the Board of Directors of b2bstores.com to certain of its former officers. As of December 31, 2003, options for 1,918 shares of common stock were outstanding under these plans and as of December 31, 2002, options for 2,034 shares were outstanding.

 

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Table of Contents

Diagnostics Share Repurchase Program – During 2002, IVAX Diagnostics’ Board of Directors authorized the repurchase of up to 2,000 shares of its publicly held common stock. During 2002, IVAX Diagnostics repurchased publicly held common stock. As of December 31, 2003, we held approximately 20,000 shares of the total 27,659 IVAX Diagnostics common shares outstanding, or 72% ownership.

 

Convertible Debt – See Note 8, Debt, for comments regarding convertible senior subordinated notes.

 

Dividends – We did not pay dividends during the years ended December 31, 2003, 2002 and 2001.

 

(13) Business Segment Information:

 

IVAX is a multinational company with subsidiaries that operate in the pharmaceutical business and are engaged in the research, development, manufacture, marketing and sale of pharmaceutical products. Pharmaceutical products include prescription drugs and over-the-counter products. We review financial information, allocate resources and manage our business by major operating subsidiary. However, our pharmaceutical subsidiaries utilize similar production processes, and sell similar types of products to similar types of customers under similar regulatory environments using similar methods of distribution. We also expect these subsidiaries to have similar long-term financial performance. Since these pharmaceutical subsidiaries meet the aggregation criteria under paragraph 17 of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the pharmaceutical operating subsidiaries are aggregated into one reportable segment, pharmaceutical, and all other subsidiaries are reported in Corporate and other.

 

To provide additional information, we have disaggregated our pharmaceutical segment results into the geographic regions in which the subsidiaries are located. The North America region contains our subsidiaries in the United States and Canada. The Europe region contains subsidiaries located in Europe. Latin America consists of subsidiaries in South America and Mexico. Corporate and other includes the diagnostic subsidiaries, animal health subsidiary and subsidiaries located in other geographic regions as well as corporate activities and elimination of intercompany transactions.

 

The information provided is based on internal reports and was developed and utilized by management for the sole purpose of tracking trends and changes in the results of the regions. The information, including the allocations of expense and overhead, was calculated based on a management approach and may not reflect the actual economic costs, contributions or results of operations of the regions as stand-alone businesses. If a different basis of presentation or allocation were utilized, the relative contributions of the regions might differ but the relative trends would, in management’s view, likely not be materially impacted.

 

F-34


Table of Contents

The table below sets forth net revenues and profits in the regional presentation.

 

     North
America


    Europe

    Latin
America


    Corporate
and Other


    Total IVAX

 

2003

                                        

External net sales

   $ 626,590     $ 437,574     $ 251,067     $ 53,671     $ 1,368,902  

Intercompany sales

     1,222       69,330       —         (70,552 )     —    

Other revenues

     22,767       25,568       838       2,264       51,437  
    


 


 


 


 


Net revenues

     650,579       532,472       251,905       (14,617 )     1,420,339  
    


 


 


 


 


Asset impairment and restructuring

     —         3,404       302       —         3,706  

Operating income (loss)

     131,087       5,678       50,948       (15,135 )     172,578  

Interest income

     3       619       1,126       1,962       3,710  

Interest expense

     (1,470 )     101       (946 )     (41,293 )     (43,608 )

Other income (expense)

     6,633       (5,495 )     (2,026 )     10,982       10,094  

Equity earnings of affiliates

     —         —         —         1,644       1,644  

Tax provision (benefit)

     40,663       3,892       13,195       (12,191 )     45,559  

Income (loss) from continuing operations before minority interest

     95,590       (2,989 )     35,907       (29,649 )     98,859  

2002

                                        

External net sales

   $ 476,085     $ 371,987     $ 227,933     $ 44,713     $ 1,120,718  

Intercompany sales

     1,554       40,872       —         (42,426 )     —    

Other revenues

     30,971       41,573       1,204       2,778       76,526  
    


 


 


 


 


Net revenues

     508,610       454,432       229,137       5,065       1,197,244  
    


 


 


 


 


Asset impairment and restructuring

     (183 )     3,382       1,043       —         4,242  

Operating income (loss)

     100,360       36,911       33,699       (21,243 )     149,727  

Interest income

     4       2,031       2,500       3,555       8,090  

Interest expense

     (1,265 )     (1,029 )     (1,728 )     (44,617 )     (48,639 )

Other income (expense)

     28,558       (4,883 )     1,929       33,839       59,443  

Equity earnings of affiliates

     —         —         —         878       878  

Tax provision (benefit)

     43,146       11,654       9,201       (12,259 )     51,742  

Income from continuing operations before minority interest

     84,511       21,376       27,199       (15,329 )     117,757  

2001

                                        

External net sales

   $ 582,471     $ 302,569     $ 222,444     $ 36,554     $ 1,144,038  

Intercompany sales

     2,838       61,267       —         (64,105 )     —    

Other revenues

     9,652       55,269       1,740       4,678       71,339  
    


 


 


 


 


Net revenues

     594,961       419,105       224,184       (22,873 )     1,215,377  
    


 


 


 


 


Asset impairment and restructuring

     —         343       2,024       —         2,367  

Operating income (loss)

     200,054       36,795       32,652       (1,612 )     267,889  

Interest income

     79       2,981       1,933       16,256       21,249  

Interest expense

     (36 )     (999 )     (4,506 )     (36,250 )     (41,791 )

Other income (expense)

     33,969       (13,152 )     4,277       23,473       48,567  

Equity earnings of affiliates

     —         —         28       1,042       1,070  

Tax provision (benefit)

     75,407       9,438       13,495       (44,275 )     54,065  

Income from continuing operations before minority interest

     158,659       16,187       20,889       47,184       242,919  

 

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In 2002, the Argentine peso and Venezuelan bolivar devalued significantly in relation to the United States dollar. As a result, the operating results and net asset position in these currencies decreased significantly when converted into United States dollars.

 

The following table reconciles long-lived assets by geographic region to the consolidated total:

 

Year


   North
America


   Europe

   Latin
America


   Corporate
and Other


   Total IVAX

2003

   $ 339,353    $ 432,668    $ 466,329    $ 126,884    $ 1,365,234

2002

     310,422      306,361      423,576      108,589      1,148,948

2001

     207,608      226,071      544,638      107,826      1,086,143

 

Long-lived assets exclude the long-term net deferred tax asset included in “Other assets” on the accompanying consolidated balance sheets.

 

The following table shows additions to long-lived assets and depreciation/amortization by region:

 

     Additions to Long-Lived Assets

   Depreciation/Amortization

Region


   2003

   2002

   2001

   2003

   2002

   2001

North America

   $ 37,914    $ 116,900    $ 159,395    $ 28,416    $ 21,845    $ 13,324

Europe

     124,442      68,784      49,204      36,948      26,252      20,372

Latin America

     8,466      14,996      458,755      7,896      7,711      12,763

 

We sell products in a large number of countries; however, only two countries, the United States and the United Kingdom, have net revenues that are material to consolidated net revenues. Additionally, we have material amounts of long-lived assets in the United States, the United Kingdom and Chile. The following table summarizes net revenues based on the location of the third party customer and long-lived assets based on the country of physical location:

 

GEOGRAPHIC AREAS:


   United
States


   United
Kingdom


   Chile

   Other

   Total

Net revenues                  2003

   $ 700,283    $ 232,517    $ 75,560    $ 411,979    $ 1,420,339

2002

     570,676      218,097      81,630      326,841      1,197,244

2001

     567,507      262,037      39,856      345,977      1,215,377

Long-lived assets          2003

     465,956      226,466      265,069      407,743      1,365,234

2002

     417,696      192,729      220,080      318,443      1,148,948

2001

     317,345      147,891      243,520      377,387      1,086,143

 

NET REVENUES BY PRODUCT TYPE:

 

     Net Revenues

     2003

   2002

   2001

Proprietary and branded

   $ 539,507    $ 530,607    $ 528,652

Generic pharmaceutical

     880,832      666,637      686,725
    

  

  

Total

   $ 1,420,339    $ 1,197,244    $ 1,215,377
    

  

  

 

No single customer accounted for 10% or more of our consolidated net revenues for any of the three years ended December 31, 2003. Other revenues included in net revenues in the accompanying consolidated statements of operations consist of license fees, royalties, and development service fees.

 

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In October 2002, we entered into a new agreement with Bristol-Myers Squibb that superseded, effective November 2002, the prior product collaboration agreement. The new agreement, which in part relates to some of the subject matter of the earlier agreement, also encompasses additional arrangements between the parties and had a term of ten months.

 

(14) Commitments and Contingencies:

 

Sales of Businesses and Gain on Sale – Significant assumptions in the preparation of the financial statements include our belief that the outcome of contingencies indemnified by us in the sale of certain businesses will not have a material effect on future operations and that the probability of a refund of previously recognized gain on sale of product rights is remote.

 

Leases – We lease office, plant and warehouse facilities and automobiles under non-cancelable operating leases. Motor vehicles, production equipment and certain manufacturing facilities are also leased under capital leases. Rent expense totaled approximately $8,039 in 2003, $7,755 in 2002 and $8,686 in 2001. The future minimum lease payments under non-cancelable capital leases and their related assets recorded at December 31, 2003 and 2002, were not material. The future minimum lease payments under non-cancelable operating leases with initial or remaining terms of one year or more at December 31, 2003, were as follows:

 

    

Operating

Leases


2004

   $ 6,183

2005

     3,753

2006

     2,094

2007

     1,532

2008

     1,509

Thereafter

     4,785
    

Total minimum lease payments

   $ 19,856
    

 

Legal Proceedings (amounts in thousands)

 

Terazosin Litigation

 

On December 21, 1998, an action purporting to be a class action, styled Louisiana Wholesale Drug Co. vs. Abbott Laboratories, Geneva Pharmaceuticals, Inc. and Zenith Goldline Pharmaceuticals, Inc., was filed against IVAX Pharmaceuticals, Inc. (“IPI”) and others in the United States District Court for the Southern District of Florida, alleging a violation of Section 1 of the Sherman Antitrust Act. Plaintiffs purport to represent a class consisting of customers who purchased a certain proprietary drug directly from Abbott Laboratories during the period beginning on October 29, 1998. Plaintiffs allege that, by settling patent-related litigation against Abbott in exchange for quarterly payments, the defendants engaged in an unlawful restraint of trade. The complaint seeks unspecified treble damages and injunctive relief. Eighteen additional class action lawsuits containing allegations similar to those in the Louisiana Wholesale case were filed in various jurisdictions between July 1999 and February 2001, the majority of which have been consolidated with the Louisiana Wholesale case. On December 13, 2000, plaintiffs’ motion for summary judgment on the issue of whether the settlement agreement constituted a per se violation of Section 1 of the Sherman Antitrust Act in the Louisiana Wholesale case was granted, but on September 15, 2003, the United States Court of Appeals for the Eleventh Circuit reversed the order. On March 13, 2000, the Federal Trade Commission (“FTC”) announced that it had issued complaints against, and negotiated consent decrees with, Abbott Laboratories and Geneva Pharmaceuticals arising out of an investigation of the same subject matter that is involved in these lawsuits. The FTC took no action against IPI. To date, seventeen of the actions naming IPI have either been settled or dismissed.

 

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Fen-Phen Litigation

 

IPI has been named in a number of individual and class action lawsuits in both state and federal courts involving the diet drug combination of fenfluramine and phentermine, commonly known as “fen-phen.” Generally, these lawsuits seek damages for personal injury, wrongful death and loss of consortium, as well as punitive damages, under a variety of liability theories including strict products liability, breach of warranty and negligence. IPI did not manufacture either fenfluramine or phentermine, but did distribute the brand equivalent version of phentermine manufactured by Eon Labs Manufacturing, Inc. (“Eon”) and Camall Company. Although IPI had a very small market share, to date, IPI has been named in approximately 5,542 cases and has been dismissed from approximately 4,966 of these cases, with additional dismissals pending. IPI intends to vigorously defend all of the lawsuits, and while management believes that its defense will succeed, as with any litigation, there can be no assurance of this. Currently Eon is paying for approximately 50% of IPI’s costs in defending these suits and is fully indemnifying IPI against any damages IPI may suffer as a result of cases involving product manufactured by Eon. In the event Eon discontinues providing this defense and indemnity, IPI has its own product liability insurance. While IPI’s insurance carriers have issued reservations of rights, IPI believes that it has adequate coverage. Although it is impossible to predict with certainty the outcome of litigation, we do not believe this litigation will have a material adverse impact on our financial condition or results of operation.

 

Average Wholesale Price Litigation

 

On July 12, 2002, an action purporting to be a class action styled John Rice v. Abbott Laboratories, Inc., et al. (the “Rice Action”) was filed against IPI and others in the Superior Court of the State of California, alleging violations of California’s Business & Professional Code §17200 et seq. with respect to the way pharmaceutical companies report their AWP. Plaintiffs allege that each defendant reported an AWP to Medicare and Medicaid which materially misrepresented the actual prices paid to defendants by physicians and pharmacies for prescription drugs. The complaint seeks unspecified damages, including punitive damages, and injunctive relief. Two other class actions, Thompson v. Abbott Laboratories, Inc., et al. (the “Thompson Action”) and Turner v. Abbott Laboratories, Inc., et al. (the “Turner Action”), containing similar allegations against IPI and others were filed in California courts in August and September 2002, respectively, as well. All three cases were removed to federal court and transferred to the Pharmaceutical Industry Average Wholesale Price Multi-District Litigation in the United States District Court for the District of Massachusetts. On November 23, 2003, the plaintiff in the Rice Action dismissed his action against IPI and other defendants without prejudice. On January 9, 2004, the court denied the motions filed by the plaintiffs in the Thompson Action and the Turner Action to remand the cases to state court and further ruled that the claims in these actions were preempted by ERISA. In February 2004, the plaintiffs in the Thompson Action and the Turner Action also dismissed their actions against IPI and other defendants.

 

On September 29, 2003, we received a copy of a Summons and Complaint filed by the Commonwealth of Massachusetts against IVAX Corporation, and various other manufacturers of generic pharmaceutical products, alleging that all defendant manufacturers inflated the prices of generic pharmaceutical products paid for by the Massachusetts Medicaid Program through alleged fraudulent promotion, marketing and sales practices, resulting in millions of dollars in overpayments. The Complaint also alleges that the defendant manufacturers reported understated drug pricing to the federal government, which had the effect of reducing rebate payments to the Commonwealth under rebate agreements. The complaint alleges violations of the Massachusetts Medicaid False Claims Act, the Massachusetts False Claims Act and common law fraud, along with claims for unjust enrichment, breach of contract and breach of the duty of good faith and fair dealing. The Commonwealth seeks injunctive relief, restitution, treble damages, civil penalties, attorneys’ fees, and investigative and litigation costs. A motion to dismiss this action was filed on January 29, 2004, and is pending. We intend to vigorously defend ourselves in this matter and against these allegations.

 

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On September 15, 2003, IPI and we were served with an Amended Complaint filed in the United States District Court for the District of Massachusetts in the case styled County of Suffolk vs. Abbott Laboratories, Inc., et al. and on August 25, 2003, we were served with a similar complaint filed in the United States District Court for the Southern District of New York in the case styled County of Westchester vs. Abbott Laboratories, Inc. et al. In each of these cases, the plaintiffs allege that the defendants violated the Racketeering Influenced and Corrupt Organizations Act (“RICO”), the Federal Medicaid Statute, New York Social Services Law, New York Department of Health Regulations, and New York General Business Law. The plaintiffs also seek the recovery of damages for unfair trade practices, fraud, breach of contract and under the theory of unjust enrichment. The plaintiffs also seek unspecified damages, including treble and punitive damages, civil penalties, declaratory and injunctive relief and restitution, allegedly suffered by the plaintiffs as a result of the defendants’ alleged unlawful scheme to overcharge for prescription medications paid for by Medicaid. The plaintiffs allege that through promotional, discounting, and pricing practices, the defendants reported false and inflated average wholesale prices or wholesale acquisition costs and failed to report their best prices as required by federal and state rebate statutes resulting in the plaintiffs overpaying for certain medications. A motion to dismiss these actions was filed and remains pending. We intend to vigorously defend ourselves in these cases and against these allegations.

 

IPI, along with numerous other pharmaceutical companies, has received inquiries from and responded to requests for records and information from the Committee on Energy and Commerce of the United States House of Representatives in connection with the Committee’s investigation into certain industry and IPI practices regarding average wholesale price. IPI has also received correspondence from the States of Nevada, Kentucky, Florida, and Illinois, on behalf of itself and 8 other states, indicating that the Office of the Attorney General (OAG) for these states are investigating allegations of purportedly improper pricing practices related to the average manufacturer price and best price calculations. We or our subsidiaries have not been named as a defendant in a suit filed by or on behalf or any state, but as a result of the investigation the OAG for the states have advised us that we are required to maintain all records related to the investigation. We are cooperating fully with these requests. The outcome of these investigations could include the imposition of substantial fines, penalties and injunctive or administrative remedies.

 

United Kingdom Serious Fraud Office Investigation and Related Litigation

 

In April 2002, we received notice of an investigation by United Kingdom National Health Service officials concerning prices charged by generic drug companies, including Norton Healthcare Limited, trading as IVAX Pharmaceuticals UK, for penicillin-based antibiotics and warfarin sold in the United Kingdom from 1996 to 2000. This is an investigation by the Serious Fraud Office of the United Kingdom involving all pharmaceutical companies that sold these products in the United Kingdom during this period. According to statements by investigating agencies, this is a complex investigation expected to continue for some time and there is no indication from the agencies when or if charges will be made against any of these companies. We are cooperating fully with this investigation.

 

In December 2002, the Secretary of State for Health, on behalf of itself and others, filed a civil claim for damages and interest against Norton Healthcare, Norton Pharmaceuticals and other defendants alleging that certain of their actions adversely affected competition in the sale and supply of warfarin in the United Kingdom between 1996 and 2000. This claim seeks damages against all defendants in the approximate aggregate amount of 28,600 Pounds Sterling (approximately $51,100 at the December 31, 2003, currency exchange rate), plus interest and costs.

 

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In December, 2003, the Secretary of State for Health, on behalf of itself and others, filed a civil claim for damages and interest against Norton Healthcare, Norton Pharmaceuticals and other defendants alleging that certain of their actions which adversely affected competition in the sale and supply of Penicillin in the United Kingdom between 1996 and 2000. This claim seeks damages against all defendants in the approximate amount of 30,500 Pounds Sterling (approximately $54,500 at the December 31, 2003, currency exchange rate), plus interest and costs.

 

On April 22, 2003, we received notice that we were named as a defendant along with approximately 25 other pharmaceutical manufacturers in a complaint filed in the US District Court for the Northern District of Texas by an individual who has filed the action purportedly in the name of the United States government, styled United States of America, ex. rel, Paul King v. Alcon Laboratories, Inc., et al. In this suit, the plaintiff seeks to recover damages from the defendants, including us, for allegedly defrauding and conspiring to defraud the United States government by having made sales of drugs to various federal governmental agencies or causing the United States government to reimburse individuals or entities for drug products that did not comply with Current Good Manufacturing Practices and other regulations and laws. The suit seeks the recovery of treble damages from us and the other defendants, jointly and severally, which plaintiff alleges exceeds thirty billion dollars, plus the recovery of attorneys’ fees, interest, civil penalties, costs, and other relief. On February 23, 2004, Plaintiff was granted leave to file a Second Amended Complaint, in response to which we intend to move to dismiss the action in its entirety. We intend to vigorously defend ourselves in this action and against these allegations.

 

On April 22, 2003, GenPharm, Inc. filed a complaint in the United States District Court for the District of Puerto Rico against API for damages and equitable relief, including declaratory relief and specific performance, arising out of API’s alleged breach of agreements and failure to supply GenPharm with an active pharmaceutical ingredient. The complaint also seeks the recovery of damages for API’s alleged negligence in failing to maintain production facilities in accordance with FDA standards. The plaintiff seeks to recover millions of dollars in damages, along with interest, costs and expenses, including attorneys’ fees and other fees and costs. The plaintiff also filed a motion for preliminary relief seeking the attachment of approximately 165 kilograms of the active pharmaceutical ingredient, which we vigorously opposed. API and Genpharm have agreed in principle to settle the litigation in its entirety, the details of which settlement are being finalized. The complaint has been tendered to the sellers of API for defense and indemnity based on the terms of the agreement by which API was sold to us, but the sellers have denied responsibility for the claim.

 

Environmental Related Proceedings

 

On January 22, 2003, our subsidiary, API, received an Administrative Compliance Order issued by the United States Environmental Protection Agency dated January 2, 2003, alleging that API was not in compliance with certain conditions of the National Pollutant Discharge Elimination System Permit and certain pretreatment standards. The Order required that API submit particular certified documentation associated with achieving compliance with the given standards. The Order further required that API submit certified information concerning stormwater pollution control matters and costs. API filed its response to the Order and the EPA ordered the matter closed on August 30, 2003.

 

On April 4, 2003, API received an Order on Consent from The Puerto Rico Aqueduct and Sewer Authority (“PRASA”), which required that API follow a PRASA-approved compliance plan in order to achieve compliance with certain pretreatment standards. This Order also establishes interim limits applicable during the implementation of the compliance plan and attaches stipulated penalties for each day of non-compliance with the prescribed activities and reports schedule. On June 11, 2003, API submitted to PRASA certifications of compliance with two pretreatment standards identified in the Order on Consent. API negotiated with PRASA the final terms of the Order on Consent for the two remaining pretreatment standards, which was signed and finalized on June 30, 2003.

 

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On April 28, 2003, API received an EPA issued Administrative Complaint dated April 15, 2003, which proposes that a civil penalty of approximately $19 be assessed against API for the alleged violation of certain conditions of its NPDES Multi-Sector General Permit. The complaint alleges that API failed to perform certain quarterly visual examinations and conduct an appropriate analysis of parameters during monitoring periods specified in the NPDES general permit. The complaint has been tendered to the sellers of API for defense and indemnity based on the terms of the agreement by which API was sold to us. API responded to the complaint and the parties agreed to settle the matter. A Final Consent Agreement and Final Order was signed by the EPA on November 23, 2003, and the settlement amount of $8 was paid by the sellers of API.

 

On July 16, 2003, API received an EPA letter requesting API to submit a revised Solid Waste Management Unit (SWMU) Plan, including additional sampling and investigation elements, concerning the alleged presence of isopropyl ether (IPE) in its facility. This matter was tendered to the sellers of API for indemnity based on the terms of the agreement by which API was sold to us, but sellers have denied responsibility for this claim. On November 7, 2003, API filed its response to the EPA’s July 16, 2003, letter and submitted a revised SWMU Plan to cooperate with the agency.

 

Other Litigation

 

We are involved in various other legal proceedings arising in the ordinary course of business, some of which involve substantial amounts. In order to obtain brand equivalent approvals prior to the expiration of patents on branded products, and to benefit from the exclusivity allowed to ANDA applicants that successfully challenge these patents, we frequently become involved in patent infringement litigation brought by branded pharmaceutical companies. Although these lawsuits involve products that are not yet marketed and therefore pose little or no risk of liability for damages, the legal fees and costs incurred in defending such litigation can be substantial. While it is not feasible to predict or determine the outcome or the total cost of these proceedings, in the opinion of management, based on a review with legal counsel, any losses resulting from such legal proceedings will not have a material adverse impact on our financial position or results of operations.

 

We intend to vigorously defend each of the foregoing lawsuits, but their respective outcomes cannot be predicted. Any of such lawsuits, if determined adversely to us, could have a material adverse effect on our financial position and results of operations. Our ultimate liability with respect to any of the foregoing proceedings is not presently determinable.

 

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(15) Quarterly Financial Information (Unaudited):

 

The following tables summarize selected quarterly data of IVAX for the years ended December 31, 2003 and 2002:

 

    

First

Quarter


   Second
Quarter


  

Third

Quarter (1)


  

Fourth

Quarter (2)


  

Full

Year


2003

                                  

Net revenues

   $ 317,693    $ 342,985    $ 360,638    $ 399,023    $ 1,420,339

Gross profit

     146,143      150,952      160,536      181,325      638,956

Income from continuing operations

     28,985      19,086      21,631      29,345      99,047

Income from discontinued operations, net of tax

     —        22,204      —        —        22,204

Net income

     28,985      41,290      21,631      29,345      121,251

Basic earnings per common share:

                                  

Continuing operations

     0.15      0.10      0.11      0.15      0.51

Discontinued operations

     —        0.11      —        —        0.11

Net earnings

     0.15      0.21      0.11      0.15      0.62

Diluted earnings per common share:

                                  

Continuing operations

     0.15      0.10      0.11      0.15      0.50

Discontinued operations

     —        0.11      —        —        0.11

Net earnings

     0.15      0.21      0.11      0.15      0.61

2002

                                  

Net revenues

   $ 272,222    $ 280,406    $ 319,394    $ 325,222    $ 1,197,244

Gross profit

     121,975      130,563      142,802      138,196      533,536

Income from continuing operations

     19,300      31,722      30,803      36,770      118,595

Net income

     23,461      31,722      30,803      36,770      122,756

Basic earnings per common share:

                                  

Continuing operations

     0.10      0.16      0.16      0.19      0.61

Cumulative effect of accounting change

     0.02      —        —        —        0.02

Net earnings

     0.12      0.16      0.16      0.19      0.63

Diluted earnings per common share:

                                  

Continuing operations

     0.10      0.16      0.16      0.19      0.60

Cumulative effect of accounting change

     0.02      —        —        —        0.02

Net earnings

     0.12      0.16      0.16      0.19      0.62

(1) As a result of recent return and customer inventory experience, our estimates of product returns and other sales allowances and inventory obsolescence decreased during the third quarter of 2003 and, accordingly, we recognized increased net revenues and reduced cost of sales during the third quarter of 2003. During the three months ended September 30, 2003, these changes increased net revenues by $10,170, reduced cost of sales by $2,457, increased net income by $7,943 and increased diluted earnings per share by $0.04.
(2) As a result of our recent return, customer inventory experience, analysis of allowance for doubtful accounts and tax reserves, our estimates of product returns, inventory obsolescence, allowance for doubtful accounts and income tax exposures changed and, accordingly, we recognized reduced net revenues, increased cost of sales, reduced bad debt expense and reduced income tax provision during the fourth quarter of 2003. During the three months ended December 31, 2003, these changes reduced net revenues by $102, increased cost of sales by $335, reduced bad debt expense by $3,673, reduced the tax provision by $2,000, increased net income by $4,025 and increased diluted earnings per share by $0.02.

 

(16) Related Party Transactions:

 

Whitman Education Group, Inc. (“Whitman”) leases office space from us in Miami, Florida. Whitman leased approximately 11,567 square feet during 2003 at an annual rate of $292, 13,849 square feet during 2002 at an annual rate of $290 and 12,428 square feet during 2001 at an annual rate of $233. Whitman was acquired by an unaffiliated entity, Career Education Corporation on July 1, 2003.

 

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Following the acquisition, the lease was terminated and Whitman is to vacate the facility no later than March 31, 2004. Prior to the acquisition, Dr. Frost, our Chairman of the Board of Directors and Chief Executive Officer, was Chairman of the Board of Directors of Whitman. Mr. Flanzraich, our Vice Chairman, President and a Director, was a Director of Whitman, and Mr. Pfenniger, one of our Directors, was Chief Executive Officer and Vice Chairman of the Board of Directors of Whitman. In addition, Dr. Frost was a principal shareholder of Whitman.

 

We paid $2,504 in 2003, $2,702 in 2002 and $2,023 in 2001 to PharmAir Corporation for use of an airplane. PharmAir Corporation is indirectly, beneficially owned by our Chairman and CEO.

 

(17) Subsequent Event:

 

On March 3, 2004, we issued $400,000 of our 1.5% Convertible Senior Notes due 2024. Under certain circumstances, the 1.5% Notes are convertible, unless previously redeemed, into 33.4874 shares of our common stock per $1,000 of principal amount of the 1.5% Notes. This ratio results in a conversion price of approximately $29.86 per share. We may redeem the 1.5% Notes on or after March 1, 2011. Beginning with the six-month period commencing on March 1, 2011, we will pay contingent interest on the 1.5% Notes during a six-month interest period if the average trading price of the 1.5% Notes is above a specified level. In addition, holders of the 1.5% Notes may require us to repurchase the notes on each of March 1, 2011, 2014, and 2019 and upon certain events.

 

Net proceeds from this offering of approximately $390,500 are expected to be used to redeem our outstanding 5.5% Convertible Senior Subordinated Notes and for general corporate purposes, including potential acquisitions of, and investments in, products, technologies and companies, capital expenditures and working capital. At December 31, 2003, we had approximately $249,000 of our 5.5% Notes outstanding. The 5.5% Notes are, unless previously redeemed, convertible into 33.6 shares of our common stock per $1,000 principal amount. In the event the 5.5% Notes are redeemed between May 16, 2004 and May 16, 2005, we expect that approximately $254,869 in cash will be used to redeem the notes, and that a one-time financial charge of approximately $8,553 will be incurred in connection with the redemption.

 

 

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

 

To the Board of Directors and Shareholders

IVAX Corporation

 

We have audited the consolidated financial statements of IVAX Corporation as of December 31, 2003 and 2002, and for the years then ended, and have issued our report thereon dated February 18, 2004 (except for Note 17, as to which the date is March 3, 2004) (included elsewhere in this Form 10-K). Our audit also included Schedule II—Valuation and Qualifying Accounts as of December 31, 2003 and 2002, and for the years then ended, included in this Annual Report on Form 10-K. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this schedule based on our audits. The financial statement schedule of IVAX Corporation for the year ended December 31, 2001, was subjected to the auditing procedures applied by other auditors, who have ceased operations, in their audit of the consolidated financial statements for that year and whose report dated February 12, 2002, indicated that such financial statement schedule fairly stated in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

 

In our opinion, the financial statement schedules as of December 31, 2003 and 2002, and for the years then ended, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

 

/s/ Ernst & Young LLP

 

Miami, Florida

February 18, 2004, except for Note 17, as

to which the date is March 3, 2004


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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

 

To the Board of Directors and Shareholders

of IVAX Corporation:

 

We have audited in accordance with auditing standards generally accepted in the United States, the financial statements included in IVAX Corporation’s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 12, 2002 (except with respect to the matters discussed in Note 16, as to which the date is March 15, 2002). Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Financial Statement Schedule II listed in Item 14 is the responsibility of the Company’s management and is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This financial statement schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

 

ARTHUR ANDERSEN LLP

 

Miami, Florida,

February 12, 2002.

 

THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH IVAX CORPORATION’S FILING ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH THIS FILING ON FORM 10-K. SEE EXHIBIT 23.2 FOR FURTHER DISCUSSION.


Table of Contents

SCHEDULE II

 

IVAX CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

THREE YEARS ENDED DECEMBER 31, 2003

(in thousands)

 

ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Description


   Balance at
Beginning
of Year


   Charged to
Cost and
Expenses


    Net
Deductions


    Other

    Balance at
End of Year


Year ended December 31, 2001

   $ 19,703    1,143     (2,575 )   3,399     $ 21,670
    

  

 

 

 

Year ended December 31, 2002

   $ 21,670    4,239     (2,153 )   (2,037 )   $ 21,719
    

  

 

 

 

Year ended December 31, 2003

   $ 21,719    (1,948 )   (2,893 )   797     $ 17,675
    

  

 

 

 

 

ENVIRONMENTAL ACCRUALS

 

Description


   Balance at
Beginning
of Year


   Charged to
Cost and
Expenses


   Net
Deductions


    Other

  

Balance at

End of Year


Year ended December 31, 2001

   $ 1,584    663    (346 )   —      $ 1,901
    

  
  

 
  

Year ended December 31, 2002

   $ 1,901    1,272    (1,822 )   —      $ 1,351
    

  
  

 
  

Year ended December 31, 2003

   $ 1,351    1,110    (1,783 )   500    $ 1,178
    

  
  

 
  


Table of Contents

EXHIBIT INDEX

 

EXHIBIT

NUMBER


 

DESCRIPTION OF DOCUMENT


4.6   Indenture, dated as of March 3, 2004, between IVAX Corporation and U.S. Bank Trust National Association, as Trustee, with respect to the $400,000,000 1 1/2 % Convertible Senior Notes due 2024.
4.7   Form of 1 1/2% Convertible Senior Notes due 2024.
10.18   Registration Rights Agreement, dated March 3, 2004, between IVAX Corporation and UBS Securities LLC, as the Initial Purchaser and as agent for the other Initial Purchasers, with respect to the $400,000,000 1 1/2% Convertible Senior Notes due 2024.
21   Subsidiaries of IVAX Corporation.
23.1   Consent of Ernst & Young LLP.
23.2   Information Regarding Consent of Arthur Andersen LLP.
31.1   Certificate of the Chief Executive Officer of IVAX Corporation pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2   Certificate of the Chief Financial Officer of IVAX Corporation pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
32.1   Certificate of the Chief Executive Officer of IVAX Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certificate of the Chief Financial Officer of IVAX Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-4.6 3 dex46.htm INDENTURE, DATED AS OF MARCH 3, 2004 Indenture, dated as of March 3, 2004

EXHIBIT 4.6

 


 

IVAX CORPORATION

 

1.5% CONVERTIBLE SENIOR NOTES DUE 2024

 


 

INDENTURE

DATED AS OF MARCH 3, 2004

 


 

U.S. BANK NATIONAL ASSOCIATION

 

AS TRUSTEE

 



TABLE OF CONTENTS

 

          Page

ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE

   1

SECTION 1.1.

   DEFINITIONS.    1

SECTION 1.2.

   OTHER DEFINITIONS.    7

SECTION 1.3.

   TRUST INDENTURE ACT PROVISIONS    7

SECTION 1.4.

   RULES OF CONSTRUCTION.    8

ARTICLE 2 THE SECURITIES

   8

SECTION 2.1.

   FORM AND DATING.    8

SECTION 2.2.

   EXECUTION AND AUTHENTICATION.    10

SECTION 2.3.

   REGISTRAR, PAYING AGENT AND CONVERSION AGENT.    11

SECTION 2.4.

   PAYING AGENT TO HOLD MONEY IN TRUST.    11

SECTION 2.5.

   SECURITYHOLDER LISTS.    12

SECTION 2.6.

   TRANSFER AND EXCHANGE.    12

SECTION 2.7.

   REPLACEMENT SECURITIES.    13

SECTION 2.8.

   OUTSTANDING SECURITIES.    13

SECTION 2.9.

   TREASURY SECURITIES.    14

SECTION 2.10.

   TEMPORARY SECURITIES.    14

SECTION 2.11.

   CANCELLATION.    14

SECTION 2.12.

   LEGEND; ADDITIONAL TRANSFER AND EXCHANGE REQUIREMENTS.    15

SECTION 2.13.

   CUSIP NUMBERS.    17

SECTION 2.14.

   SENIOR UNSECURED OBLIGATIONS.    18

ARTICLE 3 REDEMPTION AND PURCHASES

   18

SECTION 3.1.

   RIGHT TO REDEEM; NOTICE TO TRUSTEE.    18

SECTION 3.2.

   SELECTION OF SECURITIES TO BE REDEEMED.    18

SECTION 3.3.

   NOTICE OF REDEMPTION.    19

SECTION 3.4.

   EFFECT OF NOTICE OF REDEMPTION.    20

SECTION 3.5.

   DEPOSIT OF REDEMPTION PRICE.    20

SECTION 3.6.

   SECURITIES REDEEMED IN PART.    20

SECTION 3.7.

   OTHER ARRANGEMENT ON CALL FOR REDEMPTION.    20

SECTION 3.8.

   REPURCHASE OF SECURITIES AT THE OPTION OF HOLDERS ON SPECIFIC DATES.    21

SECTION 3.9.

   REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON REPURCHASE EVENT.    25

SECTION 3.10.

   COMPLIANCE WITH SECURITIES LAWS UPON PURCHASE OF SECURITIES.    31

SECTION 3.11.

   REPAYMENT TO THE COMPANY.    31

ARTICLE 4 CONVERSION

   32

SECTION 4.1.

   CONVERSION PRIVILEGE.    32

SECTION 4.2.

   CONVERSION PROCEDURE; CONVERSION RATE; FRACTIONAL SHARES.    33

 

i


SECTION 4.3.

   ADJUSTMENT OF CONVERSION RATE FOR COMMON STOCK.    35

SECTION 4.4.

   CONSOLIDATION OR MERGER OF THE COMPANY.    43

SECTION 4.5.

   NOTICE OF ADJUSTMENT.    44

SECTION 4.6.

   NOTICE IN CERTAIN EVENTS.    45

SECTION 4.7.

   COMPANY TO RESERVE STOCK: REGISTRATION; LISTING.    46

SECTION 4.8.

   TAXES ON CONVERSION.    46

SECTION 4.9.

   CONVERSION AFTER RECORD DATE.    47

SECTION 4.10.

   COMPANY DETERMINATION FINAL.    47

SECTION 4.11.

   RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS.    47

SECTION 4.12.

   UNCONDITIONAL RIGHT OF HOLDERS TO CONVERT.    48

ARTICLE 5 [RESERVED]

   48

ARTICLE 6 COVENANTS

   48

SECTION 6.1.

   PAYMENT OF SECURITIES.    48

SECTION 6.2.

   SEC REPORTS.    49

SECTION 6.3.

   COMPLIANCE CERTIFICATES.    49

SECTION 6.4.

   FURTHER INSTRUMENTS AND ACTS.    49

SECTION 6.5.

   MAINTENANCE OF CORPORATE EXISTENCE.    49

SECTION 6.6.

   RULE 144A INFORMATION REQUIREMENT.    49

SECTION 6.7.

   STAY, EXTENSION AND USURY LAWS.    50

SECTION 6.8.

   PAYMENT OF SPECIAL INTEREST.    50

SECTION 6.9.

   PAYMENT OF CONTINGENT INTEREST.    50

ARTICLE 7 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

   51

SECTION 7.1.

   COMPANY MAY CONSOLIDATE, ETC, ONLY ON CERTAIN TERMS.    51

SECTION 7.2.

   SUCCESSOR SUBSTITUTED.    51

ARTICLE 8 DEFAULT AND REMEDIES

   51

SECTION 8.1.

   EVENTS OF DEFAULT.    51

SECTION 8.2.

   ACCELERATION.    53

SECTION 8.3.

   OTHER REMEDIES.    53

SECTION 8.4.

   WAIVER OF DEFAULTS AND EVENTS OF DEFAULT.    54

SECTION 8.5.

   CONTROL BY MAJORITY.    54

SECTION 8.6.

   LIMITATIONS ON SUITS.    54

SECTION 8.7.

   RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT.    55

SECTION 8.8.

   COLLECTION SUIT BY TRUSTEE.    55

SECTION 8.9.

   TRUSTEE MAY FILE PROOFS OF CLAIM.    55

SECTION 8.10.

   PRIORITIES.    56

SECTION 8.11.

   UNDERTAKING FOR COSTS.    56

ARTICLE 9 TRUSTEE

   56

SECTION 9.1.

   DUTIES OF TRUSTEE.    56

SECTION 9.2.

   RIGHTS OF TRUSTEE.    57

SECTION 9.3.

   INDIVIDUAL RIGHTS OF TRUSTEE.    58

 

ii


SECTION 9.4.

   TRUSTEE’S DISCLAIMER.    58

SECTION 9.5.

   NOTICE OF DEFAULT OR EVENTS OF DEFAULT.    59

SECTION 9.6.

   REPORTS BY TRUSTEE TO HOLDERS.    59

SECTION 9.7.

   COMPENSATION AND INDEMNITY.    59

SECTION 9.8.

   REPLACEMENT OF TRUSTEE.    60

SECTION 9.9.

   SUCCESSOR TRUSTEE BY MERGER, ETC.    61

SECTION 9.10.

   ELIGIBILITY; DISQUALIFICATION.    61

SECTION 9.11.

   PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.    61

ARTICLE 10 SATISFACTION AND DISCHARGE OF INDENTURE

   61

SECTION 10.1.

   SATISFACTION AND DISCHARGE OF INDENTURE.    61

SECTION 10.2.

   APPLICATION OF TRUST MONEY.    62

SECTION 10.3.

   REPAYMENT TO COMPANY.    62

SECTION 10.4.

   REINSTATEMENT.    63

ARTICLE 11 AMENDMENTS, SUPPLEMENTS AND WAIVERS

   63

SECTION 11.1.

   WITHOUT CONSENT OF HOLDERS.    63

SECTION 11.2.

   WITH CONSENT OF HOLDERS.    64

SECTION 11.3.

   COMPLIANCE WITH TRUST INDENTURE ACT.    65

SECTION 11.4.

   REVOCATION AND EFFECT OF CONSENTS.    66

SECTION 11.5.

   NOTATION ON OR EXCHANGE OF SECURITIES.    66

SECTION 11.6.

   TRUSTEE TO SIGN AMENDMENTS, ETC.    66

SECTION 11.7.

   EFFECT OF SUPPLEMENTAL INDENTURES.    66

ARTICLE 12 TAX TREATMENT

   66

SECTION 12.1.

   TAX TREATMENT    66

SECTION 12.2.

   COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE    67

ARTICLE 13 MISCELLANEOUS

   68

SECTION 13.1.

   TRUST INDENTURE ACT CONTROLS.    68

SECTION 13.2.

   NOTICES.    68

SECTION 13.3.

   COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.    69

SECTION 13.4.

   CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.    69

SECTION 13.5.

   RECORD DATE FOR VOTE OR CONSENT OF SECURITYHOLDERS.    70

SECTION 13.6.

   RULES BY TRUSTEE, PAYING AGENT, REGISTRAR AND CONVERSION AGENT.    70

SECTION 13.7.

   LEGAL HOLIDAYS.    70

SECTION 13.8.

   GOVERNING LAW.    70

SECTION 13.9.

   NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.    71

SECTION 13.10.

   NO RECOURSE AGAINST OTHERS.    71

SECTION 13.11.

   SUCCESSORS.    71

SECTION 13.12.

   MULTIPLE COUNTERPARTS.    71

SECTION 13.13.

   SEPARABILITY.    71

SECTION 13.14.

   TABLE OF CONTENTS, HEADINGS, ETC.    71

 

iii


CROSS-REFERENCE TABLE*

 

 

TIA SECTION


       

INDENTURE

    SECTION    


Section

   310(a)(1)   

9.10

     (a)(2)   

9.10

     (a)(3)   

N.A.**

     (a)(4)   

N.A.

     (a)(5)   

9.10

     (b)   

9.8; 9.10

     (c)   

N.A.

Section

   311(a)   

9.11

     (b)   

9.11

     (c)   

N.A.

Section

   312(a)   

2.5

     (b)   

13.3

     (c)   

13.3

Section

   313(a)   

9.6

     (b)(1)   

N.A.

     (b)(2)   

9.6

     (c)   

9.6; 13.2

     (d)   

9.6

Section

   314(a)   

6.2; 6.4; 13.2

     (b)   

N.A.

     (c)(1)   

13.4(a)

     (c)(2)   

13.4(a)

     (c)(3)   

N.A.

     (d)   

N.A.

     (e)   

13.4(b)

     (f)   

N.A.

Section

   315(a)   

9.1(b)

     (b)   

9.5; 13.2

     (c)   

9.1(a)

     (d)   

9.1(c)

     (e)   

8.11

Section

   316(a)(last sentence)   

2.9

     (a)(1)(A)   

8.5

     (a)(1)(B)   

8.4

     (a)(2)   

N.A.

     (b)   

8.7

     (c)   

13.5

Section

   317(a)(1)   

8.8

     (a)(2)   

8.9

     (b)   

2.4


* This Cross-Reference Table shall not, for any purpose, be deemed a part of this Indenture.
** N.A. means Not Applicable.


THIS INDENTURE dated as of March 3, 2004 is between IVAX Corporation, a corporation duly organized under the laws of the State of Florida (the “Company”), and U.S. Bank National Association, a national banking association organized and existing under the laws of the United States, as Trustee (the “Trustee”).

 

In consideration of the premises and the purchase of the Securities by the Holders thereof, both parties agree as follows for the benefit of the other and for the equal and ratable benefit of the registered Holders of the Company’s 1.5% Convertible Senior Notes due 2024.

 

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

 

SECTION 1.1. DEFINITIONS.

 

“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 the purposes of this definition, “control” when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

“Agent” means any Registrar, Paying Agent or Conversion Agent.

 

“Applicable Procedures” means, with respect to any transfer or exchange of beneficial ownership interests in a Global Security, the rules and procedures of the Depositary, in each case to the extent applicable to such transfer or exchange.

 

“Bid Solicitation Agent” means, an agent selected by the Company to serve as bid solicitation agent hereunder, and, initially, the Trustee.

 

“Board of Directors” means either the board of directors of the Company or any committee of the Board of Directors authorized to act for it with respect to this Indenture.

 

“Business Day” means each day that is not a Legal Holiday.

 

“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) equity of such Person, but excluding any debt securities convertible into such equity.

 

“Cash” or “cash” means such coin or currency of the United States as at any time of payment is legal tender for the payment of public and private debts.

 

“Certificated Security” means a Security that is in substantially the form attached hereto as Exhibit A and that does not include the information or the schedule called for by footnotes 1, 3 and 4 thereof.

 

“Common Stock” means the common stock of the Company, $0.10 par value, as it exists on the date of this Indenture and any shares of any class or classes of capital stock of the


Company resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided, however, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable on conversion of Securities shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

 

“Company” means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor Company.

 

“Contingent Interest” has the meaning set forth in the Securities.

 

“Contingent Interest Period” has the meaning set forth in the Securities.

 

“Continuing Director” means, at any date of determination, any member of the Company’s Board of Directors (i) who was a member of the Company’s Board of Directors on the Issuance Date, or (ii) whose nomination for election or election to the Company’s Board of Directors was approved by at least a majority of the directors who were such Continuing Directors at the time of such nomination or election or whose election to the Company’s Board of Directors was recommended or endorsed by at least a majority of the directors who were such Continuing Directors at the time of such nomination or election.

 

“Conversion Price” means, at any time, $1,000 divided by the Conversion Rate in effect at such time, rounded to two decimal places (rounded up if the third decimal place thereof is 5 or more and otherwise rounded down).

 

“Conversion Rate” means initially 33.4874 shares per $1,000 principal amount of Securities, subject to adjustment as set forth herein.

 

“Conversion Value” means, at any time, the amount equal to the product of the Sales Price at such time multiplied by the then current Conversion Rate.

 

“Corporate Trust Office” means the office of the Trustee at which at any particular time the trust created by this Indenture shall be administered which office at the date of the execution of this Indenture is located at 60 Livingston Avenue, EP-MN-WS3C, St. Paul, Minnesota 55107 Attention: Corporate Trust Services (IVAX Corporation — 1.5% Convertible Senior Notes Due 2024) or at any other time at such other address as the Trustee may designate from time to time by notice to the Company.

 

“Default” or “default” means, when used with respect to the Securities, any event which is or, after notice or passage of time or both, would be an Event of Default.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time.

 

2


“Final Maturity Date” means March 1, 2024.

 

“GAAP” means generally accepted accounting principles in the United States of America as in effect as of the date of this Indenture, including those set forth in (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (2) the statements and pronouncements of the Financial Accounting Standards Board, (3) such other statements by such other entity as approved by a significant segment of the accounting profession and (4) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in registration statements filed under the Securities Act and periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC.

 

“Global Security” means a permanent Global Security that is in substantially the form attached hereto as Exhibit A and that includes the information and schedule called for by footnotes 1, 3 and 4 thereof and which is deposited with the Depositary or its custodian and registered in the name of the Depositary or its nominee.

 

“Holder” or “Securityholder” means the person in whose name a Security is registered on the Primary Registrar’s books.

 

“Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person (i) for borrowed money (including obligations of such Person in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or (ii) evidenced by credit or loan agreements, bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof) (other than any accounts payable or other accrued current liability or obligation incurred in the ordinary course of business in connection with the obtaining of materials or services), (b) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers’ acceptances, (c) all obligations and liabilities (contingent or otherwise) of such Person (i) in respect of leases of such Person required, in conformity with GAAP, to be accounted for as capitalized lease obligations on the balance sheet of such Person (as determined by the Company), or (ii) under any lease or related document (including a purchase agreement, conditional sale or other title retention agreement) in connection with the lease of real property or improvement thereon (or any personal property included as part of any such lease) which provides that such Person is contractually obligated to purchase or cause a third party to purchase the leased property or pay an agreed upon residual value of the leased property to the lessor (whether or not such lease transaction is characterized as an operating lease or a capitalized lease in accordance with GAAP), (d) all obligations (contingent or otherwise) of such Person with respect to any interest rate or other swap, cap, floor or collar agreement, hedge agreement, forward contract, or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement; (e) all direct or indirect guaranties, agreements to be jointly liable or similar agreements by such Person in respect of, and obligations or liabilities of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of, indebtedness, obligations or liabilities of

 

3


another Person of the kind described in clauses (a) through (d), and (f) any and all deferrals, renewals, extensions, refinancings and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (e).

 

“Indenture” means this Indenture as amended or supplemented from time to time pursuant to the terms of this Indenture.

 

“Initial Purchaser” means each of UBS Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

 

“Interest Payment Date” has the meaning specified in paragraph 1 of the Security.

 

“Issuance Date” means the date on which the Securities are first authenticated and issued.

 

“Market Price” means with respect to Securities, as of any date of determination, the average of the secondary market bid quotations per $1,000 principal amount of Securities obtained by the Bid Solicitation Agent for $1,000,000 principal amount of Securities at approximately 4:00 p.m., New York City time, on such date of determination from three securities dealers (none of which shall be an Affiliate of the Company) selected by the Company, which may include the Initial Purchasers, provided, that if at least three such bids cannot be reasonably obtained by the Bid Solicitation Agent, but two bids are obtained, then the average of the two bids shall be used, and if only one such bid can be reasonably obtained by the Bid Solicitation Agent, this one bid will be used; provided, however, if (a) the Bid Solicitation Agent, through the exercise of reasonable efforts, is unable to obtain at least one bid from a securities dealer, or (b) in the Company’s reasonable judgment, the bid quotations are not indicative of the secondary market value of the Securities as of such date of determination, then the Market Price of a Security for such date of determination shall equal (1) the Conversion Rate in effect as of such date of determination multiplied by (2) the average Sale Price of a share of Common Stock for the five Trading Days ending on such date of determination, appropriately adjusted to take into account the occurrence, during the period commencing on the first of such Trading Days during such 20-Trading Day period and ending on the date of determination, as the case may be, of any event described in Sections 4.3 or 4.4; and

 

“Measurement Period” means the last 30 consecutive Trading Days in a fiscal quarter.

 

“Officer” means the Chairman or any Co-Chairman of the Board, any Vice Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Controller, the Secretary or any Assistant Controller or Assistant Secretary of the Company.

 

“Officers’ Certificate” means a certificate signed by the principal executive officer, principal financial officer or principal accounting officer of the Company and by one other Officer.

 

“Opinion of Counsel” means a written opinion from legal counsel experienced in such matters as are covered by the opinion. The counsel may be an employee of, or counsel to, the Company or the Trustee.

 

4


“Person” or “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

 

“Principal” or “principal” of a debt security, including the Securities, means the principal of the security plus.

 

“Redemption Date” when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture.

 

“Redemption Price” when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture, as set forth in the form of Security annexed as Exhibit A hereto.

 

“Registration Rights Agreement” means the Registration Rights Agreement dated, as of March 3, 2004, between the Company and the Initial Purchasers.

 

“Regular Record Date” has the meaning specified in paragraph 1 of the Security.

 

“Rule 144” means Rule 144 under the Securities Act or any successor to such Rule.

 

“Rule 144A” means Rule 144A under the Securities Act or any successor to such Rule.

 

“Sale Price” of one share of Common Stock on any date means the closing per share sale price of such Common Stock (or, if no closing sale price is reported, the average of the bid and ask prices or, if there is more than one bid or ask price, the average of the average bid and the average ask prices) on such date as reported in composite transactions on the principal U.S. national securities exchange on which the Common Stock is traded or if the Common Stock is not traded on a U.S. national securities exchange, as reported by the Nasdaq National Market system or by the National Quotation Bureau Incorporated. In the absence of such a quotation, the Board of Directors of the Company shall be entitled to make a good faith determination of the sale price on the basis it considers appropriate which shall be conclusive.

 

“SEC” means the Securities and Exchange Commission.

 

“Securities” means the 1.5% Convertible Senior Notes due 2024 or any of them (each, a “Security”), as amended or supplemented from time to time, that are issued under this Indenture.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as in effect from time to time.

 

“Securities Custodian” means the Trustee, as custodian with respect to the Securities in global form, or any successor thereto.

 

“Significant Subsidiary” means, in respect of any Person, a Subsidiary of such Person that would constitute a “significant subsidiary” as such term is defined under Rule 1-02 of Regulation S-X under the Securities Act and the Exchange Act.

 

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“Special Interest” has the meaning specified in paragraph 2 of the Security.

 

“Subsidiary” means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, general partners or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person; (ii) such Person and one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person.

 

“TIA” means the Trust Indenture Act of 1939, as amended, and the rules and regulations thereunder as in effect on the date of this Indenture, except as provided in Section 11.3, and except to the extent any amendment to the Trust Indenture Act expressly provides for application of the Trust Indenture Act as in effect on another date.

 

“Trading Day” means, with respect to any security, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not generally traded on the principal exchange or market in which such security is traded.

 

“Transfer Restricted Global Security” means a Global Security that is a Transfer Restricted Security.

 

“Transfer Restricted Security” means a Security required to bear the restricted legend set forth in the form of Security set forth in Exhibit A of this Indenture.

 

“Trustee” means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of this Indenture, and thereafter means the successor.

 

“Trust Officer” means, with respect to the Trustee, any officer assigned to the Corporate Trust Office, and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject.

 

“Vice President” when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title “vice president.”

 

“Voting Stock” of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof.

 

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SECTION 1.2. OTHER DEFINITIONS.

 

 

Term


   Defined in Section

“Agent Members”

               2.1(b)

“Bankruptcy Law”

               8.1

“Change in Control”

               3.9(a)(1)

“Company Order”

               2.2

“Conversion Agent”

               2.3

“Conversion Notice”

               4.2(b)

“Current Market Price”

               4.3(g)

“Custodian”

               8.1

“DTC”

               2.1

“Depositary”

               2.1

“Event of Default”

               8.1

“ ‘ex’ date”

               4.3(g)

“Expiration Date”

               4.3(e)

“Expiration Time”

               4.3(f)

“Fair Market Value”

               4.3(g)

“Legal Holiday”

               13.7

“Legend”

               2.12

“Non-Electing Share”

               4.4

“Note Measurement Period”

               4.1(a)(ii)

“Notice of Default”

               8.1

“Paying Agent”

               2.3

“Primary Registrar”

               2.3

“Purchase Agreement”

               2.1

“Purchase Offer”

               3.8(a)

“Purchased Shares”

               4.3(f)

“QIB”

               2.1

“Record Date”

               4.3(g)

“Reference Period”

               4.3(d)(2)

“Registrar”

               2.3

“Regular Record Date”

               3.4

“Repurchase Date”

               3.8(a)(1)

“Repurchase Event”

               3.9(a)(1)

“Repurchase Event Company Notice”

               3.9(a)(2)

“Repurchase Event Repurchase Price”

               3.9(a)(3)

“Repurchase Notice”

               3.8(a)(2)

“Repurchase Price”

               3.8(a)(1)

“Spin-Off”

               4.3(d)(3)

“Trigger Event”

               4.3(d)(4)

 

SECTION 1.3. TRUST INDENTURE ACT PROVISIONS.

 

Whenever this Indenture refers to a provision of the TIA, that provision is incorporated by reference in and made a part of this Indenture. The Indenture shall also include those provisions of the TIA required to be included herein by the provisions of the Trust Indenture Reform Act of 1990. The following TIA terms used in this Indenture have the following meanings:

 

  (A) “indenture securities” means the Securities;

 

  (B) “indenture security holder” means a Securityholder;

 

  (C) “indenture to be qualified” means this Indenture;

 

  (D) “indenture trustee” or “institutional trustee” means the Trustee; and

 

  (E) “obligor” on the indenture securities means the Company or any other obligor on the Securities.

 

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All other terms used in this Indenture that are defined in the TIA, defined by TIA reference to another statute or defined by any SEC rule and not otherwise defined herein have the meanings assigned to them therein.

 

SECTION 1.4. RULES OF CONSTRUCTION.

 

Unless the context otherwise requires:

 

(A) a term has the meaning assigned to it;

 

(B) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

 

(C) words in the singular include the plural, and words in the plural include the singular;

 

(D) provisions apply to successive events and transactions;

 

(E) the term “merger” includes a statutory share exchange and the term “merged” has a correlative meaning;

 

(F) the masculine gender includes the feminine and the neuter;

 

(G) references to agreements and other instruments include subsequent amendments thereto; and

 

(H) “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.

 

ARTICLE 2

THE SECURITIES

 

SECTION 2.1. FORM AND DATING.

 

The Securities and the Trustee’s certificate of authentication shall be substantially in the respective forms set forth in Exhibit A, which Exhibit is incorporated in and made part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company shall provide any such notations, legends or endorsements to the Trustee in writing. Each Security shall be dated the date of its authentication. The Securities are being offered and sold by the Company pursuant to a Purchase Agreement, dated February 27, 2004 (the “Purchase Agreement”), among the Company and the Initial Purchasers, in transactions exempt from, or not subject to, the registration requirements of the Securities Act.

 

(a) Restricted Global Securities. All of the Securities are initially being offered and sold to qualified institutional buyers as defined in Rule 144A (collectively, “QIBs” or individually, each a “QIB”) in reliance on Rule 144A under the Securities Act and shall be issued initially in the form of one or more Restricted Global Securities, which shall be deposited on behalf of the

 

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purchasers of the Securities represented thereby with the Trustee, at its Corporate Trust Office, as custodian for the depositary, The Depository Trust Company (“DTC”) (such depositary, or any successor thereto, being hereinafter referred to as the “Depositary”), and registered in the name of its nominee, Cede & Co., duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Restricted Global Securities may from time to time be increased or decreased by adjustments made on the records of the Securities Custodian as hereinafter provided, subject in each case to compliance with the Applicable Procedures.

 

(b) Global Securities In General. Each Global Security shall represent such of the outstanding Securities as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Securities from time to time endorsed thereon and that the aggregate amount of outstanding Securities represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges, redemptions, purchases or conversions of such Securities. Any adjustment of the aggregate principal amount of a Global Security to reflect the amount of any increase or decrease in the amount of outstanding Securities represented thereby shall be made by the Trustee in accordance with instructions given by the Holder thereof as required by Section 2.12 and shall be made on the records of the Trustee and the Depositary.

 

Members of, or participants in, the Depositary (“Agent Members”) shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or under the Global Security, and the Depositary (including, for this purpose, its nominee) may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall (A) prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or (B) impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security.

 

(c) Book Entry Provisions. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(c), authenticate and deliver initially one or more Global Securities that (i) shall be registered in the name of the Depositary, (ii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary’s instructions and (iii) shall bear legends substantially to the following effect:

 

“UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS

 

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SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, 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 DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.”

 

SECTION 2.2. EXECUTION AND AUTHENTICATION.

 

An Officer shall sign the Securities for the Company by manual or facsimile signature attested by the manual or facsimile signature of the Secretary or an Assistant Secretary of the Company. Typographic and other minor errors or defects in any such facsimile signature shall not affect the validity or enforceability of any Security which has been authenticated and delivered by the Trustee.

 

If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless.

 

A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture.

 

The Trustee shall authenticate and make available for delivery Securities for original issue in the aggregate principal amount of up to $400,000,000 upon receipt of a written order or orders of the Company signed by an Officer of the Company (a “Company Order”). The Company Order shall specify the amount of Securities to be authenticated, shall provide that all such Securities will be represented by a Restricted Global Security and the date on which each original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $400,000,000 except as provided in Section 2.7.

 

The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent shall have the same rights as an Agent to deal with the Company or an Affiliate of the Company.

 

The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 principal amount and any integral multiple thereof.

 

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SECTION 2.3. REGISTRAR, PAYING AGENT AND CONVERSION AGENT.

 

The Company shall maintain one or more offices or agencies where Securities may be presented for registration of transfer or for exchange (each, a “Registrar”), one or more offices or agencies where Securities may be presented for payment (each, a “Paying Agent”), one or more offices or agencies where Securities may be presented for conversion (each, a “Conversion Agent”) and one or more offices or agencies where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will at all times maintain a Paying Agent, Conversion Agent, Registrar and an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served in the Borough of Manhattan, The City of New York. One of the Registrars (the “Primary Registrar”) shall keep a register of the Securities and of their transfer and exchange.

 

The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or agent for service of notices and demands in any place required by this Indenture, or fails to give the foregoing notice, the Trustee shall act as such. The Company or any Affiliate of the Company may act as Paying Agent (except for the purposes of Section 6.1 and Article 10).

 

The Company hereby initially designates the Trustee as Paying Agent, Registrar, Securities Custodian, Bid Solicitation Agent and Conversion Agent, and each of the Corporate Trust Office of the Trustee and the office or agency of the Trustee in the Borough of Manhattan, The City of New York (which shall initially be U.S. Bank Trust National Association, an Affiliate of the Trustee, as agent of the Trustee located at Mail Station EX-NY-WALL, 100 Wall Street, Suite 1600, New York, New York 10005, Attention: Corporate Trust Services (IVAX Corporation – 1.5% Convertible Senior Notes due 2024), one such office or agency of the Company for each of the aforesaid purposes.

 

SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.

 

Prior to 11:00 a.m., New York City time, on each due date of the principal of or interest, if any, on any Securities, the Company shall deposit with a Paying Agent a sum sufficient to pay such principal or interest, if any, so becoming due. A Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest, if any, on the Securities, and shall notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. If the Company or an Affiliate of the Company acts as Paying Agent, it shall, before 11:00 a.m., New York City time, on each due date of the principal of or interest on any Securities, segregate the money and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee, and the Trustee may at any time during the continuance of any default, upon written request to a Paying Agent, require such Paying Agent to pay forthwith to the Trustee all sums so held in trust by such Paying Agent. Upon doing so, the Paying Agent (other than the Company) shall have no further liability for the money.

 

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SECTION 2.5. SECURITYHOLDER LISTS.

 

The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Primary Registrar, the Company shall furnish to the Trustee on or before each semiannual interest payment date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders.

 

SECTION 2.6. TRANSFER AND EXCHANGE.

 

Subject to compliance with any applicable additional requirements contained in Section 2.12, when a Security is presented to a Registrar with a request to register a transfer thereof or to exchange such Security for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, however, that every Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by an assignment form and, if applicable, a transfer certificate each in the form included in Exhibit A, and in form satisfactory to the Registrar duly executed by the Holder thereof or its attorney duly authorized in writing. To permit registration of transfers and exchanges, upon surrender of any Security for registration of transfer or exchange at an office or agency maintained pursuant to Section 2.3, the Company shall execute and the Trustee shall authenticate Securities of a like aggregate principal amount at the Registrar’s request. Any exchange or transfer shall be without charge, except that the Company or the Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto, and provided, that this sentence shall not apply to any exchange pursuant to Section 2.10, 2.12(a), 3.6, 3.11, or 11.5 not involving any transfer.

 

Neither the Company, any Registrar nor the Trustee shall be required to exchange or register a transfer of (i) any Securities for a period of 15 days next preceding any mailing of a notice of Securities to be redeemed, (ii) any Securities or portions thereof selected or called for redemption (except, in the case of redemption of a Security in part, the portion thereof not to be redeemed) or (iii) any Securities or portions thereof in respect of which a Change in Control Purchase Notice has been delivered and not withdrawn by the Holder thereof (except, in the case of the purchase of a Security in part, the portion thereof not to be purchased).

 

All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange.

 

Any Registrar appointed pursuant to Section 2.3 shall provide to the Trustee such information as the Trustee may reasonably require in connection with the delivery by such Registrar of Securities upon transfer or exchange of Securities.

 

Each Holder of a Security agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder’s Security in violation of any provision of this Indenture and/or applicable United States federal or state securities law.

 

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The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Agent Members or other beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

 

SECTION 2.7. REPLACEMENT SECURITIES.

 

If any mutilated Security is surrendered to the Company, a Registrar or the Trustee, or the Company, a Registrar and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company, the applicable Registrar and the Trustee such security or indemnity as will be required by them to save each of them harmless, then, in the absence of notice to the Company, such Registrar or the Trustee that such Security has been acquired by a protected purchaser, the Company shall execute, and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding.

 

In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be redeemed or purchased by the Company pursuant to Article 3, the Company in its discretion may, instead of issuing a new Security, pay, redeem or purchase such Security, as the case may be.

 

Upon the issuance of any new Securities under this Section 2.7, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the reasonable fees and expenses of the Trustee or the Registrar) in connection therewith.

 

Every new Security issued pursuant to this Section 2.7 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

 

The provisions of this Section 2.7 are (to the extent lawful) exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

 

SECTION 2.8. OUTSTANDING SECURITIES.

 

Securities outstanding at any time are all Securities authenticated by the Trustee, except for those canceled by it, those converted pursuant to Article 4, those delivered to it for cancellation or surrendered for transfer or exchange and those described in this Section 2.8 as not outstanding.

 

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If a Security is replaced pursuant to Section 2.7, it ceases to be outstanding unless the Company receives proof satisfactory to it that the replaced Security is held by a protected purchaser.

 

If a Paying Agent (other than the Company or an Affiliate of the Company) holds on a Redemption Date, a Repurchase Date, a Repurchase Event Purchase Date or the Final Maturity Date money sufficient to pay the principal of and accrued interest on Securities (or portions thereof) payable on that date, then on and after such Redemption Date, Repurchase Date, Repurchase Event Purchase Date or the final Maturity Date, as the case may be, such Securities (or portions thereof, as the case may be) shall cease to be outstanding and interest on them shall cease to accrue; provided, that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefore satisfactory to the Trustee has been made.

 

Subject to the restrictions contained in Section 2.9, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security.

 

SECTION 2.9. TREASURY SECURITIES.

 

In determining whether the Holders of the required principal amount of Securities have concurred in any notice, direction, waiver or consent, Securities owned by the Company or any other obligor on the Securities or by any Affiliate of the Company or of such other obligor shall be disregarded, except that, for purposes of determining whether the Trustee shall be protected in relying on any such notice, direction, waiver or consent, only Securities which a Trust Officer of the Trustee actually knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to the Securities and that the pledgee is not the Company or any other obligor on the Securities or any Affiliate of the Company or of such other obligor.

 

SECTION 2.10. TEMPORARY SECURITIES.

 

Until definitive Securities are ready for delivery, the Company may prepare and execute, and, upon receipt of a Company Order, the Trustee shall authenticate and deliver, temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company with the consent of the Trustee considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate and deliver definitive Securities in exchange for temporary Securities.

 

SECTION 2.11. CANCELLATION.

 

The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar, the Paying Agent and the Conversion Agent shall forward to the Trustee or its agent any Securities surrendered to them for transfer, exchange, redemption, payment or conversion. The Trustee and no one else shall cancel, in accordance with its standard procedures, all Securities surrendered for transfer, exchange, redemption, payment, conversion or cancellation and shall deliver the canceled Securities to the Company. All Securities which are redeemed, purchased or otherwise acquired by the Company or any of its Subsidiaries prior to the Final

 

14


Maturity Date shall be delivered to the Trustee for cancellation, and the Company may not hold or resell such Securities or issue any new Securities to replace any such Securities or any Securities that any Holder has converted pursuant to Article 4. Without limitation to the foregoing, any Securities acquired by any investment bankers or other purchasers pursuant to Section 3.7 shall be surrendered for conversion and thereafter cancelled, and may not be reoffered, sold or otherwise transferred.

 

SECTION 2.12. LEGEND; ADDITIONAL TRANSFER AND EXCHANGE REQUIREMENTS.

 

(a) If Securities are issued upon the transfer, exchange or replacement of Securities subject to restrictions on transfer and bearing the legends set forth on the forms of Securities attached hereto as Exhibit A (collectively, the “Legend”), or if a request is made to remove the Legend on a Security, the Securities so issued shall bear the Legend, or the Legend shall not be removed, as the case may be, unless there is delivered to the Company and the Registrar such satisfactory evidence, which shall include an Opinion of Counsel if requested by the Company or such Registrar, as may be reasonably required by the Company and the Registrar, that neither the Legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A or Rule 144 under the Securities Act or that such Securities are not “restricted” within the meaning of Rule 144 under the Securities Act; provided, that no such evidence need be supplied in connection with the sale of such Security pursuant to a registration statement that is effective at the time of such sale. Upon (i) provision of such satisfactory evidence if requested, or (ii) written notification by the Company to the Trustee and Registrar of the sale of such Security pursuant to a registration statement that is effective at the time of such sale, the Trustee, at the written direction of the Company, shall authenticate and deliver a Security that does not bear the Legend. If the Legend is removed from the face of a Security and the Security is subsequently held by an Affiliate of the Company, the Legend shall be reinstated.

 

(b) A Global Security may not be transferred, in whole or in part, to any Person other than the Depositary or a nominee or any successor thereof, and no such transfer to any such other Person may be registered; provided, that the foregoing shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security. No transfer of a Security to any Person shall be effective under this Indenture or the Securities unless and until such Security has been registered in the name of such Person. Notwithstanding any other provisions of this Indenture or the Securities, transfers of a Global Security, in whole or in part, shall be made only in accordance with this Section 2.12.

 

(c) Subject to the succeeding paragraph, every Security shall be subject to the restrictions on transfer provided in the Legend other than a Restricted Global Security. Whenever any Transfer Restricted Security other than a Restricted Global Security is presented or surrendered for registration of transfer or for exchange for a Security registered in a name other than that of the Holder, such Security must be accompanied by a certificate in substantially the form set forth in Exhibit B, dated the date of such surrender and signed by the Holder of such Security, as to compliance with such restrictions on transfer. The Registrar shall not be required to accept for such registration of transfer or exchange any Security not so accompanied by a properly completed certificate.

 

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(d) The restrictions imposed by the Legend upon the transferability of any Security shall cease and terminate when such Security has been sold pursuant to an effective registration statement under the Securities Act or transferred in compliance with Rule 144 under the Securities Act (or any successor provision thereto) or, if earlier, upon the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision). Any Security as to which such restrictions on transfer shall have expired in accordance with their terms or shall have terminated may, upon a surrender of such Security for exchange to the Registrar in accordance with the provisions of this Section 2.12 (accompanied, in the event that such restrictions on transfer have terminated by reason of a transfer in compliance with Rule 144 or any successor provision, by, if requested, an Opinion of Counsel reasonably acceptable to the Company, addressed to the Company and in form acceptable to the Company, to the effect that the transfer of such Security has been made in compliance with Rule 144 or such successor provision), be exchanged for a new Security, of like tenor and aggregate principal amount, which shall not bear the restrictive Legend. The Company shall inform the Trustee of the effective date of any registration statement registering the Securities under the Securities Act. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the aforementioned opinion of counsel or registration statement.

 

(e) As used in the preceding two paragraphs of this Section 2.12, the term “transfer” encompasses any sale, pledge, transfer, hypothecation or other disposition of any Security.

 

(f) The provisions of clauses (i), (ii), (iii) and (iv) below shall apply only to Global Securities:

 

(i) Notwithstanding any other provisions of this Indenture or the Securities, a Global Security shall not be exchanged in whole or in part for a Security registered in the name of any Person other than the Depositary or one or more nominees thereof, provided, that a Global Security may be exchanged for Securities registered in the names of any person designated by the Depositary in the event that (A) the Depositary has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or such Depositary has ceased to be a “clearing agency” registered under the Exchange Act, and a successor Depositary is not appointed by the Company within 90 days, (B) the Company has provided the Depositary with written notice that it has decided to discontinue use of the system of book-entry transfer through the Depositary or any successor Depositary or (C) an Event of Default has occurred and is continuing with respect to the Securities. Any Global Security exchanged pursuant to clauses (A) or (B) above shall be so exchanged in whole and not in part, and any Global Security exchanged pursuant to clause (C) above may be exchanged in whole or from time to time in part as directed by the Depositary. Any Security issued in exchange for a Global Security or any portion thereof shall be a Global Security; provided, that any such Security so issued that is registered in the name of a Person other than the Depositary or a nominee thereof shall not be a Global Security.

 

(ii) Securities issued in exchange for a Global Security or any portion thereof shall be issued in definitive, fully-registered book-entry form, without

 

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interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear the applicable legends provided for herein. Any Global Security to be exchanged in whole shall be surrendered by the Depositary to the Trustee, as Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the Depositary or its nominee with respect to such Global Security, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof.

 

(iii) Subject to the provisions of clause (v) below, the registered Holder 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 Securities.

 

(iv) In the event of the occurrence of any of the events specified in clause (i) above, the Company will promptly make available to the Trustee a reasonable supply of Certificated Securities in definitive, fully registered form, without interest coupons.

 

(v) Neither Agent Members nor any other Persons on whose behalf Agent Members may act shall have any rights under this Indenture with respect to any Global Security registered in the name of the Depositary or any nominee thereof, or under any such Global Security, and the Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a holder of any Security.

 

SECTION 2.13. CUSIP NUMBERS.

 

The Company in issuing the Securities may use one or more “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption or purchase as a convenience to Holders; provided, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption or purchase and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption or purchase shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the “CUSIP” numbers.

 

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SECTION 2.14. SENIOR UNSECURED OBLIGATIONS.

 

The Securities are senior unsecured obligations of the Company and rank equally in right of payment with all existing and future unsecured and unsubordinated indebtedness of the Company senior to existing and future subordinated indebtedness and junior to the existing and future secured indebtedness to the extent of the security thereon of the Company.

 

ARTICLE 3

REDEMPTION AND PURCHASES

 

SECTION 3.1. RIGHT TO REDEEM; NOTICE TO TRUSTEE.

 

The Securities may be redeemed at the election of the Company, as a whole or from time to time in part, at any time on or after March 1, 2011, at the Redemption Price specified in paragraph 6 of the form of Security attached hereto as Exhibit A, together with accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, up to, but not including, the Redemption Date; provided, that if the Redemption Date falls after an interest payment record date and on or before an interest payment date, then the interest (including Contingent Interest, if any) and Special Interest, if any, will be payable to the Holders in whose name the Securities are registered at the close of business on the interest payment record date.

 

If the Company elects to redeem Securities pursuant to this Section 3.1 and paragraph 6 of the Securities, it shall notify the Trustee at least 45 days prior to the Redemption Date, as fixed by the Company, (unless a shorter notice shall be satisfactory to the Trustee) of the Redemption Date and the principal amount of Securities to be redeemed. If fewer than all of the Securities are to be redeemed, the record date relating to such redemption shall be selected by the Company and given to the Trustee, which record date shall not be less than 10 days after the date of notice to the Trustee.

 

SECTION 3.2. SELECTION OF SECURITIES TO BE REDEEMED.

 

If less than all of the Securities are to be redeemed, unless the procedures of the Depositary provide otherwise, the Trustee shall, at least 30 days but not more than 60 days prior to the Redemption Date, select the Securities to be redeemed. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption, by lot, or in its discretion, on a pro rata basis. Securities in denominations of $1,000 may only be redeemed in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption.

 

If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed shall be treated by the Trustee as outstanding for the purpose of such selection.

 

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SECTION 3.3. 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 to each Holder of Securities to be redeemed at such Holder’s address as it appears on the Primary Registrar’s books.

 

The notice shall identify the Securities (including CUSIP numbers) to be redeemed and shall state:

 

(1) the Redemption Date;

 

(2) the Redemption Price;

 

(3) the then current Conversion Price;

 

(4) the name and address of each Paying Agent and Conversion Agent;

 

(5) that Securities called for redemption must be presented and surrendered to a Paying Agent to collect the Redemption Price;

 

(6) that Holders who wish to convert Securities must surrender such Securities for conversion no later than the close of business on the Business Day immediately preceding the Redemption Date and must satisfy the other requirements set forth in paragraph 9 of the Securities;

 

(7) that, unless the Company defaults in making the payment of the Redemption Price, interest on Securities called for redemption shall cease accruing on and after the Redemption Date and the only remaining right of the Holder shall be to receive payment of the Redemption Price plus accrued interest, if any upon presentation and surrender to a Paying Agent of the Securities; and

 

(8) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, upon presentation and surrender of such Security, a new Security or Securities in aggregate principal amount equal to the unredeemed portion thereof will be issued.

 

If any of the Securities to be redeemed is in the form of a Global Security, then the Company shall modify such notice to the extent necessary to accord with the procedures of the Depositary applicable to redemptions. At the Company’s written request, which request shall (i) be irrevocable once given and (ii) set forth all relevant information required by clauses (1) through (8) of the preceding paragraph, the Trustee shall give the notice of redemption in the Company’s name and at the Company’s expense.

 

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SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION.

 

Once notice of redemption is mailed, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price stated in the notice, together with accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, except for Securities that are converted in accordance with the provisions of Article 4. Upon presentation and surrender to a Paying Agent, Securities called for redemption shall be paid at the Redemption Price, plus accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, up to but not including the Redemption Date; provided, that if the Redemption Date falls after an interest payment record date and on or before an interest payment date, then the interest (including Contingent Interest, if any) and Special Interest, if any, will be payable to the Holders in whose name the Securities are registered at the close of business on the interest payment record date (each, a “Regular Record Date”).

 

SECTION 3.5. DEPOSIT OF REDEMPTION PRICE.

 

Prior to 11:00 a.m. New York City time, on the Redemption Date, the Company shall deposit with a Paying Agent (or, if the Company acts as Paying Agent, shall segregate and hold in trust) an amount of money (in immediately available funds if deposited on such Redemption Date) sufficient to pay the Redemption Price of and accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, on all Securities to be redeemed on that date, other than Securities or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation or have been converted. The Paying Agent shall as promptly as practicable return to the Company any money not required for that purpose or, if such money is then held by the Company in trust and is not required for such purpose, it shall be discharged from the trust.

 

SECTION 3.6. SECURITIES REDEEMED IN PART.

 

Upon presentation and surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Security equal in principal amount to the unredeemed portion of the Security surrendered.

 

SECTION 3.7. OTHER ARRANGEMENT ON CALL FOR REDEMPTION.

 

In lieu of a redemption of the Securities, the Company may arrange for the purchase of any Securities called for redemption by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to a Paying Agent (other than the Company or any of its Affiliates) in trust for the Holders, on or before 11:00 a.m. New York City time on the Redemption Date, an amount that, together with any amounts deposited with such Paying Agent by the Company for the redemption of such Securities, is not less than the Redemption Price of such Securities. Notwithstanding anything to the contrary contained in this Article 3, the obligation of the Company to pay the Redemption Price of such Securities shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers; provided, however, that nothing in this Section 3.7 shall relieve the Company of its obligation to pay the Redemption Price on Securities called for redemption. If such an agreement with one or more investment banks or other purchasers is entered into, any Securities called for redemption and not surrendered for conversion by the Holders thereof prior to the relevant Redemption Date may, at the option of the Company upon written notice to the Trustee, be deemed, to the fullest

 

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extent permitted by law, acquired by such purchasers from such Holders as of 11:00 a.m. New York City time on the Redemption Date, subject to payment of the above amount as aforesaid. The Paying Agent shall hold and pay to the Holders whose Securities are selected for redemption any such amount paid to it for purchase in the same manner as it would money deposited with it by the Company for the redemption of Securities. Without the Paying Agent’s prior written consent, no arrangement between the Company and such purchasers for the purchase of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Paying Agent as set forth in this Indenture, and the Company agrees to indemnify the Paying Agent from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase of any Securities between the Company and such purchasers, including the costs and expenses incurred by the Paying Agent in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture.

 

SECTION 3.8. REPURCHASE OF SECURITIES AT THE OPTION OF HOLDERS ON SPECIFIC DATES.

 

(a) Optional Put.

 

(1) Securities shall be repurchased in Cash by the Company, at the option of the Holder thereof, on March 1, 2011, March 1, 2014 and March 1, 2019 (each, a “Repurchase Date”), at a repurchase price equal to 100% of the principal amount of those Securities plus accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, to, but not including, such Repurchase Date (the “Repurchase Price”), subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 3.8(a)(3).

 

(2) No later than 20 Business Days prior to each Repurchase Date, the Company shall mail a written notice of the repurchase right under Section 3.8(a)(1) (a “Purchase Offer”) by first class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include a form of notice to be completed by the Holder and returned to the Company in the event that the Holder elects such right to so repurchase (the “Repurchase Notice”) and shall briefly state, as applicable:

 

(i) the date by which the Repurchase Notice must be delivered to the Paying Agent in order for a Holder to exercise the repurchase right;

 

(ii) the Repurchase Date;

 

(iii) the Repurchase Price;

 

(iv) the name and address of the Paying Agent and the Conversion Agent;

 

(v) the Conversion Rate and any adjustments thereto;

 

(vi) that the Securities as to which a Repurchase Notice has been given may be converted if they are otherwise convertible pursuant to Article 4 only if the Repurchase Notice has been withdrawn in accordance with the terms of this Indenture;

 

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(vii) that the Securities must be surrendered to the Paying Agent to collect payment;

 

(viii) that the Repurchase Price for any Security as to which a Repurchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Repurchase Date and the time of surrender of such Security;

 

(ix) the procedures the Holder must follow to exercise its put right under this Section 3.8(a);

 

(x) the conversion rights, if any, of the Securities;

 

(xi) the procedures for withdrawing a Repurchase Notice;

 

(xii) that, unless the Company defaults in making payment of such Repurchase Price, interest (including Contingent Interest, if any) and Special Interest, if any, on Securities surrendered for repurchase by the Company will cease to accrue on and after the Repurchase Date; and

 

(xiii) the CUSIP number(s) of the Securities.

 

At the Company’s request, the Trustee shall give the Purchase Offer in the Company’s name and at the Company’s expense; provided, however, that the Company makes such request at least three Business Days (unless a shorter period shall be satisfactory to the Trustee) prior to the date by which such Purchase Offer must be given to the Holder in accordance with this Section 3.8(a)(2); provided, further, that the text of the notice of repurchase right shall be prepared by the Company.

 

(3) A Holder may exercise its right specified in Section 3.8(a)(1) upon delivery of a properly completed Repurchase Notice to the Paying Agent at any time during the period beginning at 9:00 a.m., New York City time, on the date that is 20 Business Days immediately preceding the relevant Repurchase Date until 5:00 p.m., New York City time, on the Business Day immediately preceding such Repurchase Date, stating:

 

(i) the certificate number (if certified) of the Security which the Holder will deliver to be repurchased or the appropriate Depositary procedures if Certificated Securities have not been issued;

 

(ii) the portion of the principal amount of the Security which the Holder will deliver to be repurchased, which portion must be in principal amounts of $1,000 or an integral multiple of $1,000; and

 

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(iii) that such Security shall be repurchased by the Company as of the Repurchase Date pursuant to the terms and conditions specified in the Securities and in this Indenture.

 

The delivery of such Security to the Paying Agent with, or at any time after delivery of, the Repurchase Notice (together with all necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the Repurchase Price therefor; provided, however, that such Repurchase Price shall be so paid pursuant to this Section 3.8(a) only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof in the related Repurchase Notice.

 

The Company shall repurchase from the Holder thereof, pursuant to this Section 3.8(a), a portion of a Security, so long as the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the repurchase of all of a Security also apply to the repurchase of such portion of such Security.

 

Any repurchase by the Company contemplated pursuant to the provisions of this Section 3.8(a) shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of the Repurchase Date and the time of delivery of the Security with the necessary endorsements.

 

Notwithstanding anything contained herein to the contrary, any Holder delivering to the Paying Agent the Repurchase Notice contemplated by this Section 3.8(a)(3) shall have the right to withdraw such Repurchase Notice at any applicable time prior to 5:00 p.m., New York City time, on the Business Day immediately preceding the Repurchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 3.8(b).

 

The Paying Agent shall promptly notify the Company of the receipt by it of any Repurchase Notice or written notice of withdrawal thereof.

 

(b) Effect of Repurchase Notice.

 

Upon receipt by the Paying Agent of the Repurchase Notice specified in Section 3.8(a)(3), the Holder of the Security in respect of which such Repurchase Notice was given shall (unless such Repurchase Notice is withdrawn as specified in the following paragraph) thereafter be entitled to receive solely the Repurchase Price with respect to such Security. Such Repurchase Price shall be paid to such Holder, subject to receipts of Cash by the Paying Agent, promptly following the later of (a) the Repurchase Date with respect to such Security (provided the conditions in Section 3.8(a)(3) have been satisfied) and (b) the time of delivery of such Security to the Paying Agent by the Holder thereof in the manner required by Section 3.8(a)(3). Securities in respect of which a Repurchase Notice has been given by the Holder thereof may not be converted pursuant to Article IV on or after the date of the delivery of such Repurchase Notice unless such Repurchase Notice has first been validly withdrawn as specified in the following paragraph.

 

A Repurchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Repurchase Notice at any time

 

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prior to 5:00 p.m., New York City time, on the Business Day immediately preceding the Repurchase Date, specifying:

 

(1) the Holder’s name and an election to withdraw such Repurchase Notice;

 

(2) the certificate number, if any, or the appropriate Depositary procedures, if applicable, of the Security in respect of which such notice of withdrawal is being submitted;

 

(3) the principal amount of the Security (which must be in an integral multiple of $1,000) with respect to which such notice of withdrawal is being submitted; and

 

(4) the principal amount, if any, of such Security which remains subject to the original Repurchase Notice and which has been or will be delivered for repurchase by the Company.

 

(c) Deposit of Repurchase Price.

 

Prior to 11:00 a.m., New York City time, on the applicable Repurchase Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of any of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 2.4) an amount of Cash (in immediately available funds if deposited on such Business Day) sufficient to pay the aggregate Repurchase Price of all the Securities or portions thereof which are to be repurchased on such Repurchase Date.

 

If the Paying Agent holds, in accordance with the terms hereof, at 11:00 a.m., New York City time, on the Business Day immediately following the applicable Repurchase Date, Cash sufficient to pay the Repurchase Price of any Securities for which a Repurchase Notice has been tendered and not withdrawn pursuant to Section 3.8(b), then, immediately after such Repurchase Date, such Securities will cease to be outstanding and interest (including, Contingent Interest, if any) and Special Interest, if any, on such Securities will cease to accrue, whether or not such Securities are delivered to the Paying Agent, and the rights of the Holders in respect thereof shall terminate (other than the right to receive the Repurchase Price upon delivery of such Securities, together with any necessary endorsement) and the repurchased Securities shall be cancelled.

 

(d) Securities Repurchased in Part.

 

Any Certificated Security which is to be repurchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder’s attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered which is not repurchased.

 

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(e) Covenant to Comply With Securities Laws Upon Repurchase of Securities.

 

When complying with the provisions of Section 3.8(a) hereof (provided, that such offer or purchase constitutes an “issuer tender offer” for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), and subject to any exemptions available under applicable law, the Company shall:

 

(1) comply with Rule 13e-4 and Rule 14e-1 (or any successor provision) under the Exchange Act, as applicable;

 

(2) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, as applicable; and

 

(3) otherwise comply with all federal and state securities laws so as to permit the rights and obligations under Section 3.8 to be exercised in the time and in the manner specified therein.

 

To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 3.8, the Company’s compliance with such laws and regulations shall not in and of itself cause a breach of its obligations under this Section 3.8.

 

(f) Repayment to the Company.

 

The Paying Agent shall return to the Company any Cash that remains unclaimed for two years, together with interest, if any, thereon, held by it for the payment of the Repurchase Price; provided, however, to the extent that the aggregate amount of Cash deposited by the Company pursuant to Section 3.8(c) exceeds the aggregate Repurchase Price of the Securities or portions thereof which the Company is obligated to repurchase on the Repurchase Date, then, promptly after the Repurchase Date, the Paying Agent shall return any such excess to the Company.

 

SECTION 3.9. REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON REPURCHASE EVENT.

 

(a) Repurchase Event Put.

 

(1) General. If a Repurchase Event occurs, each Holder will have the right to require the Company to repurchase all of its Securities not previously called for redemption, or any portion of such Securities, at a purchase price equal to 100% of the principal amount of all such Securities, plus accrued and unpaid interest, including Contingent Interest, if any, on such Securities to, but not including, the Repurchase Event Repurchase Date (the “Repurchase Event Repurchase Price”), subject to satisfaction by or on behalf of any Holder of the requirements set forth in Section 3.9(a)(3). The date the Company shall repurchase the Securities pursuant to this Section 3.9(a) (the “Repurchase Event Repurchase Date”) must be within 30 days of the date of the mailing of the Repurchase Event Company Notice under Section 3.9(a)(2).

 

A “Repurchase Event” shall be deemed to have occurred upon the occurrence of either a “Change in Control” or a “Termination of Trading.”

 

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A “Change of Control” shall be deemed to have occurred if any of the following occurs after the date hereof:

 

(i) any “Person” or “group,” within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act or any successor provision to either of the foregoing, including any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act, becomes the “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of more than 50% of the total voting power of all classes of the Company’s Voting Stock and/or warrants or options to acquire such Voting Stock, calculated on a fully diluted basis;

 

(ii) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the properties or assets of the Company to any “Person” or “group” (as such terms are defined above);

 

(iii) any consolidation or merger of the Company with or into another Person (or vice versa) except pursuant to a transaction in which the persons that “beneficially owned,” directly or indirectly, the shares of the Company’s Voting Stock immediately prior to such transaction “beneficially own” immediately after such transaction, directly or indirectly, shares of Voting Stock representing not less than a majority of the total voting power of all outstanding classes of Voting Stock of the continuing or surviving corporation in substantially the same proportion as such ownership prior to the transaction;

 

(iv) the approval by the requisite stockholders of the Company of a plan of liquidation or dissolution of the Company; or

 

(v) the first day on which a majority of the members of the Company’s Board of Directors are not Continuing Directors.

 

A “Termination of Trading” shall be deemed to have occurred if, after the date hereof, the Common Stock (or other common stock into which the Securities are then convertible) is not listed for trading on a U.S. national securities exchange, quoted on the American Stock Exchange, or approved for trading on an established automated over-the-counter trading market in the United States.

 

Notwithstanding the foregoing, a Repurchase Event will not be deemed to have occurred if either:

 

(i) the last Sale Price of our Common Stock for any five Trading Days during the ten Trading Days immediately preceding the Change in Control is at least equal to 105% of the Conversion Price in effect on such Trading Day; or

 

(ii) in the case of a merger or consolidation, at least 95% of the consideration (excluding cash payments for fractional shares and cash payments pursuant to dissenters’ appraisal rights) in the merger or consolidation constituting the Change in Control consists of common stock traded on a U.S. national

 

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securities exchange or on the Nasdaq National Market system (or which will be so traded when issued or exchanged in connection with such change in control) and as a result of such transaction or transactions the Securities become convertible solely into such common stock and associated rights.

 

(2) Notice of Repurchase Event. No later than 20 days after the occurrence of a Repurchase Event the Company shall mail a written notice of Repurchase Event (the “Repurchase Event Company Notice”) by first class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include a form of notice to be completed by the Holder in the event the Holder elects such right to repurchase pursuant to this Section 3.9 (the “Repurchase Event Repurchase Notice”) and shall briefly state, as applicable:

 

(i) the events causing a Repurchase Event and the date of such Repurchase Event;

 

(ii) that the Holder has a right to require the Company to repurchase the Holder’s Securities;

 

(iii) the date by which the Repurchase Event Repurchase Notice must be delivered to the Paying Agent in order for a Holder to exercise the Repurchase Event repurchase right;

 

(iv) the Repurchase Event Repurchase Date;

 

(v) the Repurchase Event Repurchase Price;

 

(vi) the name and address of the Paying Agent and the Conversion Agent;

 

(vii) the Conversion Rate applicable on the Repurchase Event Company Notice Date and any adjustments to the Conversion Rate that will result from the Repurchase Event;

 

(viii) that the Securities as to which a Repurchase Event Repurchase Notice has been given may be converted if they are otherwise convertible pursuant to Article 4 only if the Repurchase Event Repurchase Notice has been withdrawn in accordance with the terms of this Indenture;

 

(ix) that the Securities must be surrendered to the Paying Agent to collect payment;

 

(x) that the Repurchase Event Repurchase Price for any Security as to which a Repurchase Event Repurchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Repurchase Event or Repurchase Date and the time of surrender of such Security;

 

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(xi) the procedures the Holder must follow to exercise its put right under this Section 3.9(a);

 

(xii) the conversion rights, if any, of the Securities;

 

(xiii) the procedures for withdrawing a Repurchase Event Repurchase Notice;

 

(xiv) that, unless the Company defaults in making payment of such Repurchase Event Repurchase Price, interest and Additional Amounts, if any, on Securities surrendered for repurchase by the Company will cease to accrue on and after the Repurchase Event Repurchase Price; and

 

(xv) the CUSIP number(s) of the Securities.

 

At the Company’s request, the Trustee shall give the Repurchase Event Company Notice in the Company’s name and at the Company’s expense; provided, however, the Company makes such request at least three Business Days (unless a shorter period shall be satisfactory to the Trustee) prior to the date by which such Repurchase Event Company Notice must be given to the Holders in accordance with this Section 3.9(a)(2); provided, further, that the text of the Repurchase Event Company Notice shall be prepared by the Company.

 

(3) Repurchase Event Repurchase Notice. A Holder may exercise its right specified in Section 3.9(a)(1) upon delivery of a properly completed Repurchase Event Repurchase Notice to the Paying Agent at any time from the opening of business on the date of the Repurchase Event Company Notice until 5:00 p.m., New York City time, on the third Business Day immediately preceding the Repurchase Event Repurchase Date, stating:

 

(i) the certificate number of the Security which the Holder will deliver to be repurchased or the appropriate depositary procedures if Certificated Securities have not been issued;

 

(ii) the portion of the principal amount of the Security which the Holder will deliver to be repurchased, which portion must be $1,000 or an integral multiple of $1,000; and

 

(iii) that such Security shall be repurchased on the Repurchase Event Repurchase Date pursuant to the terms and conditions specified in the Securities and in this Indenture.

 

The delivery of such Security to the Paying Agent with, or at any time after delivery of, the Repurchase Event Repurchase Notice (together with all necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the Repurchase Event Repurchase Price therefor; provided, however, that such Repurchase Event Repurchase Price shall be so paid pursuant to this Section 3.9(a) only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof set forth in the related Repurchase Event Repurchase Notice.

 

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The Company shall repurchase from the Holder thereof, pursuant to this Section 3.9(a), a portion of a Security, so long as the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the repurchase of all of a Security also apply to the repurchase of such portion of such Security.

 

Any repurchase by the Company contemplated pursuant to the provisions of this Section 3.9(a) shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of the Repurchase Event Repurchase Date and the time of delivery of the Security.

 

Notwithstanding anything contained herein to the contrary, any Holder delivering to the Paying Agent the Repurchase Event Repurchase Notice contemplated by this Section 3.9(a)(3) shall have the right to withdraw such Repurchase Event Repurchase Notice at any time prior to 5:00 p.m., New York City time, on the Business Day immediately preceding the Repurchase Event Repurchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 3.9(b).

 

The Paying Agent shall promptly notify the Company of the receipt by it of any Repurchase Event Repurchase Notice or written notice of withdrawal thereof.

 

(b) Effect of Repurchase Event Repurchase Notice.

 

Upon receipt by the Paying Agent of the Repurchase Event Repurchase Notice specified in Section 3.9(a)(3), the Holder of the Security in respect of which such Repurchase Event Repurchase Notice was given shall (unless such Repurchase Event Repurchase Notice is withdrawn as specified in the following paragraph) thereafter be entitled to receive solely the Repurchase Event Repurchase Price with respect to such Security. Such Repurchase Event Repurchase Price shall be paid to such Holder, subject to receipt of Cash by the Paying Agent, promptly following the later of (a) the Repurchase Event Repurchase Date with respect to such Security (provided the conditions in Section 3.9(a)(3) have been satisfied) and (b) the time of delivery of such Security to the Paying Agent by the Holder thereof in the manner required by Section 3.9(a)(3). Securities in respect of which a Repurchase Event Repurchase Notice has been given by the Holder thereof may not be converted pursuant to Article 4 on or after the date of the delivery of such Repurchase Event Repurchase Notice unless such Repurchase Event Repurchase Notice has first been validly withdrawn as specified in the following paragraph.

 

A Repurchase Event Repurchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Repurchase Event Repurchase Notice at any time prior to 5:00 p.m., New York City time, on the Business Day immediately preceding the Repurchase Event Repurchase Date, specifying:

 

(1) the Holder’s name and election to withdraw such Repurchase Event Repurchase Notice;

 

(2) the principal amount of the Security (which must be in an integral multiple of $1,000) with respect to which such notice of withdrawal is being submitted;

 

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(3) the certificate number, if any, or the appropriate Depository procedures, if applicable, of the Security in respect of which such notice of withdrawal is being submitted; and

 

(4) the principal amount, if any, of such Security which remains subject to the original Repurchase Event Repurchase Notice and which has been or will be delivered for repurchase by the Company.

 

(c) Deposit of Repurchase Event Repurchase Price.

 

Prior to 11:00 a.m., New York City time, on the applicable Repurchase Event Repurchase Date, the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of any of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 2.4) an amount of Cash (in immediately available funds if deposited on such Business Day) sufficient to pay the aggregate Repurchase Event Repurchase Price of all the Securities or portions thereof which are to be repurchased on such Repurchase Event Repurchase Date.

 

If the Paying Agent holds, in accordance with the terms hereof, at 11:00 a.m., New York City time, on the Business Day immediately following the applicable Repurchase Event Repurchase Date, Cash sufficient to pay the Repurchase Event Repurchase Price of any Securities for which a Repurchase Event Repurchase Notice has been tendered and not withdrawn pursuant to Section 3.9(b), then, immediately after such Repurchase Event Repurchase Date, such Securities will cease to be outstanding and interest and Special Interest, if any, on such Securities will cease to accrue, whether or not such Securities are delivered to the Paying Agent, and the rights of the Holders in respect thereof shall terminate (other than the right to receive the Repurchase Event Repurchase Price upon delivery of such Securities, together with necessary endorsements) and the repurchased Securities will be cancelled.

 

(d) Securities Repurchased in Part.

 

Any Certificated Security which is to be repurchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder’s attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without charge, a new Security or Securities, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered which is not repurchased.

 

(e) Covenant to Comply With Securities Laws Upon Repurchase of Securities.

 

When complying with the provisions of Section 3.9(a) hereof (provided, that such offer or purchase constitutes an “issuer tender offer” for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), and subject to any exemptions available under applicable law, the Company shall:

 

(1) comply with Rule 13e-4 and Rule 14e-1 (or any successor provision) under the Exchange Act, as applicable;

 

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(2) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, as applicable; and

 

(3) otherwise comply with all federal and state securities laws so as to permit the rights and obligations under this Section 3.9 to be exercised in the time and in the manner specified therein.

 

To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 3.9, the Company’s compliance with such laws and regulations shall not in and of itself cause a breach of its obligations under this Section 3.9.

 

(f) Repayment to the Company.

 

The Paying Agent shall return to the Company any Cash that remains unclaimed for two years, together with interest, if any, thereon, held by it for the payment of the Repurchase Event Repurchase Price; provided, however, to the extent that the aggregate amount of Cash deposited by the Company pursuant to Section 3.9(c) exceeds the aggregate Repurchase Event Repurchase Price of the Securities or portions thereof which the Company is obligated to repurchase as of the Repurchase Event Repurchase Date then, promptly after the Repurchase Event Repurchase Date, the Paying Agent shall return any such excess to the Company.

 

SECTION 3.10. COMPLIANCE WITH SECURITIES LAWS UPON PURCHASE OF SECURITIES.

 

In connection with any offer to purchase or purchase of Securities under Section 3.9, the Company shall (a) comply with Rule 13e-4 and Rule 14e-1 (or any successor to either such Rule), if applicable, under the Exchange Act, (b) file the related Schedule TO (or any successor or similar schedule, form or report) if required under the Exchange Act, and (c) otherwise comply with all federal and state securities laws in connection with such offer to purchase or purchase of Securities, all so as to permit the rights of the Holders and obligations of the Company under Sections 3.9 to be exercised in the time and in the manner specified therein.

 

SECTION 3.11. REPAYMENT TO THE COMPANY.

 

To the extent that the aggregate amount of Cash deposited by the Company pursuant to Section 3.9(c) exceeds the aggregate Repurchase Event Repurchase Price, of the Securities or portions thereof that the Company is obligated to purchase, then promptly after the Repurchase Event Repurchase Price Date the Trustee or a Paying Agent, as the case may be, shall return any such excess cash to the Company.

 

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ARTICLE 4

CONVERSION

 

SECTION 4.1. CONVERSION PRIVILEGE.

 

(a) Subject to and upon compliance with the provisions of this Article 4, a Holder of a Security shall have the right, at such Holder’s option, to convert all or any portion (if the portion to be converted is $1,000 or an integral multiple of $1,000) of such Security into shares of Common Stock at the Conversion Price in effect on the date of conversion only as follows:

 

(i) during any fiscal quarter (beginning with the quarter ending June 30, 2004) if the Sale Price of the Common Stock for at least 20 consecutive Trading Days in the Measurement Period of the immediately preceding fiscal quarter exceeds 120% of the Conversion Price in effect on the last Trading Day of such Measurement Period (in the event that the Conversion Price on such last Trading Day of such Measurement Period is not the same as the Conversion Price in effect for each of the Trading Days in such Measurement Period, the Conversion Agent shall make such adjustments as it, in its discretion, deems appropriate in determining whether the foregoing condition has been met);

 

(ii) during any five consecutive Trading Day period immediately following any five consecutive Trading Day period (the “Note Measurement Period”) in which the average Market Price per $1,000 principal amount of Securities during such Note Measurement Period was less than 95% of the average Conversion Value during such Note Measurement Period; provided, however, that beginning on March 1, 2019, Holders may not convert their Securities, if the Sale Price of the Common Stock on the Trading Day immediately preceding the day on which the Securities are surrendered for conversion pursuant to this provision is greater than 100% of the Conversion Price but equal to or less than 120% of the Conversion Price then in effect; or

 

(iii) at any time prior to 5:00 p.m., New York City time, on the Business Day immediately preceding the Redemption Date, if such Security has been called for redemption pursuant to Article 3 hereof.

 

The Conversion Agent shall, on behalf of the Company, determine at the end of each applicable period whether the Securities shall be convertible as a result of the occurrence of an event specified in clause (i) or (ii) above and, if the Securities shall be so convertible, the Conversion Agent shall promptly deliver to the Company and the Trustee written notice thereof. Whenever the Securities shall become convertible pursuant to Section 4.1, the Company or, at the Company’s request, the Trustee in the name and at the expense of the Company, shall notify the Holders in writing of the event triggering such convertibility in the manner provided in Section 4.2, and the Company shall also publicly announce such information and publish it on the Company’s website. Any notice so given shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice.

 

(b) In addition,

 

(i) if the Company elects to distribute to all Holders of the Common Stock:

 

(A) certain rights or warrants entitling them to purchase Common Stock at less than the Sale Price of the Common Stock on the Trading Day preceding the declaration date for such distribution of the rights or warrants other than pursuant to a shareholder rights plan; or

 

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(B) cash or other assets, debt securities or certain rights to purchase the Company’s securities, which have a per share value as determined by the Board of Directors that exceeds 15% of the Sale Price of the Common Stock on the Trading Day preceding the declaration date for such distribution;

 

then, in each case, the Company must notify, in writing, Holders of Securities of the occurrence of such an event at least 20 days prior to the “ex” date for any such distribution. Once the Company has given such notice, Holders may surrender their Securities for conversion at any time until the earlier of the close of business on the Business Day immediately preceding the ex-Dividend Date or the date of announcement by the Company that the distribution will not take place. No adjustment shall be made to the ability of a Holder of Securities to convert if such Holder may participate in the distribution without conversion.

 

(ii) the Company becomes party to a consolidation, merger or binding share exchange pursuant to which the Common Stock of the Company would be converted into Cash, securities or other property, a Holder may surrender the Securities for conversion at any time from and after the date which is 15 days prior to the date that was announced as the anticipated effective date of the transaction until 15 days after the actual date of the transaction. If the Company becomes party to a consolidation, merger or binding share exchange pursuant to which the Common Stock of the Company would be converted into Cash, securities or other property, then at the effective time of the transaction, the right to convert the Securities into Common Stock shall be changed into a right to convert such Securities into the kind and amount of Cash, securities or other property which the Holder would have received if the Holder had converted such Securities immediately prior to the transaction, determined assuming that the Holder would not have exercised any rights of election that the Holder would have had as a Holder of Common Stock to elect a particular type of consideration. If the transaction also constitutes a Repurchase Event, the Holder shall have the rights set forth in Section 3.9 above.

 

SECTION 4.2. CONVERSION PROCEDURE; CONVERSION RATE; FRACTIONAL SHARES.

 

(a) Subject to Section 4.2(e), each Security shall be convertible at the office of the Conversion Agent into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Common Stock. Subject to Section 4.2(e), the Security will be converted into shares of Common Stock at the Conversion Rate therefor.

 

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No payment or adjustment shall be made in respect of dividends on the Common Stock or accrued interest or accrued and unpaid Contingent Interest, if any, on a converted Security, except as described in Section 4.9 hereof.

 

The Company shall not issue any fraction of a share of Common Stock in connection with any conversion of Securities, but instead shall, make a Cash payment (calculated to the nearest cent) equal to such fraction multiplied by the Sale Price of the Common Stock on the last Trading Day prior to the date of conversion.

 

Notwithstanding the foregoing, a Security in respect of which a Holder has delivered a Repurchase Notice or Repurchase Event Purchase Notice exercising such Holder’s option to require the Company to repurchase such Security may be converted only if such notice of exercise is withdrawn in accordance with Sections 3.8(b) or 3.9(b) hereof, as the case may be, prior to the close of business on the Business Day immediately preceding the applicable Repurchase Date or Repurchase Event Repurchase Date, as the case may be.

 

(b) Before any Holder of a Security shall be entitled to convert the same into Common Stock, such Holder shall, in the case of Securities issued in global form, comply with the procedures of the Depositary in effect at that time, and in the case of Certificated Securities, surrender such Securities, duly endorsed to the Company or in blank, at the office of the Conversion Agent, and shall give written notice to the Company at said office or place in the form of the Conversion Notice attached to the Security (the “Conversion Notice”) that such Holder elects to convert the same and shall state in writing therein the principal amount of Security to be converted and the name or names (with addresses) in which such Holder wishes the certificate or certificates for Common Stock to be issued.

 

Before any such conversion, a Holder also shall pay all funds required, if any, relating to interest on the Securities, as provided in Section 4.9, and all taxes or duties, if any, as provided in Section 4.8.

 

If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock which shall be deliverable upon conversion shall be computed on the basis of the aggregate principal amount of all Securities (or specified portions thereof to the extent permitted thereby) so surrendered. Subject to the next succeeding sentence, the Company will, as soon as practicable thereafter, issue and deliver at said office or place to such Holder of a Security, or to such Holder’s nominee or nominees, certificates (other than in the case of Holders of Securities in book-entry form with the Depositary, which shares shall be delivered in accordance with the Depositary customary practices) for the number of full shares of Common Stock to which such Holder shall be entitled as aforesaid, together with Cash in lieu of any fraction of a share to which such Holder would otherwise be entitled. The Company shall not be required to deliver certificates for shares of Common Stock while the stock transfer books for such stock or the security register are duly closed for any purpose, but certificates for shares of Common Stock shall be issued and delivered as soon as practicable after the opening of such books or security register.

 

If shares of Common Stock to be issued upon conversion of a Restricted Security are to be issued in the name of a Person other than the Holder of such Restricted Security, such Holder

 

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must deliver to the Conversion Agent a certification in substantially the form set forth in a Transfer Certificate attached to the Security (the “Transfer Certificate”) dated the date of surrender of such Restricted Security and signed by such Holder, as to compliance with the restrictions on transfer applicable to such Restricted Security. The Company shall not be required to issue Common Stock upon conversion of any such Restricted Security to a Person other than the Holder if such Restricted Security is not so accompanied by a properly completed Transfer Certificate, and the Registrar shall not be required to register Common Stock upon conversion of any such Restricted Security in the name of a Person other than the Holder if such Restricted Security is not so accompanied by a properly completed Transfer Certificate.

 

(c) A Security shall be deemed to have been converted as of the close of business on the date of the surrender of such Security for conversion as provided above, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder or Holders of such Common Stock as of the close of business on such date. Upon conversion, all obligations under the Securities so converted will be deemed satisfied, including with respect to any accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any.

 

(d) In case any Certificated Security shall be surrendered for partial conversion, the Company shall execute and the Trustee shall, upon the written order of the Company, authenticate and deliver to the Holder of the Security so surrendered, without charge to such Holder (subject to the provisions of Section 4.8 hereof), a new Security or Securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Certificated Securities.

 

SECTION 4.3. ADJUSTMENT OF CONVERSION RATE FOR COMMON STOCK.

 

The Conversion Rate shall be adjusted from time to time as follows:

 

(a) In case the Company shall, at any time or from time to time while any of the Securities are outstanding, pay a dividend or make a distribution in shares of Common Stock to all holders of its outstanding shares of Common Stock, then the Conversion Rate in effect at the opening of business on the date next following the Record Date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be increased by multiplying such Conversion Rate by a fraction:

 

(1) the numerator of which shall be the sum of the number of shares of Common Stock outstanding at the close of business on such Record Date fixed for such determination and the total number of shares constituting such dividend or other distribution; and

 

(2) the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on such Record Date fixed for such determination.

 

Such increase shall become effective immediately after the opening of business on the day following the Record Date fixed for such determination.

 

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If any dividend or distribution of the type described in this Section 4.3(a) is declared but not so paid or made, the Conversion Rate shall again be adjusted to the Conversion Rate which would then be in effect if such dividend or distribution had not been declared.

 

(b) In case the Company shall, at any time or from time to time while any of the Securities are outstanding, subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, then the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and conversely, in case the Company shall, at any time or from time to time while any of the Securities are outstanding, combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately decreased. In each such case, the Conversion Rate shall be adjusted by multiplying such Conversion Rate by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after giving effect to such subdivision or combination and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such subdivision or combination. Such increase or reduction, as the case may be, shall become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

 

(c) In case the Company shall, at any time or from time to time while any of the Securities are outstanding, issue rights or warrants for a period expiring within 60 days after the date of announcement of such issuance (other than any rights or warrants referred to in Section 4.3(d)) or any rights or warrants issued pursuant to the Company’s shareholder rights plan, to all holders of its shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into or exchangeable or exercisable for shares of Common Stock), at a price per share (or having a conversion, exchange or exercise price per share) less than the Sale Price of the Common Stock on the Trading Day immediately preceding the date of the announcement of such issuance (treating the conversion, exchange or exercise price per share of the securities convertible into or exchangeable or exercisable for Common Stock as equal to the quotient of (x) the sum of (i) the price for a unit of the security convertible into or exchangeable or exercisable for Common Stock and (ii) any additional consideration initially payable upon the conversion, exchange or exercise of such security into Common Stock divided by (y) the number of shares of Common Stock initially underlying such convertible, exchangeable or exercisable security), then the Conversion Rate shall be adjusted so that the same shall equal the rate determined by multiplying the Conversion Rate in effect at the opening of business on the date after such date of announcement by a fraction:

 

(1) the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date of announcement, plus the total number of additional shares of Common Stock so offered for subscription or purchase (or into which the convertible, exchangeable or exercisable securities so offered are convertible, exchangeable or exercisable); and

 

(2) the denominator of which shall be the number of shares of Common Stock outstanding on the close of business on the date of announcement, plus the number of shares (or

 

36


convertible, exchangeable or exercisable securities) which the aggregate offering price of the total number of shares (or convertible, exchangeable or exercisable securities) so offered for subscription or purchase (or the aggregate conversion, exchange or exercise price of the convertible securities so offered) would purchase at the Sale Price of the Common Stock on the Business Day immediately preceding the date of the announcement of such issuance (determined by multiplying such total number of shares so offered by the exercise price of such rights or warrants and dividing the product so obtained by such Sale Price).

 

Such adjustment shall become effective immediately after the opening of business on the day following the date of announcement of such issuance.

 

To the extent that shares of Common Stock (or securities convertible into or exchangeable or exercisable for shares of Common Stock) are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock (or securities convertible into or exchangeable or exercisable for shares of Common Stock) actually delivered. In the event that such rights or warrants are not so issued, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if the date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Sale Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants and the value of such consideration if other than Cash, to be determined in good faith by the Board of Directors of the Company.

 

(d) (1) In case the Company shall, at any time or from time to time while any of the Securities are outstanding, by dividend or otherwise, distribute to all holders of its shares of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation and the Common Stock is not changed or exchanged), shares of its Capital Stock (other than any dividends or distributions to which Section 4.3(a) applies), evidences of its Indebtedness or other non-Cash assets, including securities, but excluding (x) any rights or warrants referred to in Section 4.3(c), (y) dividends or distributions of stock referred to in Section 4.3(a), and (z) dividends and distributions paid exclusively in Cash (such capital stock, evidence of its indebtedness, other non-Cash assets or securities being distributed hereinafter in this Section 4.3(d) called the “distributed assets”), then, in each such case, subject to the other provisions of this Section 4.3(d), the Conversion Rate shall be increased so that the same shall be equal to the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business on the Record Date with respect to such distribution by a fraction:

 

(i) the numerator of which shall be the Current Market Price of the Common Stock; and

 

(ii) the denominator of which shall be such Current Market Price of the Common Stock, less the Fair Market Value on such date of the portion of the

 

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distributed assets so distributed applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the Record Date) (determined as provided in Section 4.3(f)).

 

Such increase shall become effective immediately prior to the opening of business on the day following the Record Date for such distribution. In the event that such dividend or distribution is not so paid or made, the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such dividend or distribution had not been declared.

 

(1) If the Board of Directors determines the Fair Market Value of any distribution for purposes of this Section 4.3(d) by reference to the actual or when issued trading market for any distributed assets comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period (the “Reference Period”) used in computing the Current Market Price pursuant to Section 4.3(f) to the extent possible, unless the Board of Directors determines in good faith that determining the Fair Market Value during the Reference Period would not be in the best interest of the Holders.

 

(2) In the event any such distribution consists of shares of capital stock of, or similar equity interests in, one or more of the Company’s Subsidiaries (a “Spin-Off”), the Fair Market Value of the securities to be distributed shall equal the average of the closing sale prices of such securities on the principal securities market on which such securities are traded for the 10 consecutive Trading Days commencing on and including fifth Trading Day after the “ex” date in respect of the Spin-Off. In the event, however, that an underwritten initial public offering of the securities in the Spin-Off occurs simultaneously with the Spin-Off, Fair Market Value of the securities distributed in the Spin-Off shall mean the initial public offering price of such securities.

 

(3) Rights or warrants distributed by the Company to all holders of its shares of Common Stock entitling them to subscribe for or purchase shares of the Company’s Capital Stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events (“Trigger Event”), (x) are deemed to be transferred with such shares of Common Stock, (y) are not exercisable and (z) are also issued in respect of future issuances of shares of Common Stock shall be deemed not to have been distributed for purposes of this Section 4.3(d) (and no adjustment to the Conversion Rate under this Section 4.3(d) will be required) until the occurrence of the earliest Trigger Event. If such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different distributed assets, evidences of indebtedness or other assets, or entitle the holder to purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and record date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder thereof). If such an adjustment is made and the rights are later redeemed, invalidated or terminated, then a corresponding reversing adjustment will be made to the Conversion Rate on an equitable basis. The Conversion Rate will not be adjusted as a result of any distribution of separate certificates representing any rights under our existing or any future shareholder rights plan or exercise in accordance with such plan.

 

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In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an adjustment to the Conversion Rate under this Section 4.3(d):

 

(i) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a Cash distribution, equal to the per share redemption or repurchase price received by a holder of shares of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of shares of Common Stock as of the date of such redemption or repurchase; and

 

(ii) in the case of such rights or warrants which shall have expired or been terminated without exercise, the Conversion Rate shall be readjusted as if such rights and warrants had never been issued.

 

(4) For purposes of this Section 4.3(d) and Sections 4.3(a), 4.3(b) and 4.3(c), any dividend or distribution to which this Section 4.3(d) is applicable that also includes (x) shares of Common Stock, (y) a subdivision or combination of shares of Common Stock to which Section 4.3(b) applies or (z) rights or warrants to subscribe for or purchase shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock to which Section 4.3(c) applies (or any combination thereof), shall be deemed instead to be:

 

(i) a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants, other than such shares of Common Stock, such subdivision or combination or such rights or warrants or securities convertible into or exercisable or exchangeable for Common Stock to which Sections 4.3(a), 4.3(b) and 4.3(c) apply, respectively (and any Conversion Rate increase required by this Section 4.3(d) with respect to such dividend or distribution shall then be made), immediately followed by

 

(ii) a dividend or distribution of such shares of Common Stock, such subdivision or combination or such rights or warrants or securities convertible into or exercisable or exchangeable for Common Stock (and any further Conversion Rate increase required by Sections 4.3(a), 4.3(b) and 4.3(c) with respect to such dividend or distribution shall then be made), except:

 

1) the Record Date of such dividend or distribution shall be substituted as (x) “the date fixed for the determination of stockholders entitled to receive such dividend or other distribution,” “Record Date fixed for such determinations” and “Record Date” within the meaning of Section 4.3(a), (y) “the day upon which such subdivision becomes effective” and “the day upon which such combination becomes effective” within the meaning of Section 4.3(b), and (z) as “the date fixed for the determination of stockholders entitled to receive such rights or warrants,” “the Record Date fixed for the determination of the stockholders entitled to receive such rights or warrants” and such “Record Date” within the meaning of Section 4.3(c); and

 

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2) any shares of Common Stock included in such dividend or distribution shall not be deemed “outstanding at the close of business on the date fixed for such determination” within the meaning of Section 4.3(a) and any reduction or increase in the number of shares of Common Stock resulting from such subdivision or combination shall be disregarded in connection with such dividend or distribution.

 

(e) In case the Company shall, at any time or from time to time while any of the Securities are outstanding, by dividend or otherwise, distribute to all or substantially all holders of its shares of Common Stock, Cash (excluding any Cash that is distributed upon a reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which Section 4.4 applies, Cash distributed as part of a distribution referred to in Section 4.3(d), or any Cash that is distributed pursuant to a tender offer, to which Section 4.3(f) applies), then, and in each case, immediately after the close of business on such date, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business of such Record Date for the determination of holders of Common Stock entitled to such distribution by a fraction:

 

(i) the numerator of which shall be equal to the Current Market Price per share of Common Stock (as determined pursuant to Section 4.3(g) on the Record Date); and

 

(ii) the denominator of which shall be equal to (a) the Current Market Price per share of Common Stock on such date, less (b) an amount equal to the lesser of (i) the amount of the distribution per share of Common Stock and (ii) the Current Market Price per share of Common Stock; provided, however that if such denominator shall be zero, the Conversion Rate shall be instead adjusted so that the Conversion Price is equal to one cent ($0.01).

 

Notwithstanding the foregoing, if the Conversion Rate as adjusted pursuant to this Section 4.3(e) would cause the Conversion Price to be less than one cent ($0.01), then the Conversion Price shall be one cent ($0.01).

 

(f) In case the Company or any of its subsidiaries shall, at any time or from time to time, while any of the Securities are outstanding, distribute Cash or other consideration in respect of a tender offer or exchange offer made by the Company or any subsidiary for all or any portion of the Common Stock (excluding any Cash that is distributed upon a reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which Section 4.4 applies or as part of a distribution referred to in Sections 4.3(d) or 4.3(e)), where the sum of the aggregate amount of such Cash distributed and the aggregate fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution), as of the Expiration Date (as defined below), of such other consideration distributed (such sum, the “Aggregate Amount”) expressed as an amount per share of Common Stock validly tendered or exchanged, and not withdrawn, pursuant to such tender offer or exchange offer as of the Expiration Time (as defined below) (such tendered or exchanged shares of Common Stock, the “Purchased Shares”) exceeds the Sale Price of the Common Stock on the trading day next succeeding the last date (such last date, the “Expiration

 

40


Date”) on which tenders or exchanges could have been made pursuant to such tender offer or exchange offer (as the same may be amended through the Expiration Date), then, and in each case, immediately after the close of business on such date, the Conversion Rate shall be increased so that the same shall equal the rate determined by multiplying the Conversion Rate in effect immediately prior to the close of business of such Expiration Date by a fraction:

 

(1) the numerator of which is equal to the sum of (I) the Aggregate Amount and (II) the product of (a) the Sale Price of Common Stock on the Expiration Date and (b) an amount equal to (i) the number of shares of Common Stock outstanding as of last time (the “Expiration Time”) at which tenders or exchanges could have been made pursuant to such tender offer or exchange offer less (ii) the Purchased Shares; and

 

(2) the denominator of which shall be equal to the product of (I) the number of shares of Common Stock outstanding as of the Expiration Time (including all Purchased Shares) and (II) the Sale Price of Common Stock on the Expiration Date.

 

An adjustment, if any, to the Conversion Rate pursuant to this Section 4.3(f) shall become effective immediately prior to the opening of business on the Business Day following the Expiration Date. In the event that the Company or a subsidiary is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Company or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Rate shall again be adjusted to be the Conversion Rate which would then be in effect if such tender offer or exchange offer had not been made. If the application of this Section 4.3(f) to any tender offer or exchange offer would result in a decrease in the Conversion Rate, no adjustment shall be made for such tender offer or exchange offer under this Section 4.3(f).

 

(g) For purposes of this Article 4, the following terms shall have the meanings indicated:

 

“Current Market Price” on any date means the average of the daily Sale Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to such date; provided, however, that if the “ex” date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Rate pursuant to Section 4.3(a), (b), (c), (d), (e) or (f) occurs during such ten consecutive Trading Days, “Current Market Price” shall be calculated for such period in a manner determined in good faith by the Board of Directors to reflect the impact of such event on the Closing Price of the Common Stock during such period.

 

For purposes of this Indenture, the term “ex” date, when used:

 

(i) with respect to any issuance or distribution, means the first date on which the shares of Common Stock trade regular way on the relevant exchange or in the relevant market from which the Sale Price was obtained without the right to receive such issuance or distribution;

 

(ii) with respect to any subdivision or combination of shares of Common Stock, means the first date on which the shares of Common Stock trade regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective; and

 

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(iii) with respect to any tender or exchange offer, means the first date on which the shares of Common Stock trade regular way on such exchange or in such market after the expiration of such offer.

 

Notwithstanding the foregoing, whenever successive adjustments to the Conversion Rate are called for pursuant to this Section 4.3, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 4.3 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.

 

“Fair Market Value” shall mean the amount which a willing buyer would pay a willing seller in an arm’s length transaction (as determined in good faith by the Board of Directors, whose good faith determination shall be conclusive).

 

“Record Date” shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of shares of Common Stock have the right to receive any Cash, securities or other property or in which the shares of Common Stock (or other applicable security) is exchanged for or converted into any combination of Cash, securities or other property, the date fixed for determination of stockholders entitled to receive such Cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise).

 

(h) The Company shall be entitled at its election to make such additional increases in the Conversion Rate, in addition to those required by Sections 4.3(a), (b), (c), (d), (e) or (f), as shall be necessary in order that any dividend or distribution of Common Stock, any subdivision, reclassification or combination of shares of Common Stock or any issuance of rights or warrants referred to above shall not be taxable to the holders of Common Stock for United States federal income tax purposes.

 

(i) To the extent permitted by applicable law, the Company may, from time to time, increase the Conversion Rate by any amount for any period of time, if such period is at least 20 days, the Board of Directors determines that the increase in the Conversion Rate is in the best interest of the Company, and the increase is irrevocable during the period. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Company shall mail to the Trustee and each Holder at the address of such Holder as it appears in the register of the Securities maintained by the Registrar, at least 15 days prior to the date the increased Conversion Rate takes effect, a notice of the increase stating the increased Conversion Rate and the period during which it will be in effect.

 

(j) In any case in which this Section 4.3 shall require that any adjustment be made effective as of or retroactively immediately following a Record Date, the Company may elect to defer (but only for five Trading Days following the filing of the statement referred to in Section 4.5) issuing to the Holder of any Securities converted after such Record Date the shares of Common Stock issuable upon such conversion over and above the shares of Common Stock issuable upon such conversion on the basis of the Conversion Rate prior to adjustment; provided,

 

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however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder’s right to receive such additional shares upon the occurrence of the event requiring such adjustment.

 

(k) All calculations under this Section 4.3 shall be made to the nearest cent or one-hundredth of a share, with one-half cent and 0.005 of a share, respectively, being rounded upward. Notwithstanding any other provision of this Section 4.3, the Company shall not be required to make any adjustment of the Conversion Rate unless such adjustment would require an increase or decrease of at least 1% of such rate. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% in such rate. Any adjustments under this Section 4.3 shall be made successively whenever an event requiring such an adjustment occurs.

 

(l) In the event that at any time, as a result of an adjustment made pursuant to this Section 4.3, the Holder of any Securities thereafter surrendered for conversion shall become entitled to receive any shares of stock of the Company other than shares of Common Stock into which the Securities originally were convertible, the Conversion Rate of such other shares so receivable upon conversion of any such Security shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in subparagraphs (a) through (i) of this Section 4.3, and the provision of Sections 4.1, 4.2 and 4.4 through 4.9 with respect to the Common Stock shall apply on like or similar terms to any such other shares and the good faith determination of the Board of Directors as to any such adjustment shall be conclusive.

 

(m) No adjustment shall be made pursuant to this Section 4.3 if the Holders of the Securities may participate in the transaction that would otherwise give rise to an adjustment pursuant to this Section 4.3.

 

SECTION 4.4. CONSOLIDATION OR MERGER OF THE COMPANY.

 

If any of the following events occurs, namely:

 

(a) any reclassification or change of the outstanding Common Stock into another class of Capital Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination);

 

(b) any merger, consolidation, statutory share exchange or combination of the Company with another corporation as a result of which all of the holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including Cash or any combination thereof) with respect to or in exchange for all of their Common Stock; or

 

(c) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other person as a result of which all of the holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including Cash or any combination thereof) with respect to or in exchange for all of their Common Stock;

 

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the Company or the successor or purchasing person, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the TIA as in force at the date of execution of such supplemental indenture, if such supplemental indenture is then required to so comply) providing that the Holder’s right to convert a Security into Common Stock shall be changed to a right to convert a Security into the kind and amount of shares of stock and other securities or property or assets (including Cash) which such Holder would have been entitled to receive upon such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance had such Securities been converted into Common Stock immediately prior to such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance assuming such holder of Common Stock did not exercise its rights of election, if any, as to the kind or amount of securities, Cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance (provided, that if the kind or amount of securities, Cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised (“Non-Electing Share”), then for the purposes of this Section 4.4, the kind and amount of securities, Cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance for each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 4. If, in the case of any such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors shall reasonably consider necessary by reason of the foregoing.

 

The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder, at the address of such Holder as it appears on the register of the Securities maintained by the Registrar, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture.

 

The above provisions of this Section 4.4 shall similarly apply to successive reclassifications, changes, mergers, consolidations, statutory share exchanges, combinations, sales and conveyances.

 

If this Section 4.4 applies to any event or occurrence, Section 4.3 shall not apply.

 

SECTION 4.5. NOTICE OF ADJUSTMENT.

 

Whenever an adjustment in the Conversion Rate with respect to the Securities is required:

 

(a) the Company shall forthwith place on file with the Trustee and any Conversion Agent for such securities a certificate of the Treasurer of the Company, stating the adjusted Conversion Rate determined as provided herein and setting forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment; and

 

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(b) a notice stating that the Conversion Rate has been adjusted and setting forth the adjusted Conversion Rate shall forthwith be given by the Company or, at the Company’s request, by the Trustee in the name and at the expense of the Company, to each Holder in the manner provided in Section 4.2 hereof. Any notice so given shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice.

 

SECTION 4.6. NOTICE IN CERTAIN EVENTS.

 

In case:

 

(a) of a consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or conveyance to another Person or entity or group of Persons or entities acting in concert as a partnership, limited partnership, syndicate or other “group” (as defined in Section 3.9(a)(1)(i)) of all or substantially all of the property and assets of the Company; or

 

(b) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or

 

(c) of any action triggering an adjustment of the Conversion Rate referred to in clauses (y) or (z) below;

 

then, in each case, the Company shall cause to be filed with the Trustee and the Conversion Agent, and shall cause to be given, to the Holders of the Securities in the manner provided in Section 4.2 hereof, at least 15 days prior to the applicable date hereinafter specified, a notice stating:

 

(y) the date on which a record is to be taken for the purpose of any distribution or grant of rights or warrants or other securities triggering an adjustment to the Conversion Rate pursuant to this Article 4, or, if a record is not to be taken, the date as of which the holders of record of Common Stock entitled to such distribution, rights or warrants or other securities are to be determined, or

 

(z) the date on which any reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up described under clauses (a), (b) and (c) of Section 4.4 that changes a Holder’s right to convert into Common Stock to a right to convert into another kind and amount of securities or other property or assets is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger sale, conveyance, dissolution, liquidation or winding up.

 

Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in clause (a), (b) or (c) of this Section 4.6.

 

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SECTION 4.7. COMPANY TO RESERVE STOCK: REGISTRATION; LISTING.

 

(a) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock for the purpose of effecting the conversion of the Securities, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all Securities then outstanding into such Common Stock at any time (assuming that, at the time of the computation of such number of shares or securities, all such Securities would be held by a single Holder). The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issue be fully paid and nonassessable and free from all liens and charges and, except as provided in Section 4.8, taxes with respect to the issue thereof.

 

(b) If any shares of Common Stock which would be issuable upon conversion of Securities hereunder require registration with or approval of any governmental authority before such shares or securities may be issued upon such conversion, the Company will use its commercially reasonable efforts to cause such shares or securities to be duly registered or approved, as the case may be. The Company further covenants that so long as the Common Stock shall be quoted on the American Stock Exchange, the Company will use its commercially reasonable efforts, if permitted by the rules of the American Stock Exchange, to have and keep approved for quoting on the American Stock Exchange (subject to notice of official issuance) all Common Stock issuable upon conversion of the Securities, and the Company will use its commercially reasonable efforts to list the shares of Common Stock required to be delivered upon conversion of the Securities prior to such delivery upon any other national securities exchange upon which the outstanding Common Stock is listed at the time of such delivery.

 

SECTION 4.8. TAXES ON CONVERSION.

 

The issue of stock certificates on conversion of Securities shall be made without charge to the converting Holder for any documentary, stamp or similar issue or transfer taxes in respect of the issue thereof, and the Company shall pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or the portion, if any, of the Securities which are not so converted in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of such tax or has established to the satisfaction of the Company that such tax has been paid.

 

The Company agrees, and each Holder is deemed to agree, that delivery to such Holder of the full number of shares of Common Stock into which each Security is convertible, together with any Cash payment of such Holder’s fractional shares or otherwise in accordance with Section 4.13, will be treated as a contingent payment (in an amount equal to the sum of the then Fair Market Value of such Common Stock and such Cash payment, if any) on the Securities for purposes of the Contingent Payment Debt Regulations governing contingent payment debt obligations.

 

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Nothing contained herein shall preclude any income tax withholding required by law or regulation upon conversion of the Securities, and at the Company’s request, Holders shall be responsible for satisfying any such withholding.

 

SECTION 4.9. CONVERSION AFTER RECORD DATE.

 

Except as provided in this Section 4.9, a converting Holder of Securities shall not be entitled to receive any accrued and unpaid interest (including Contingent Interest, if any) on any such Securities being converted. By delivery to the Holder of the number of shares of Common Stock or other consideration issuable or payable upon conversion in accordance with this Article 4, any accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, on such Securities will be deemed to have been paid in full. If any Securities are surrendered for conversion subsequent to the Regular Record Date preceding an Interest Payment Date but prior to such Interest Payment Date, the Holder of such Securities at the close of business on such Regular Record Date shall receive the interest payable on such Security on such Interest Payment Date notwithstanding the conversion thereof. Securities surrendered for conversion during the period from the close of business on any Regular Record Date preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of Securities which have been called for redemption on a Redemption Date within such period) be accompanied by payment from converting Holders, for the account of the Company, in Cash, or other funds of an amount equal to the interest payable on such Interest Payment Date (excluding any overdue interest, if applicable) on the Securities being surrendered for conversion; provided, however, if the Company elects to redeem Securities on a date that is after the Regular Record Date but prior to the corresponding Interest Payment Date, and such Holder elects to convert those Securities, the Holder will not be required to pay the Company, at the time that Holder surrenders those Securities for conversion, the amount of interest such Holder will have received on the Interest Payment Date.

 

Except as provided in this Section 4.9, no adjustments in respect of payments of interest, including Contingent Interest, if any, and Special Interest, if any, on Securities surrendered for conversion or any dividends or distributions or interest on the Common Stock issued upon conversion shall be made upon the conversion of any Securities.

 

SECTION 4.10. COMPANY DETERMINATION FINAL.

 

Any determination that the Company or the Board of Directors must make pursuant to this Article 4 shall be conclusive if made in good faith and in accordance with the provisions of this Article, absent manifest error, and set forth in a Board Resolution.

 

SECTION 4.11. RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS.

 

The Trustee has no duty to determine when an adjustment under this Article 4 should be made, how it should be made or what it should be. Unless and until a Trust Officer of the Trustee receives a certificate delivered pursuant to Section 4.5 setting forth an adjustment of the Conversion Rate, the Trustee may assume without inquiry that no such adjustment has been made and that the last Conversion Rate of which the Trustee has knowledge remains in effect.

 

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The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for any failure of the Company to comply with this Article 4. Each Conversion Agent other than the Company shall have the same protection under this Section 4.11 as the Trustee.

 

The rights, privileges, protections, immunities and benefits given to the Trustee under this Indenture including, without limitation, its rights to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each Paying Agent or Conversion Agent acting hereunder.

 

SECTION 4.12. UNCONDITIONAL RIGHT OF HOLDERS TO CONVERT.

 

Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to convert its Security in accordance with this Article 4 and to bring an action for the enforcement of any such right to convert, and such rights shall not be impaired or affected without the consent of such Holder.

 

ARTICLE 5

[RESERVED]

 

ARTICLE 6

COVENANTS

 

SECTION 6.1. PAYMENT OF SECURITIES.

 

The Company shall promptly make all payments in respect of the Securities on the dates and in the manner provided in the Securities and this Indenture. An installment of principal or interest or Special Interest, if any, shall be considered paid on the date it is due if the Paying Agent (other than the Company) holds by 11:00 a.m., New York City time, on that date Cash, deposited by the Company or an Affiliate thereof, sufficient to pay the installment. The Company shall, (in immediately available funds) to the fullest extent permitted by law, pay interest on overdue principal (including premium, if any) and overdue installments of interest at the rate borne by the Securities per annum.

 

Payment of the principal of and any interest on the Securities shall be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York (which shall initially be U.S. Bank National Association, an Affiliate of the Trustee, as agent of the Trustee) or at the Corporate Trust Office of the Trustee in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest with respect to a Certified Security may be made by check mailed to the address of the Person entitled thereto as such address appears in the Register; provided, further, that a Holder with an aggregate principal amount of Certified Securities in excess of $5,000,000 will be paid by wire transfer in immediately available funds at the election of such Holder if such Holder has provided wire transfer instructions to the Company at least 10 Business Days prior to the payment date.

 

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SECTION 6.2. SEC REPORTS.

 

The Company shall file all reports and other information and documents which it is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and shall make such reports and other information and documents available on its website to the extent required by law.

 

Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such 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 6.3. COMPLIANCE CERTIFICATES.

 

The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year of the Company (beginning with the fiscal year ending December 31, 2004), an Officers’ Certificate as to the signer’s knowledge of the Company’s compliance with all conditions and covenants on its part contained in this Indenture and stating whether or not the signer knows of any default or Event of Default. If such signer knows of such a default or Event of Default, the Officers’ Certificate shall describe the default or Event of Default and the efforts to remedy the same. For the purposes of this Section 6.3, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture.

 

SECTION 6.4. FURTHER INSTRUMENTS AND ACTS.

 

Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture.

 

SECTION 6.5. MAINTENANCE OF CORPORATE EXISTENCE.

 

Subject to Article 7, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence.

 

SECTION 6.6. RULE 144A INFORMATION REQUIREMENT.

 

Within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, upon the request of any Holder or beneficial holder of the Securities make available to such Holder or beneficial holder of Securities or any Common Stock issued upon conversion thereof which continue to be Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of Securities or such Common Stock designated by such Holder or beneficial holder, the information required pursuant to Rule 144A(d)(4) under the Securities Act or such Common Stock and it will take such further action as any Holder or beneficial holder of such Securities or such Common Stock may reasonably request, all to the extent required from time to time to enable such Holder or beneficial holder to sell its Securities

 

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or Common Stock without registration under the Securities Act within the limitation of the exemption provided by Rule 144A, as such Rule may be amended from time to time. Upon the request of any Holder or any beneficial holder of the Securities or such Common Stock, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.

 

SECTION 6.7. STAY, EXTENSION AND USURY LAWS.

 

The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal, or interest (including Special Interest, if any) on the Securities 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 the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not, by resort to any such law, 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 6.8. PAYMENT OF SPECIAL INTEREST.

 

If Special Interest is payable by the Company pursuant to the Registration Rights Agreement, the Company shall deliver to the Trustee a certificate to that effect stating (i) the amount of such Special Interest that is payable (ii) the reason why such Special Interest is payable and (iii) the date on which such Special Interest is payable. Unless and until a Trust Officer of the Trustee receives such a certificate, the Trustee may assume without inquiry that no such Special Interest is payable. If the Company has paid Special Interest directly to the Persons entitled to it, the Company shall deliver to the Trustee a certificate setting forth the particulars of such payment.

 

SECTION 6.9. PAYMENT OF CONTINGENT INTEREST.

 

If Contingent Interest is payable pursuant to the terms of the paragraph 1 of the Security, the Company shall furnish to the Trustee a certificate to that effect stating (i) the amount of such Contingent Interest per $1,000 principal amount of the Notes that is payable, (ii) the facts and calculations supporting the determination of such amount and (iii) the date on which such interest is payable and pay the Contingent Interest, required by that paragraph. Unless and until a Trust Officer receives the notice required by such paragraph, the Trustee may assume without inquiry that no Contingent Interest is payable.

 

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ARTICLE 7

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

 

SECTION 7.1. COMPANY MAY CONSOLIDATE, ETC, ONLY ON CERTAIN TERMS.

 

The Company shall not consolidate with or merge into any other Person (in a transaction in which the Company is not the surviving corporation) or convey, transfer or lease its properties and assets substantially as an entirety to any Person, unless:

 

(a) either (i) the Company is the surviving entity or (ii) the successor or transferee (the “successor corporation”) is a corporation or limited liability company organized and existing under the laws of the United States, any State thereof, or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, all of the obligation of the Company under the Securities and the Indenture;

 

(b) immediately after giving effect to such transaction, no Default shall exist; and

 

(c) the Company shall have delivered to the Trustee an Officers’ Certificate and, if requested by the Trustee, an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer, sale, lease or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article 7 and that all conditions precedent herein provided for relating to such transaction have been satisfied.

 

SECTION 7.2. SUCCESSOR SUBSTITUTED.

 

Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 7.1, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made 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 Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.

 

ARTICLE 8

DEFAULT AND REMEDIES

 

SECTION 8.1. EVENTS OF DEFAULT.

 

An “Event of Default” shall occur if:

 

(1) the Company defaults in the payment of the principal amount, with respect to the Securities, when the same become due and payable;

 

(2) the Company defaults in the payment of any accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, in each case, when due and payable, and continuance of such default for a period of 30 days;

 

(3) the Company fails to satisfy its conversion obligation with respect to any portion of the principal amount of any Security following the exercise by the Holder of the right to convert such Security into shares of Common Stock pursuant to and in accordance with Article 4;

 

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(4) the Company defaults in its obligation to pay the Repurchase Price or the Repurchase Event Repurchase Price, as applicable, with respect to any Security, or any portion thereof, upon the exercise by the Holder of such Holder’s right to require the Company to repurchase such Securities pursuant to and in accordance with Section 3.8 or 3.9, as applicable;

 

(5) the Company fails to comply with any of its agreements or covenants in the Securities or this Indenture (other than those referred to in clauses (1) through (4) above) and such failure continues for 60 days after receipt by the Company of a Notice of Default (defined below);

 

(6) acceleration of any of the Company’s or any subsidiaries’ of the Company indebtedness for money borrowed in the aggregate principal amount then outstanding of $35,000,000 or more so that such indebtedness becomes due and payable prior to the date on which it would otherwise have become due and payable, and such acceleration is not rescinded within 60 days after notice to the Company by the trustee or to the trustee and the Company by the Holders of at least 25% in aggregate principal amount of the Securities then outstanding, in accordance with the Indenture;

 

(7) the Company or any Significant Subsidiary, pursuant to or under or within the meaning of any Bankruptcy Law:

 

(A) commences a voluntary case or proceeding;

 

(B) consents to the entry of any order for relief against it in an involuntary case or proceeding or the commencement of any case against it;

 

(C) consents to the appointment of a Custodian of it or for any substantial part of its property;

 

(D) makes a general assignment for the benefit of its creditors;

 

(E) files a petition in bankruptcy or answer or consent seeking reorganization or relief; or

 

(F) consents to the filing of such petition or the appointment of or taking possession by a Custodian; or

 

(8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

 

(A) is for relief against the Company or any Significant Subsidiary, in an involuntary case or proceeding;

 

(B) appoints a Custodian of the Company or any Significant Subsidiary, or for any substantial part of its property; or

 

(C) orders the winding up or liquidation of the Company or any Significant Subsidiary, and in each case the order or decree remains unstayed and in effect for 60 consecutive days.

 

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The term “Bankruptcy Law” means Title 11 of the United States Code (or any successor thereto) or any similar federal or state law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law.

 

A default under clauses (5) or (6) above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding notify the Company and the Trustee, in writing of the default, and the Company does not cure the default within 60 days after receipt of such notice. The notice given pursuant to this Section 8.1 must specify the default, demand that it be remedied and state that the notice is a “Notice of Default.” When any default under this Section 8.1 is cured, it ceases.

 

The Trustee shall not be charged with knowledge of any Event of Default unless written notice thereof shall have been given to a Trust Officer at the Corporate Trust Office of the Trustee by the Company, a Paying Agent, any Holder or any agent of any Holder.

 

SECTION 8.2. ACCELERATION.

 

If an Event of Default (other than an Event of Default specified in clause (8) or (9) of Section 8.1) occurs and is continuing, the Trustee may, by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, by notice to the Company and the Trustee, declare all unpaid principal to the date of acceleration on the Securities then outstanding (if not then due and payable) to be due and payable upon any such declaration, and the same shall become and be immediately due and payable. If an Event of Default specified in clause (8) or (9) of Section 8.1 occurs, all unpaid principal of the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may rescind an acceleration and its consequences if (a) all existing Events of Default, other than the nonpayment of the principal of the Securities which has become due solely by such declaration of acceleration, have been cured or waived; (b) to the extent the payment of such interest is lawful, interest (calculated at the rate per annum borne by the Securities) on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid; (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (d) all payments due to the Trustee and any predecessor Trustee under Section 9.7 have been made. No such rescission shall affect any subsequent default or impair any right consequent thereto.

 

SECTION 8.3. OTHER REMEDIES.

 

If an Event of Default occurs and is continuing, the Trustee may, but shall not be obligated to, pursue any available remedy by proceeding at law or in equity to collect the payment of the principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture.

 

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The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder 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 8.4. WAIVER OF DEFAULTS AND EVENTS OF DEFAULT.

 

Subject to Sections 8.7 and 11.2, the Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may waive an existing default or Event of Default and its consequence, except a default or Event of Default in the payment of the principal, or interest on any Security, or the payment of the Redemption Price, the Repurchase Price or Repurchase Event Repurchase Price or any default or Event of Default in respect of any provision of this Indenture or the Securities which, under Section 11.2, cannot be modified or amended without the consent of the Holder of each Security affected. When a default or Event of Default is waived, it is cured and ceases.

 

SECTION 8.5. CONTROL BY MAJORITY.

 

The Holders of a majority in aggregate principal amount of the Securities then outstanding 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. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder or the Trustee, or that may involve the Trustee in personal liability unless the Trustee is offered indemnity satisfactory to it; provided, however, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

 

SECTION 8.6. LIMITATIONS ON SUITS.

 

A Holder may not pursue any remedy with respect to this Indenture or the Securities (except actions for payment of overdue principal or interest or for the conversion of the Securities pursuant to Article 4) unless:

 

(1) the Holder gives to the Trustee written notice of a continuing Event of Default;

 

(2) the Holders of at least 25% in aggregate principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy;

 

(3) such Holder or Holders offer to the Trustee reasonable indemnity to the Trustee against any loss, liability or expense;

 

(4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and

 

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(5) 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 aggregate principal amount of the Securities then outstanding.

 

A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder.

 

SECTION 8.7. RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT.

 

Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of the principal of and interest on the Security, on or after the respective due dates expressed in the Security and this Indenture, to convert such Security in accordance with Article 4 and to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder.

 

SECTION 8.8. COLLECTION SUIT BY TRUSTEE.

 

If an Event of Default in the payment of principal or interest specified in clause (1) or (2) of Section 8.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or another obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with, to the extent that payment of such interest is lawful, interest on overdue principal and on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

 

SECTION 8.9. 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, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor on the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any money or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceeding 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, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 9.7, and to the extent that such payment of the reasonable compensation, expenses, disbursements and advances in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other property which the Holders may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to, or, on behalf of

 

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any Holder, to authorize, accept or adopt any plan of reorganization, arrangement, adjustment or composition affecting the Securities 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 8.10. PRIORITIES.

 

If the Trustee collects any money pursuant to this Article 8, it shall pay out the money in the following order:

 

First, to the Trustee for amounts due under Section 9.7;

 

Second, to Holders for amounts due and unpaid on the Securities for principal and interest (including Special Interest, if any), ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest (including Special Interest, if any), respectively; and

 

Third, the balance, if any, to the Company.

 

The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 8.10.

 

SECTION 8.11. 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 8.11 does not apply to a suit made by the Trustee, a suit by a Holder pursuant to Section 8.7, or a suit by Holders of more than 10% in aggregate principal amount of the Securities then outstanding.

 

ARTICLE 9

TRUSTEE

 

SECTION 9.1. 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 as a prudent person would exercise or use under the circumstances in the conduct of his or her 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 others; and

 

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(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. The Trustee, however, shall examine any certificates and opinions which by any provision hereof are specifically required to be delivered to the Trustee to determine whether or not they conform to the requirements of this Indenture.

 

(c) 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 subsection (b) of this Section 9.1;

 

(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 8.5.

 

(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 unless the Trustee shall have received adequate indemnity in its opinion against potential costs and liabilities incurred by it relating thereto.

 

(e) Every provision of this Indenture that in any way relates to the Trustee is subject to subsections (a), (b), (c) and (d) of this Section 9.1.

 

(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

 

SECTION 9.2. RIGHTS OF TRUSTEE.

 

Subject to Section 9.1:

 

(a) The Trustee may rely conclusively on 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 require an Officers’ Certificate or an Opinion of Counsel, which shall conform to Section 13.4(b). 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.

 

(c) The Trustee may act through its agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.

 

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(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers.

 

(e) The Trustee may consult with counsel of its selection, and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection in respect of any such action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel.

 

(f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

 

(g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness 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 to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.

 

(h) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office, and such notice references the Securities and this Indenture.

 

(i) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder.

 

SECTION 9.3. INDIVIDUAL RIGHTS OF TRUSTEE.

 

The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 9.10 and 9.11.

 

SECTION 9.4. TRUSTEE’S DISCLAIMER.

 

The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company’s use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than its certificate of authentication.

 

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SECTION 9.5. NOTICE OF DEFAULT OR EVENTS OF DEFAULT.

 

If a default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the default or Event of Default within 90 days after it occurs. However, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interests of Securityholders, except in the case of a default or an Event of Default in payment of the principal of or interest on any Security.

 

SECTION 9.6. REPORTS BY TRUSTEE TO HOLDERS.

 

If such report is required by TIA Section 313, within 60 days after each May 15, beginning with the May 15 following the date of this Indenture, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b)(2) and (c).

 

A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall notify the Trustee whenever the Securities become listed on any stock exchange or listed or admitted to trading on any quotation system and any changes in the stock exchanges or quotation systems on which the Securities are listed or admitted to trading and of any delisting thereof.

 

SECTION 9.7. COMPENSATION AND INDEMNITY.

 

The Company shall pay to the Trustee from time to time such compensation (as agreed to from time to time by the Company and the Trustee in writing) for its services (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses may include the reasonable compensation, disbursements and expenses of the Trustee’s agents and counsel.

 

The Company shall indemnify the Trustee or any predecessor Trustee (which for purposes of this Section 9.7 shall include its officers, directors, employees and agents) for, and hold it harmless against, any and all loss, liability or expense including taxes (other than taxes based upon, measured by or determined by the income of the Trustee), (including reasonable legal fees and expenses) incurred by it in connection with the acceptance or administration of its duties under this Indenture or any action or failure to act as authorized or within the discretion or rights or powers conferred upon the Trustee hereunder including the reasonable costs and expenses of the Trustee and its counsel in defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company need not pay for any settlement without its written consent, which shall not be unreasonably withheld.

 

The Company need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by it resulting from its gross negligence or bad faith.

 

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To secure the Company’s payment obligations in this Section 9.7, the Trustee shall have a senior claim to which the Securities are hereby made subordinate on all money or property held or collected by the Trustee, except such money or property held in trust to pay the principal of and interest on the Securities. The obligations of the Company under this Section 9.7 shall survive the satisfaction and discharge of this Indenture or the resignation or removal of the Trustee.

 

When the Trustee incurs expenses or renders services after an Event of Default specified in clause (7) or (8) of Section 8.1 occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. The provisions of this Section shall survive the termination of this Indenture.

 

SECTION 9.8. REPLACEMENT OF TRUSTEE.

 

The Trustee may resign by so notifying the Company. The Holders of a majority in aggregate principal amount of the Securities then outstanding may remove the Trustee by so notifying the Trustee and may, with the Company’s written consent, appoint a successor Trustee. The Company may remove the Trustee if:

 

(1) the Trustee fails to comply with Section 9.10;

 

(2) the Trustee is adjudged a bankrupt or an insolvent;

 

(3) a receiver or other public officer takes charge of the Trustee or its property; or

 

(4) 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 promptly appoint a successor Trustee. The resignation or removal of a Trustee shall not be effective until a successor Trustee shall have delivered the written acceptance of its appointment as described below.

 

If a successor Trustee does not take office within 45 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of 10% in principal amount of the Securities then outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee at the expense of the Company.

 

If the Trustee fails to comply with Section 9.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

 

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 and be released from its obligations (exclusive of any liabilities that the retiring Trustee may have incurred while acting as Trustee) hereunder, 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.

 

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A retiring Trustee shall not be liable for the acts or omissions of any successor Trustee after its succession.

 

Notwithstanding replacement of the Trustee pursuant to this Section 9.8, the Company’s obligations under Section 9.7 shall continue for the benefit of the retiring Trustee.

 

SECTION 9.9. SUCCESSOR TRUSTEE BY MERGER, ETC.

 

If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets (including the administration of this Indenture) to, another corporation, the resulting, surviving or transferee corporation, without any further act, shall be the successor Trustee, provided such transferee corporation shall qualify and be eligible under Section 9.10. Such successor Trustee shall promptly mail notice of its succession to the Company and each Holder.

 

SECTION 9.10. ELIGIBILITY; DISQUALIFICATION.

 

The Trustee shall always satisfy the requirements of paragraphs (1), (2) and (5) of TIA Section 310(a). The Trustee (or its parent holding company) shall have a combined capital and surplus of at least $50,000,000. If at any time the Trustee shall cease to satisfy any such requirements, it shall resign immediately in the manner and with the effect specified in this Article 9. The Trustee shall be subject to the provisions of TIA Section 310(b). Nothing herein shall prevent the Trustee from filing with the SEC the application referred to in the penultimate paragraph of TIA Section 310(b).

 

SECTION 9.11. 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 Section 311(a) to the extent indicated therein.

 

ARTICLE 10

SATISFACTION AND DISCHARGE OF INDENTURE

 

SECTION 10.1. SATISFACTION AND DISCHARGE OF INDENTURE.

 

This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Securities herein expressly provided for and except as further provided below), 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

 

(1) either

 

(A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.7 and (ii) Securities for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company as provided in Section 10.3) have been delivered to the Trustee for cancellation; or

 

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(B) all such Securities not theretofore delivered to the Trustee for cancellation

 

(i) have become due and payable, or

 

(ii) will become due and payable at the Final Maturity Date within one year, or

 

(iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,

 

and the Company, in the case of clause (i), (ii) or (iii) above, has irrevocably deposited or caused to be irrevocably deposited with the Trustee or a Paying Agent (other than the Company or any of its Affiliates) as trust funds in trust for the purpose Cash in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest (including Special Interest, if any) to the date of such deposit (in the case of Securities which have become due and payable) or to the Final Maturity Date or Redemption Date, as the case may be;

 

(2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and

 

(3) 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.

 

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 9.7 shall survive and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the provisions of Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, 3.8, 3.9, 3.10, 3.11 and 12.5, Article 4, the last paragraph of Section 6.2 and this Article 10, shall survive until the Securities have been paid in full.

 

SECTION 10.2. APPLICATION OF TRUST MONEY.

 

Subject to the provisions of Section 10.3, the Trustee or a Paying Agent shall hold in trust, for the benefit of the Holders, all money deposited with it pursuant to Section 10.1 and shall apply the deposited money in accordance with this Indenture and the Securities to the payment of the principal of and interest on the Securities.

 

SECTION 10.3. REPAYMENT TO COMPANY.

 

The Trustee and each Paying Agent shall promptly pay to the Company upon request any excess money (i) deposited with them pursuant to Section 10.1 and (ii) held by them at any time.

 

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The Trustee and each 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 two years after a right to such money has matured; provided, however, that the Trustee or such Paying Agent, before being required to make any such payment, may at the expense of the Company cause to be mailed 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 mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

 

SECTION 10.4. REINSTATEMENT.

 

If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 10.2 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, then the Company’s obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 10.1 until such time as the Trustee or such Paying Agent is permitted to apply all such money in accordance with Section 10.2; provided, however, that if the Company has made any payment of the principal of or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive any such payment from the money held by the Trustee or such Paying Agent.

 

ARTICLE 11

AMENDMENTS, SUPPLEMENTS AND WAIVERS

 

SECTION 11.1. WITHOUT CONSENT OF HOLDERS.

 

The Company and the Trustee may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder to:

 

(a) add to the covenants of the Company for the benefit of the Holders of Securities;

 

(b) surrender any right or power herein conferred upon the Company by this Indenture;

 

(c) provide for the assumption of the Company’s obligations to the Holders of Securities in the case of a merger, consolidation, conveyance, transfer, sale, lease or other disposition pursuant to Article 7;

 

(d) increase the Conversion Rate or reduce the Conversion Price; provided, however, that such increase in the Conversion Rate or reduction in the Conversion Price, as the case may be, is in accordance with the terms of this Indenture or shall not adversely affect the interests of the Holders of Securities in any material respect;

 

(e) comply with the requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA;

 

(f) provide for a successor Trustee with respect to the Securities;

 

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(g) add any additional Events of Default with respect to all or any of the Securities;

 

(h) secure the Securities;

 

(i) supplement any of the provisions of the Indenture to such extent as shall be necessary to permit or facilitate the discharge of the Securities, provided, that such change or modification does not adversely affect the interests of the Holders of the Securities in any material respect;

 

(j) make any changes or modifications necessary in connection with the registration of the Securities under the Securities Act as contemplated in the Registration Rights Agreement; provided, however, that such action does not adversely affect the interests of the Holders of Securities in any material respect;

 

(k) cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under this Indenture which the Company may deem necessary or desirable and which shall not be inconsistent with the provisions of this Indenture; provided, however, that such action does not adversely affect the interests of the Holders of Securities in any material respect; and

 

(l) add or modify any other provisions herein with respect to matters or questions arising hereunder which the Company and the Trustee may deem necessary or desirable and which would not adversely affect the interests of the Holders of Securities in any material respect.

 

SECTION 11.2. WITH CONSENT OF HOLDERS.

 

The Company and the Trustee may amend or supplement this Indenture or the Securities with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding. The Holders of at least a majority in aggregate principal amount of the Securities then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities without notice to any Securityholder. However, notwithstanding the foregoing but subject to Section 11.4, without the written consent of each Securityholder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 8.4, may not:

 

(a) change the stated maturity of the principal of, or any installment of interest on (including Contingent Interest) or Special Interest on, any Security;

 

(b) reduce the principal amount of, Redemption Price, Repurchase Price, Repurchase Event Purchase Price or any interest on (including Contingent Interest) or Special Interest on, any Security;

 

(c) alter the manner of calculation or rate of accrual of interest (including Contingent Interest), Special Interest, Redemption Price, Repurchase Price, Repurchase Event Repurchase Price on any Security or extend the time or payment of any such amount;

 

(d) change the place or currency of payment of principal of, or any interest on (including Contingent Interest), any Security;

 

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(e) impair the right of any Holder to institute suit for the enforcement of any repurchase of, payment on or with respect to, or conversion of, any Security on or after the stated maturity of the Securities, in the case of redemption, on or after the Redemption Date, or in the case of repayment at the option of the Holder, on or after the Repurchase Date or Repurchase Event Repurchase Date;

 

(f) modify the optional redemption provisions of Article 3 in a manner materially adverse to the Holders of Securities;

 

(g) adversely affect the right of Holders to convert Securities other than as provided in or under Article 4 of this Indenture;

 

(h) adversely affect the right of Holders to require the Company to repurchase the Security as provided in Sections 3.8 and 3.9;

 

(i) reduce the percentage of the aggregate principal amount of the outstanding Securities whose Holders must consent to a modification or amendment;

 

(j) reduce the percentage of the aggregate principal amount of the outstanding Securities necessary for the waiver of compliance with certain provisions of this Indenture or the waiver of certain defaults under this Indenture; and

 

(k) modify any of the provisions of this Section 11.2 or Section 8.4, except to increase any such percentage or to provide that certain provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby.

 

It shall not be necessary for the consent of the Holders under this Section 11.2 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof.

 

After an amendment, supplement or waiver under this Section 11.2 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 amendment, supplement or waiver.

 

To the extent that the Company or any of the Subsidiaries hold any Securities, such Securities shall be disregarded for purposes of voting in connection with any notice, waiver, consent or direction requiring the vote or concurrence of Securityholders.

 

SECTION 11.3. COMPLIANCE WITH TRUST INDENTURE ACT.

 

Every amendment to or supplement of this Indenture or the Securities shall comply with the TIA as in effect at the date of such amendment or supplement.

 

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SECTION 11.4. REVOCATION AND EFFECT OF CONSENTS.

 

Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective.

 

After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (a) through (k) of Section 11.2. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security.

 

SECTION 11.5. NOTATION ON OR EXCHANGE OF SECURITIES.

 

If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security 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 Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms.

 

SECTION 11.6. TRUSTEE TO SIGN AMENDMENTS, ETC.

 

The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 11 if the amendment or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, in its sole discretion, but need not sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 9.1, shall be fully protected in relying upon, an Opinion of Counsel stating that such amendment or supplemental indenture is authorized or permitted by this Indenture. The Company may not sign an amendment or supplement indenture until the Board of Directors approves it.

 

SECTION 11.7. EFFECT OF SUPPLEMENTAL INDENTURES.

 

Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

 

ARTICLE 12

TAX TREATMENT

 

SECTION 12.1. TAX TREATMENT

 

(a) The parties hereto hereby agree, and each Holder and any beneficial holder of a Security by its purchase of a Security hereby agrees (in the absence of administrative pronouncement or judicial ruling to the contrary):

 

(1) to treat the Securities as indebtedness of the Company for all United States federal income tax purposes;

 

66


(2) to treat the Securities as debt instruments that are subject to Treasury Regulation section 1.1275-4(b); and

 

(3) to treat the delivery of Common Stock or Cash (including Cash delivered in lieu of a fractional share) to a Holder of a Security upon conversion of such Security, or upon a purchase of such Security by the Company at the option of the Holder of a Security where the Company makes a payment in Cash (including Cash paid in lieu of a fractional share) as a contingent payment (in an amount equal to the sum of the Fair Market Value of such Common Stock and any Cash received) under Treasury Regulation section 1.1275-4(b).

 

SECTION 12.2. COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE

 

(a) Solely for purposes of applying Treasury Regulation section 1.1275-4 to the Securities:

 

(1) for United States federal income tax purposes, the Company shall accrue interest with respect to outstanding Securities as original issue discount according to the “noncontingent bond method,” as set forth in Treasury Regulation section 1.1275-4(b) using a comparable yield of 7.0%, compounded semiannually and the projected payment schedule as determined by the Company;

 

(2) the Company shall file with the Trustee promptly at the end of each calendar year (A) a written notice specifying the amount of original issue discount for United States federal income tax purposes accrued on outstanding Securities as of the end of such year and (B) such other specific information relating to such original issue discount that the Company determines to be relevant under the Internal Revenue Code of 1986, as amended from time to time, including the amount of any adjustment made under the noncontingent bond method to account for the amount of any difference between the amount of an actual payment and the amount of a projected payment; and

 

(3) the Company acknowledges and agrees, and each Holder and any beneficial holder of a Security, by its purchase of a Security shall be deemed to acknowledge and agree, that (A) the comparable yield and the projected payment schedule are determined on the basis of an assumption of linear growth of stock price and a constant growth in dividend yield, (B) the comparable yield and the projected payment schedule are not determined for any purpose other than for the purpose of applying Treasury Regulation section 1.1275-4(b)(4) to the Security, (C) the comparable yield and the projected payment schedule do not constitute a projection or representation regarding the actual amounts payable on the Securities, and (D) the Company’s application of Treasury Regulation section 1.1275-4(b) shall be binding on each Holder and any beneficial holder of a Security, including the Company’s determination of the comparable yield and the projected payment schedule.

 

(4) Holders that wish to obtain the projected payment schedule may do so by contacting the Company (to the attention of the Treasurer) as set forth in Section 13.2 below.

 

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ARTICLE 13

MISCELLANEOUS

 

SECTION 13.1. TRUST INDENTURE ACT CONTROLS.

 

If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the TIA through operation of Section 318(c) thereof, such imposed duties shall control.

 

SECTION 13.2. NOTICES.

 

Any demand, authorization notice, request, consent or communication shall be given in writing and delivered in person or mailed by first-class mail, postage prepaid, addressed as follows or transmitted by facsimile transmission (confirmed by delivery in person or mail by first-class mail, postage prepaid, or by guaranteed overnight courier) to the following facsimile numbers:

 

If to the Company, to:

 

IVAX Corporation

4400 Biscayne Boulevard

Miami, FL 33137

Attention: President

Facsimile No.: (305) 575-6055

 

with copies to:

 

IVAX Corporation

4400 Biscayne Boulevard

Miami, FL 33137

Attention: General Counsel

Facsimile No.: (305) 575-6055

 

and to:

 

Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.

150 W. Flagler Street

Suite 2200

Miami, Florida 33130

Attention: Alison W. Miller, Esq.

Facsimile No.: (305) 789-3395

 

if to the Trustee, to:

 

U.S. Bank National Association

60 Livingston Avenue

EP-MN-WS3C

St. Paul, Minnesota 55107

  Attn: Corporate Trust Services
       (IVAX Corporation – 1.5% Convertible
       Senior Notes due 2024)
       Facsimile No.: (651) 495-8097

 

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Such notices or communications shall be effective when received.

 

The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.

 

Any notice or communication mailed to a Securityholder shall be mailed by first-class mail or delivered by an overnight delivery service to it at its address shown on the register kept by the Primary Registrar.

 

Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication to a Securityholder is mailed in the manner provided above, it is duly given, whether or not the addressee receives it.

 

SECTION 13.3. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.

 

Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c).

 

SECTION 13.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

 

(a) 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 at the request of the Trustee:

 

(1) an Officers’ Certificate stating that, in the opinion of the signers, all conditions precedent (including any covenants, compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with; and

 

(2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent (including any covenants, compliance with which constitutes a condition precedent) have been complied with.

 

(b) Each Officers’ Certificate and Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include:

 

(1) a statement that the person making such certificate or opinion has read such covenant or condition;

 

(2) 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;

 

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(3) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and

 

(4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with;

 

provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers’ Certificate or certificates of public officials.

 

SECTION 13.5. RECORD DATE FOR VOTE OR CONSENT OF SECURITYHOLDERS.

 

The Company (or, in the event deposits have been made pursuant to Section 10.1, the Trustee) may set a record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture, which record date shall not be more than thirty (30) days prior to the date of the commencement of solicitation of such action. Notwithstanding the provisions of Section 11.4, if a record date is fixed, those persons who were Holders of Securities at the close of business on such record date (or their duly designated proxies), and only those persons, shall be entitled to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such persons continue to be Holders after such record date.

 

SECTION 13.6. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR AND CONVERSION AGENT.

 

The Trustee may make reasonable rules (not inconsistent with the terms of this Indenture) for action by or at a meeting of Holders. Any Registrar, Paying Agent or Conversion Agent may make reasonable rules for its functions.

 

SECTION 13.7. LEGAL HOLIDAYS.

 

A “Legal Holiday” is a Saturday, Sunday or a day on which state or federally chartered banking institutions in New York, New York and the state in which the Corporate Trust Office is located are not required to be open. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected.

 

SECTION 13.8. GOVERNING LAW.

 

This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws.

 

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SECTION 13.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.

 

This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

 

SECTION 13.10. NO RECOURSE AGAINST OTHERS.

 

All liability described in paragraph 19 of the Securities of any director, officer, employee or shareholder, as such, of the Company is waived and released.

 

SECTION 13.11. SUCCESSORS.

 

All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor.

 

SECTION 13.12. MULTIPLE COUNTERPARTS.

 

The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent the same agreement.

 

SECTION 13.13. SEPARABILITY.

 

In case any provisions in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

SECTION 13.14. TABLE OF CONTENTS, HEADINGS, ETC.

 

The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the date and year first above written.

 

IVAX Corporation

By:

 

 


Name:

   

Title:

   
U.S. Bank National Association, as Trustee

By:

 

 


Name:

   

Title:

   


EXHIBIT A

[FORM OF FACE OF SECURITY]

 

[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, 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 DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.]1

 

[THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.]2

 

[THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A


1 These paragraphs should be included only if the Security is a Global Security.
2 These paragraphs to be included only if the Security is a Transfer Restricted Security.

 

A-1


TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.]2

 

[THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.]2

 

FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT. IN ADDITION, THIS SECURITY IS SUBJECT TO REGULATIONS GOVERNING CONTINGENT PAYMENT DEBT INSTRUMENTS. UNDER SUCH REGULATIONS, THE COMPARABLE YIELD OF THIS SECURITY IS 7.0%.

 

THE ISSUER AGREES, AND BY PURCHASING A BENEFICIAL OWNERSHIP INTEREST IN THE SECURITIES EACH HOLDER OF SECURITIES WILL BE DEEMED TO HAVE AGREED, FOR UNITED STATES FEDERAL INCOME TAX PURPOSES (1) TO TREAT THE SECURITIES AS INDEBTEDNESS THAT IS SUBJECT TO TREAS. REG. SEC. 1.1275-4 (THE “CONTINGENT PAYMENT REGULATIONS”) AND, FOR PURPOSES OF THE CONTINGENT PAYMENT REGULATIONS, TO TREAT THE FAIR MARKET VALUE OF ANY STOCK BENEFICIALLY RECEIVED BY A BENEFICIAL HOLDER UPON ANY CONVERSION OF THE SECURITIES AS A CONTINGENT PAYMENT AND (2) TO BE BOUND BY THE ISSUER’S DETERMINATION OF THE “COMPARABLE YIELD” AND “PROJECTED PAYMENT SCHEDULE,” WITHIN THE MEANING OF THE CONTINGENT PAYMENT REGULATIONS, WITH RESPECT TO THE SECURITIES. THE ISSUER AGREES TO PROVIDE PROMPTLY TO HOLDER OF SECURITIES, UPON WRITTEN REQUEST, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE, YIELD TO MATURITY, COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE. ANY SUCH WRITTEN REQUEST SHOULD BE SENT TO THE ISSUER AT THE FOLLOWING ADDRESS: IVAX CORPORATION, 4400 BISCAYNE BOULEVARD, MIAMI, FL 33137, ATTENTION: TREASURER.


2 These paragraphs to be included only if the Security is a Transfer Restricted Security.

 

A-2


IVAX CORPORATION

 

CUSIP No.: 465823 AH 5

 

1.5% CONVERTIBLE SENIOR NOTES DUE 2024

 

IVAX Corporation, a Florida corporation (the “Company,” which term shall include any successor corporation under the Indenture referred to on the reverse hereof), promises to pay to Cede & Co., or registered assigns, the principal sum of Four Hundred Million Dollars ($400,000,000) on March 1, 2024, or such greater or lesser amount as is indicated on the Schedule of Exchanges of Notes on the other side of this Note to reflect exchanges, redemptions, purchases and conversions.

 

Interest Payment Dates:   March 1 and September 1, commencing September 1, 2004
Record Dates:   February 15 and August 15

 

This Note is convertible as specified on the other side of this Note. Additional provisions of this Note are set forth on the other side of this Note.

 

SIGNATURE PAGE FOLLOWS

 

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IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

 

IVAX CORPORATION

By:

 

 


   

Name:

   

Title:

 

Attest:


Name:

Title:

 

Dated: March     , 2004

 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities referred to

in the within-mentioned Indenture.

U.S. Bank National Association, as Trustee

 


Authorized Signatory

 

A-4


[FORM OF REVERSE SIDE OF SECURITY]

 

IVAX CORPORATION

1.5% CONVERTIBLE SENIOR NOTES DUE 2024

 

1. INTEREST

 

IVAX Corporation, a Florida corporation (the “Company,” which term shall include any successor corporation under the Indenture hereinafter referred to), promises to pay interest on the principal amount of this Note at the rate of 1.5% per annum. The Company shall pay interest semiannually on March 1 and September 1 of each year (each, an “Interest Payment Date”), commencing on September 1, 2004. Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from March 3, 2004; provided, however, that if there is not an existing default in the payment of interest and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding interest payment date, interest shall accrue from such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

 

In addition, the Company shall pay contingent interest (“Contingent Interest”) to the Holders during any six-month period (a “Contingent Interest Period”) from March 1 to August 31 and from September 1 to February 28, commencing with the six-month period beginning March 1, 2011, if the average Market Price of a Note for the five Trading Day period ending on the third Trading Day immediately preceding the relevant Contingent Interest Period equals $1,200 (120% of the principal amount of a Note) or more.

 

Upon a determination by the Company that Holders will be entitled to receive Contingent Interest which will become payable during a Contingent Interest Period, on or prior to the first day of such Contingent Interest Period, the Company shall deliver an Officer’s Certificate to the Trustee setting forth the amount of such Contingent Interest per $1,000 principal amount of Notes and shall issue a press release through a public medium as is customary for such a press release.

 

The amount of Contingent Interest payable per $1,000 principal amount of Notes for any relevant Contingent Interest Period shall equal 0.36% per annum of the average Market Price of such Note for the five Trading Day period ending on the third Trading Day immediately preceding the first day of the relevant six-month period. Contingent Interest, if any, will accrue and be payable to Holders in the same manner as regular interest. Regular interest will continue to accrue at the rate of 1.5% per year on the principal amount of the Notes whether or not Contingent Interest is paid.

 

If this Note is redeemed pursuant to Section 6 of this Note or the Holder elects to require the Company to repurchase this Note pursuant to Section 8 of this Note, on a date that is after the Regular Record Date and prior to the corresponding Interest Payment Date, interest (including Contingent Interest, if any) and Special Interest, if any, accrued and unpaid hereon to, but not including, the applicable Redemption Date, Repurchase Date or Repurchase Event Repurchase Date will be paid to the same Holder to whom the Company pays the principal of such Note regardless of whether such Holder was the registered Holder on the Regular Record Date immediately preceding the applicable Redemption Date, Repurchase Date or Repurchase Event Repurchase Date.

 

A-5


Interest (including Contingent Interest, if any) and Special Interest, if any, on Notes converted after the close of business on a Regular Record Date but prior to the opening of business on the corresponding Interest Payment Date will be paid to the Holder of the Notes on February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding the corresponding Interest Payment Date (a “Regular Record Date”) but, upon conversion, the Holder must pay the Company the interest (including Contingent Interest, if any) and Special Interest, if any, which has accrued and will be paid on such Interest Payment Date. No such payment need be made with respect to Notes which will be converted after a Regular Record Date and prior to the corresponding Interest Payment Date after being called for redemption by the Company.

 

Any reference herein to interest accrued or payable as of any date shall include any Special Interest accrued or payable on such date as provided in Section 2 hereof.

 

2. [REGISTRATION RIGHTS AGREEMENT

 

The holder of this Note is entitled to the benefits of a Registration Rights Agreement, dated as of March 3, 2004, among the Company and the Initial Purchasers (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement the Company has agreed for the benefit of the Holders of the Notes, that (i) it will, at its cost, within 90 days after the closing of the sale of the Notes (the “Closing”), file a shelf registration statement (the “Shelf Registration Statement”) with the Securities and Exchange Commission (the “Commission”) with respect to resales of the Notes and the Common Stock issuable upon conversion thereof, (ii) it will use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective within 180 days after the Closing, and (iii) it will use its reasonable best efforts to keep such Shelf Registration Statement continuously effective under the Securities Act, subject to certain exceptions specified in the Registration Rights Agreement until the earliest of the dates specified in the Registration Rights Agreement. As set forth in the Registration Rights Agreement, the Company will be permitted to suspend use of the prospectus that is part of the Shelf Registration Statement during certain periods of time and in certain circumstances relating to pending corporate developments and public filings with the SEC and similar events. If (a) the Company fails to file the Shelf Registration Statement required by the Registration Rights Agreement on or before the date specified above for such filing, (b) such Shelf Registration Statement is not declared effective by the Commission on or prior to the date specified above for such effectiveness, or (c) the Shelf Registration Statement is declared effective but thereafter ceases to be effective or useable in connection with resales of Transfer Restricted Securities (as defined in the Registration Rights Agreement) during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (c) above a “Registration Default”), then the Company will pay Special Interest to each Holder of Transfer Restricted Securities, with respect to the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to an increase in the annual interest rate on the Notes of 0.25% (“Special Interest”) and thereafter at 0.5% per annum. All accrued Special Interest shall be paid by the Company on each Interest Payment Date for which Special Interest is owed to the holders of Global Notes by wire transfer of immediately available funds or by federal funds

 

A-6


check and to holders of certificated Notes registered as such as of the preceding Record Date by the means specified in the Indenture. Following the cure of all Registration Defaults, the application of Special Interest will cease.]2

 

3. METHOD OF PAYMENT

 

Except as provided herein, the Company shall pay interest (including Contingent Interest, if any) on this Note (except defaulted interest) and Special Interest, if any, to the person who is the Holder of this Note at the close of business on the Regular Record Date, next preceding the related interest payment date. The Holder must surrender this Note to a Paying Agent to collect payment of principal. The Company will pay principal and interest (including Contingent Interest, if any) and Special Interest, if any, in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company may, however, pay principal and interest (including Contingent Interest, if any) and Special Interest, if any, in respect of any Certificated Security by check or wire payable in such money; provided, however, that a Holder with an aggregate principal amount in excess of $5,000,000 will be paid by wire transfer in immediately available funds at the election of such Holder if such Holder has provided wire transfer instructions to the Company at least 10 Business Days prior to the payment date.

 

4. PAYING AGENT, REGISTRAR, BID SOLICITATION AGENT AND CONVERSION AGENT

 

Initially, U.S. Bank National Association (the “Trustee,” which term shall include any successor trustee under the Indenture hereinafter referred to) will act as Paying Agent, Registrar, Bid Solicitation Agent and Conversion Agent. The Company may change any Paying Agent, Registrar, Bid Solicitation Agent or Conversion Agent without notice to the Holder. The Company or any of its Subsidiaries may, subject to certain limitations set forth in the Indenture, act as Paying Agent or Registrar.

 

5. INDENTURE, LIMITATIONS

 

This Note is one of a duly authorized issue of Securities of the Company designated as its 1.5% Convertible Senior Notes due 2024 (the “Notes”), issued under an Indenture dated as of March 3, 2004 (together with any supplemental indentures thereto, the “Indenture”), between the Company and the Trustee. The terms of this Note include those stated in the Indenture and those required by or made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended, as in effect on the date of the Indenture. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Act for a statement of them. The Notes are senior unsecured obligations of the Company limited to $350,000,000 aggregate principal amount ($400,000,000 if the Initial Purchasers (as defined in the Indenture) have elected to exercise their over-allotment option to purchase an additional $50,000,000 of the Securities). The Indenture does not limit other debt of the Company, secured or unsecured.


2 These paragraphs to be included only if the Security is a Transfer Restricted Security.

 

A-7


6. OPTIONAL REDEMPTION

 

The Notes are subject to redemption, at any time on or after March 1, 2011, as a whole or from time to time in part, at the election of the Company. The Redemption Price is 100% of the principal amount together with accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, up to but not including the Redemption Date; provided, that if the Redemption Date falls after an interest payment record date and on or before an interest payment date, then the interest (including Contingent Interest, if any) and Special Interest, if any, will be payable to the Holders in whose names the Notes are registered at the close of business on the relevant interest payment record date.

 

No sinking fund is provided for the Notes.

 

7. NOTICE OF REDEMPTION

 

Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part, but only in whole multiples of $1,000. On and after the Redemption Date, subject to the deposit with the Paying Agent of funds sufficient to pay the Redemption Price, interest (including Contingent Interest, if any) and Special Interest, if any, shall cease to accrue on Notes or portions of them called for redemption.

 

8. PURCHASE OF NOTES AT OPTION OF HOLDER OR UPON A REPURCHASE EVENT

 

Subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase, at the option of the Holder, all or any portion of the Notes held by such Holder on March 1, 2011, March 1, 2014 and March 1, 2019 in integral multiples of $1,000 at a repurchase price equal to 100% of the principal amount of those Notes plus accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, to, but not including, such Repurchase Date (the “Repurchase Price”). To exercise such right, a Holder shall deliver to the Paying Agent a Repurchase Notice containing the information set forth in the Indenture, at any time from 9:00 a.m., New York City time, on the date that is 20 Business Days immediately preceding such Repurchase Date until 5:00 p.m., New York City time, on the Business Day immediately preceding such Repurchase Date, and shall deliver the Securities to the Paying Agent as set forth in the Indenture. The Repurchase Price for Notes to be so repurchased must be paid in Cash.

 

Subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase, at the option of the Holder, all or any portion of the Notes held by such Holder upon a Repurchase Event in integral multiples of $1,000 at the Repurchase Event Repurchase Price. To exercise such right, a Holder shall deliver to the Paying Agent a Repurchase Event Repurchase Notice containing the information set forth in the Indenture, at any time prior to 5:00 p.m., New York City time, on the Business Day immediately preceding the Repurchase Event Repurchase Date, and shall deliver the Notes to the Paying Agent as set forth in the Indenture. The Repurchase Event Repurchase Price must be paid in Cash.

 

A-8


Holders have the right to withdraw any Repurchase Notice or Repurchase Event Repurchase Notice by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture.

 

If Cash sufficient to pay the Repurchase Price or Repurchase Event Repurchase Price, as the case may be, of all Notes or portions thereof to be repurchased with respect to a Repurchase Date or Repurchase Event Repurchase Date, as the case may be, has been deposited with the Paying Agent, at 11:00 a.m., New York City time, on the Business Day immediately following the Repurchase Date or Repurchase Event Repurchase Date, as the case may be, then, immediately after the Repurchase Date or Repurchase Event Repurchase Date, as applicable, such Notes will cease to be outstanding and interest (including Contingent Interest, if any) and Special Interest, if any, on such Notes will cease to accrue and the Holder thereof shall have no other rights as such other than the right to receive the Repurchase Price or Repurchase Event Repurchase Price upon surrender of such Note.

 

9. CONVERSION

 

Subject to and in compliance with the provisions of the Indenture (including, without limitation, the conditions to conversion of this Security set forth in Section 4.1 and Section 4.2 thereof), a Holder is entitled, at such Holder’s option, to convert the Holder’s Note (or any portion of the principal amount thereof that is $1,000 or an integral multiple $1,000), into fully paid and nonassessable of shares of Common Stock at the Conversion Rate in effect on the date of conversion.

 

The Company will notify Holders of any event triggering the right to convert the Notes as specified above in accordance with the Indenture.

 

A Note in respect of which a Holder has delivered a Repurchase Notice or Repurchase Event Repurchase Notice, as the case may be, exercising the right of such Holder to require the Company to repurchase such Note may be converted only if such Repurchase Notice or Repurchase Event Repurchase Notice is withdrawn in accordance with the terms of the Indenture.

 

The initial Conversion Rate is 33.4874 shares per $1,000 principal amount of Notes, subject to adjustment in certain events described in the Indenture.

 

To surrender a Note for conversion, a Holder must, in the case of Global Notes, comply with the Applicable Procedures of the Depositary in effect at that time, and in the case of Certificated Notes, (1) surrender the Security to the Conversion Agent, (2) complete and manually sign the conversion notice below (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent, (3) furnish appropriate endorsements and transfer documents and (4) pay all funds required, if any, relating to interest (including Contingent Interest, if any) or Special Interest, if any, and any withholding, transfer or similar tax, if required.

 

No fractional share of Common Stock shall be issued upon conversion of any Note. Instead, the Company shall pay a Cash adjustment as provided in the Indenture.

 

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No payment or adjustment will be made for accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, or dividends on the shares of Common Stock, except as provided in the Indenture.

 

If the Company (i) is a party to a consolidation, merger, statutory share exchange or combination of the Company with another corporation and as a result of which all the holders of the outstanding Common Stock shall be entitled to receive stock, securities or other property or assets (including Cash or a combination thereof) with respect to or in exchange for all of their Common Stock, (ii) reclassifies or changes the shares of Common Stock or (iii) conveys, transfers or leases its properties and assets as, or substantially as, an entirety to any person, the right to convert a Note into shares of Common Stock may be changed into a right to convert a Note into the kind and amount of shares of stock and other securities or property or assets (including Cash) which such Holder would have been entitled to receive upon such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance had such Holder converted its Note into Common Stock immediately prior to such transaction, in each case, in accordance with the Indenture.

 

10. OTHER ARRANGEMENT ON CALL FOR REDEMPTION

 

Any Notes called for redemption, unless surrendered for conversion before the close of business on the Business Day immediately preceding the Redemption Date, may be deemed to be purchased from the Holders of such Notes at an amount not less than the Redemption Price, together with accrued interest (including Contingent Interest, if any) and Special Interest, if any, to, but not including, the Redemption Date, by one or more investment bankers or other purchasers who may agree with the Company to purchase such Notes from the Holders, to and to make payment for such Notes to the Paying Agent in trust for such Holders.

 

11. [RESERVED]

 

12. DENOMINATIONS, TRANSFER, EXCHANGE

 

The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder may register the transfer of or exchange 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 any taxes or other governmental charges that may be imposed in relation thereto by law or permitted by the Indenture.

 

13. PERSONS DEEMED OWNERS

 

The Holder of a Note may be treated as the owner of it for all purposes.

 

14. UNCLAIMED MONEY

 

If money for the payment of principal or interest (including Contingent Interest, if any) and Special Interest, if any, remains unclaimed for two years, the Trustee or Paying Agent will

 

A-10


pay the money back to the Company at its written request, subject to applicable unclaimed property law. After that, Holders entitled to money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

 

15. AMENDMENT, SUPPLEMENT AND WAIVER

 

Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and an existing default or Event of Default and its consequence or compliance with any provision of the Indenture or the Notes may be waived in a particular instance with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without the consent of or notice to any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency or make any other change that does not adversely affect the rights of any Holder in any material respect.

 

16. SUCCESSOR ENTITY

 

When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation (except in certain circumstances specified in the Indenture) shall be released from those obligations.

 

17. DEFAULTS AND REMEDIES

 

Under the Indenture, an Event of Default includes: (i) default for 30 days in payment of any interest (including Contingent Interest, if any) or Special Interest on any Notes; (ii) default in payment of any principal on the Notes when due; (iii) failure by the Company to satisfy its conversion obligation following the exercise by the Holder of the right to convert all or a portion of this Note into share of Common Stock; (iv) default in the payment of the Repurchase Price or the Repurchase Event Repurchase Price when due; (v) failure by the Company for 60 days after notice to it to comply with any of its other agreements contained in the Indenture or the Notes; (vi) acceleration of the maturity of certain indebtedness of the Company or a Significant Subsidiary; and (vii) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary. If an Event of Default (other than as a result of certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare all unpaid principal to the date of acceleration on the Notes then outstanding to be due and payable immediately, all as and to the extent provided in the Indenture. If an Event of Default occurs as a result of certain events of bankruptcy, insolvency or reorganization of the Company, unpaid principal of the Notes then outstanding shall become due and payable immediately without any declaration or other act on the part of the Trustee or any Holder, all as and to the extent provided in the Indenture. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default

 

A-11


(except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company is required to file periodic reports with the Trustee as to the absence of default.

 

18. TRUSTEE DEALINGS WITH THE COMPANY

 

U.S. Bank National Association, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or an Affiliate of the Company, and may otherwise deal with the Company or an Affiliate of the Company, as if it were not the Trustee.

 

19. NO RECOURSE AGAINST OTHERS

 

A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture nor for any claim based on, in respect of or by reason of such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note.

 

20. AUTHENTICATION

 

This Note shall not be valid until the Trustee or an authenticating agent manually signs the certificate of authentication on the other side of this Note.

 

21. ABBREVIATIONS AND DEFINITIONS

 

Customary abbreviations may be used in the name of the Holder 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 UGMA (= Uniform Gifts to Minors Act).

 

All terms defined in the Indenture and used in this Note but not specifically defined herein are defined in the Indenture and are used herein as so defined.

 

22. INDENTURE TO CONTROL; GOVERNING LAW

 

In the case of any conflict between the provisions of this Note and the Indenture, the provisions of the Indenture shall control. This Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principals of conflicts of law.

 

The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Requests may be made to: IVAX Corporation, 4400 Biscayne Boulevard, Miami, FL 33137, Attention: Treasuer.

 

A-12


ASSIGNMENT FORM

 

To assign this Note, fill in the form below:

 

I or we assign and transfer this Note to

 

 


(Insert assignee’s soc. sec. or tax I.D. no.)

 

 


 

 


 

 


 

 


(Print or type assignee’s name, address and zip code)

 

and irrevocably appoint

 

 


 

agent to transfer this Note on the books of the Company. The agent may substitute another to act for him or her.

 

   

Your Signature:

Date:                                 

 

 


   

(Sign exactly as your name appears on the

other side of this Note)

 

*Signature guaranteed by:

By:

 

 



* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

 

A-13


CONVERSION NOTICE

 

To convert this Note into Common Stock of the Company, check the box: ¨

 

To convert only part of this Note, state the principal amount to be converted (must be $1,000 or a integral multiple of $1,000): $                        .

 

If you want the stock certificate made out in another person’s name, fill in the form below:

 


(Insert assignee’s soc. sec. or tax I.D. no.)

 


 


 


 


(Print or type assignee’s name, address and zip code)

 

   

Your Signature:

Date:                                

 

 


   

(Sign exactly as your name appears on the other side of this Note)

 

*Signature guaranteed by:

By:

 

 



* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

 

A-14


SCHEDULE OF EXCHANGES OF NOTES4

 

The following exchanges, redemptions, repurchases or conversions of a part of this global Note have been made:

 

Principal Amount

of this Global Note

Following Such

Decrease Date

of Exchange (or Increase)


 

Authorized

Signatory of

Securities

Custodian


 

Amount of Decrease in

Principal Amount

of this Global Note


 


4 This schedules should be included only if the Security is a Global Security.

 

A-15


EXHIBIT B

 

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION

OF TRANSFER OF TRANSFER RESTRICTED SECURITIES5

 

Re: 1.5% Convertible Senior Notes due 2024 (the “Notes”) of IVAX Corporation

 

This certificate relates to $                 principal amount of Notes owned in (check applicable box)

 

¨ book-entry ¨ or definitive form by                                  (the “Transferor”).

 

The Transferor has requested a Registrar or the Trustee to exchange or register the transfer of such Notes.

 

In connection with such request and in respect of each such Note, the Transferor does hereby certify that the Transferor is familiar with transfer restrictions relating to the Notes as provided in Section 2.12 of the Indenture dated as of March 3, 2004 between IVAX Corporation and U.S. Bank National Association, as trustee (the “Indenture”), and the transfer of such Note is being made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) (check applicable box) or the transfer or exchange, as the case may be, of such Note does not require registration under the Securities Act because (check applicable box):

 

¨ Such Note is being transferred pursuant to an effective registration statement under the Securities Act.

 

¨ Such Note is being acquired for the Transferor’s own account, without transfer.

 

¨ Such Note is being transferred to the Company or a Subsidiary (as defined in the Indenture) of the Company.

 

¨ Such Note is being transferred to a person the Transferor reasonably believes is a “qualified institutional buyer” (as defined in Rule 144A or any successor provision thereto (“Rule 144A”) under the Securities Act) that is purchasing for its own account or for the account of a “qualified institutional buyer,” in each case to whom notice has been given that the transfer is being made in reliance on such Rule 144A, and in each case in reliance on Rule 144A.

 

¨ Such Note is being transferred pursuant to and in compliance with an exemption from the registration requirements under the Securities Act in accordance with Rule 144 (or any successor thereto) (“Rule 144”) under the Securities Act.

 

Such Note is being transferred pursuant to and in compliance with an exemption from the registration requirements of the Securities Act (other than an exemption referred to above) and as


5 This certificate should only be included if this Security is a Transfer Restricted Security.


a result of which such Note will, upon such transfer, cease to be a “restricted security” within the meaning of Rule 144 under the Securities Act.

 

The Transferor acknowledges and agrees that, if the transferee will hold any such Notes in the form of beneficial interests in a global Note which is a “restricted security” within the meaning of Rule 144 under the Securities Act, then such transfer can only be made pursuant to Rule 144A under the Securities Act and such transferee must be a “qualified institutional buyer” (as defined in Rule 144A).

 

Date:                                

 
   

(Insert Name of Transferor)

 

B-2

EX-4.7 4 dex47.htm FORM OF 1 1/2% CONVERTIBLE SENIOR NOTES DUE 2024. Form of 1 1/2% Convertible Senior Notes due 2024.

EXHIBIT 4.7

 

IVAX CORPORATION

 

1.5% CONVERTIBLE SENIOR NOTES DUE 2024

CUSIP NO. 465823 AH 5

 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, 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 DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.

 

THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

 

THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM


REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

 

THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.

 

FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT. IN ADDITION, THIS SECURITY IS SUBJECT TO REGULATIONS GOVERNING CONTINGENT PAYMENT DEBT INSTRUMENTS. UNDER SUCH REGULATIONS, THE COMPARABLE YIELD OF THIS SECURITY IS 7.0%.

 

THE ISSUER AGREES, AND BY PURCHASING A BENEFICIAL OWNERSHIP INTEREST IN THE SECURITIES EACH HOLDER OF SECURITIES WILL BE DEEMED TO HAVE AGREED, FOR UNITED STATES FEDERAL INCOME TAX PURPOSES (1) TO TREAT THE SECURITIES AS INDEBTEDNESS THAT IS SUBJECT TO TREAS. REG. SEC. 1.1275-4 (THE “CONTINGENT PAYMENT REGULATIONS”) AND, FOR PURPOSES OF THE CONTINGENT PAYMENT REGULATIONS, TO TREAT THE FAIR MARKET VALUE OF ANY STOCK BENEFICIALLY RECEIVED BY A BENEFICIAL HOLDER UPON ANY CONVERSION OF THE SECURITIES AS A CONTINGENT PAYMENT AND (2) TO BE BOUND BY THE ISSUER’S DETERMINATION OF THE “COMPARABLE YIELD” AND “PROJECTED PAYMENT SCHEDULE,” WITHIN THE MEANING OF THE CONTINGENT PAYMENT REGULATIONS, WITH RESPECT TO THE SECURITIES. THE ISSUER AGREES TO PROVIDE PROMPTLY TO HOLDER OF SECURITIES, UPON WRITTEN REQUEST, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE, YIELD TO MATURITY, COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE. ANY SUCH WRITTEN REQUEST SHOULD BE SENT TO THE ISSUER AT THE FOLLOWING ADDRESS: IVAX CORPORATION, 4400 BISCAYNE BOULEVARD, MIAMI, FL 33137, ATTENTION: TREASURER.

 

2


IVAX CORPORATION

 

CUSIP No.: 465823 AH 5

 

1.5% CONVERTIBLE SENIOR NOTES DUE 2024

 

IVAX Corporation, a Florida corporation (the “Company,” which term shall include any successor corporation under the Indenture referred to on the reverse hereof), promises to pay to Cede & Co., or registered assigns, the principal sum of Four Hundred Million Dollars ($400,000,000) on March 1, 2024, or such greater or lesser amount as is indicated on the Schedule of Exchanges of Notes on the other side of this Note to reflect exchanges, redemptions, purchases and conversions.

 

Interest Payment Dates:

 

March 1 and September 1, commencing September 1, 2004

Record Dates:

 

February 15 and August 15

 

This Note is convertible as specified on the other side of this Note. Additional provisions of this Note are set forth on the other side of this Note.

 

SIGNATURE PAGE FOLLOWS

 

3


IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

 

IVAX CORPORATION

By:

 

 


Name:

   

Title:

   

 

Attest:


Name:

Title:

 

Dated: March 3, 2004

 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities referred to

in the within-mentioned Indenture.

U.S. Bank National Association, as Trustee


Authorized Signatory

 

4


IVAX CORPORATION

1.5% CONVERTIBLE SENIOR NOTES DUE 2024

 

1. INTEREST

 

IVAX Corporation, a Florida corporation (the “Company,” which term shall include any successor corporation under the Indenture hereinafter referred to), promises to pay interest on the principal amount of this Note at the rate of 1.5% per annum. The Company shall pay interest semiannually on March 1 and September 1 of each year (each, an “Interest Payment Date”), commencing on September 1, 2004. Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from March 3, 2004; provided, however, that if there is not an existing default in the payment of interest and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding interest payment date, interest shall accrue from such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

 

In addition, the Company shall pay contingent interest (“Contingent Interest”) to the Holders during any six-month period (a “Contingent Interest Period”) from March 1 to August 31 and from September 1 to February 28, commencing with the six-month period beginning March 1, 2011, if the average Market Price of a Note for the five Trading Day period ending on the third Trading Day immediately preceding the relevant Contingent Interest Period equals $1,200 (120% of the principal amount of a Note) or more.

 

Upon a determination by the Company that Holders will be entitled to receive Contingent Interest which will become payable during a Contingent Interest Period, on or prior to the first day of such Contingent Interest Period, the Company shall deliver an Officer’s Certificate to the Trustee setting forth the amount of such Contingent Interest per $1,000 principal amount of Notes and shall issue a press release through a public medium as is customary for such a press release.

 

The amount of Contingent Interest payable per $1,000 principal amount of Notes for any relevant Contingent Interest Period shall equal 0.36% per annum of the average Market Price of such Note for the five Trading Day period ending on the third Trading Day immediately preceding the first day of the relevant six-month period. Contingent Interest, if any, will accrue and be payable to Holders in the same manner as regular interest. Regular interest will continue to accrue at the rate of 1.5% per year on the principal amount of the Notes whether or not Contingent Interest is paid.

 

If this Note is redeemed pursuant to Section 6 of this Note or the Holder elects to require the Company to repurchase this Note pursuant to Section 8 of this Note, on a date that is after the Regular Record Date and prior to the corresponding Interest Payment Date, interest (including Contingent Interest, if any) and Special Interest, if any, accrued and unpaid hereon to, but not including, the applicable Redemption Date, Repurchase Date or Repurchase Event Repurchase Date will be paid to the same Holder to whom the Company pays the principal of such Note regardless of whether such Holder was the registered Holder on the Regular Record Date immediately preceding the applicable Redemption Date, Repurchase Date or Repurchase Event Repurchase Date.


Interest (including Contingent Interest, if any) and Special Interest, if any, on Notes converted after the close of business on a Regular Record Date but prior to the opening of business on the corresponding Interest Payment Date will be paid to the Holder of the Notes on February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding the corresponding Interest Payment Date (a “Regular Record Date”) but, upon conversion, the Holder must pay the Company the interest (including Contingent Interest, if any) and Special Interest, if any, which has accrued and will be paid on such Interest Payment Date. No such payment need be made with respect to Notes which will be converted after a Regular Record Date and prior to the corresponding Interest Payment Date after being called for redemption by the Company.

 

Any reference herein to interest accrued or payable as of any date shall include any Special Interest accrued or payable on such date as provided in Section 2 hereof.

 

2. REGISTRATION RIGHTS AGREEMENT

 

The holder of this Note is entitled to the benefits of a Registration Rights Agreement, dated as of March 3, 2004, among the Company and the Initial Purchasers (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement the Company has agreed for the benefit of the Holders of the Notes, that (i) it will, at its cost, within 90 days after the closing of the sale of the Notes (the “Closing”), file a shelf registration statement (the “Shelf Registration Statement”) with the Securities and Exchange Commission (the “Commission”) with respect to resales of the Notes and the Common Stock issuable upon conversion thereof, (ii) it will use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective within 180 days after the Closing, and (iii) it will use its reasonable best efforts to keep such Shelf Registration Statement continuously effective under the Securities Act, subject to certain exceptions specified in the Registration Rights Agreement until the earliest of the dates specified in the Registration Rights Agreement. As set forth in the Registration Rights Agreement, the Company will be permitted to suspend use of the prospectus that is part of the Shelf Registration Statement during certain periods of time and in certain circumstances relating to pending corporate developments and public filings with the SEC and similar events. If (a) the Company fails to file the Shelf Registration Statement required by the Registration Rights Agreement on or before the date specified above for such filing, (b) such Shelf Registration Statement is not declared effective by the Commission on or prior to the date specified above for such effectiveness, or (c) the Shelf Registration Statement is declared effective but thereafter ceases to be effective or useable in connection with resales of Restricted Securities (as defined in the Registration Rights Agreement) during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (c) above a “Registration Default”), then the Company will pay Special Interest to each Holder of Transfer Restricted Securities, with respect to the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to an increase in the annual interest rate on the Notes of 0.25% (“Special Interest”) and thereafter at 0.5% per annum. All accrued Special Interest shall be paid by the Company on each Interest Payment Date for which Special Interest is owed to the holders of Global Notes by wire transfer of immediately available funds or by federal funds

 

2


check and to holders of certificated Notes registered as such as of the preceding Record Date by the means specified in the Indenture. Following the cure of all Registration Defaults, the application of Special Interest will cease.

 

3. METHOD OF PAYMENT

 

Except as provided herein, the Company shall pay interest (including Contingent Interest, if any) on this Note (except defaulted interest) and Special Interest, if any, to the person who is the Holder of this Note at the close of business on the Regular Record Date, next preceding the related interest payment date. The Holder must surrender this Note to a Paying Agent to collect payment of principal. The Company will pay principal and interest (including Contingent Interest, if any) and Special Interest, if any, in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company may, however, pay principal and interest (including Contingent Interest, if any) and Special Interest, if any, in respect of any Certificated Security by check or wire payable in such money; provided, however, that a Holder with an aggregate principal amount in excess of $5,000,000 will be paid by wire transfer in immediately available funds at the election of such Holder if such Holder has provided wire transfer instructions to the Company at least 10 Business Days prior to the payment date.

 

4. PAYING AGENT, REGISTRAR, BID SOLICITATION AGENT AND CONVERSION AGENT

 

Initially, U.S. Bank National Association (the “Trustee,” which term shall include any successor trustee under the Indenture hereinafter referred to) will act as Paying Agent, Registrar, Bid Solicitation Agent and Conversion Agent. The Company may change any Paying Agent, Registrar, Bid Solicitation Agent or Conversion Agent without notice to the Holder. The Company or any of its Subsidiaries may, subject to certain limitations set forth in the Indenture, act as Paying Agent or Registrar.

 

5. INDENTURE, LIMITATIONS

 

This Note is one of a duly authorized issue of Securities of the Company designated as its 1.5% Convertible Senior Notes due 2024 (the “Notes”), issued under an Indenture dated as of March 3, 2004 (together with any supplemental indentures thereto, the “Indenture”), between the Company and the Trustee. The terms of this Note include those stated in the Indenture and those required by or made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended, as in effect on the date of the Indenture. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Act for a statement of them. The Notes are senior unsecured obligations of the Company limited to $350,000,000 aggregate principal amount ($400,000,000 if the Initial Purchasers (as defined in the Indenture) have elected to exercise their over-allotment option to purchase an additional $50,000,000 of the Securities). The Indenture does not limit other debt of the Company, secured or unsecured.

 

6. OPTIONAL REDEMPTION

 

The Notes are subject to redemption, at any time on or after March 1, 2011, as a whole or from time to time in part, at the election of the Company. The Redemption Price is 100% of the

 

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principal amount together with accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, up to but not including the Redemption Date; provided, that if the Redemption Date falls after an interest payment record date and on or before an interest payment date, then the interest (including Contingent Interest, if any) and Special Interest, if any, will be payable to the Holders in whose names the Notes are registered at the close of business on the relevant interest payment record date.

 

No sinking fund is provided for the Notes.

 

7. NOTICE OF REDEMPTION

 

Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part, but only in whole multiples of $1,000. On and after the Redemption Date, subject to the deposit with the Paying Agent of funds sufficient to pay the Redemption Price, interest (including Contingent Interest, if any) and Special Interest, if any, shall cease to accrue on Notes or portions of them called for redemption.

 

8. PURCHASE OF NOTES AT OPTION OF HOLDER OR UPON A REPURCHASE EVENT

 

Subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase, at the option of the Holder, all or any portion of the Notes held by such Holder on March 1, 2011, March 1, 2014 and March 1, 2019 in integral multiples of $1,000 at a repurchase price equal to 100% of the principal amount of those Notes plus accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, to, but not including, such Repurchase Date (the “Repurchase Price”). To exercise such right, a Holder shall deliver to the Paying Agent a Repurchase Notice containing the information set forth in the Indenture, at any time from 9:00 a.m., New York City time, on the date that is 20 Business Days immediately preceding such Repurchase Date until 5:00 p.m., New York City time, on the Business Day immediately preceding such Repurchase Date, and shall deliver the Securities to the Paying Agent as set forth in the Indenture. The Repurchase Price for Notes to be so repurchased must be paid in Cash.

 

Subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase, at the option of the Holder, all or any portion of the Notes held by such Holder upon a Repurchase Event in integral multiples of $1,000 at the Repurchase Event Repurchase Price. To exercise such right, a Holder shall deliver to the Paying Agent a Repurchase Event Repurchase Notice containing the information set forth in the Indenture, at any time prior to 5:00 p.m., New York City time, on the Business Day immediately preceding the Repurchase Event Repurchase Date, and shall deliver the Notes to the Paying Agent as set forth in the Indenture. The Repurchase Event Repurchase Price must be paid in Cash.

 

Holders have the right to withdraw any Repurchase Notice or Repurchase Event Repurchase Notice by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture.

 

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If Cash sufficient to pay the Repurchase Price or Repurchase Event Repurchase Price, as the case may be, of all Notes or portions thereof to be repurchased with respect to a Repurchase Date or Repurchase Event Repurchase Date, as the case may be, has been deposited with the Paying Agent, at 11:00 a.m., New York City time, on the Business Day immediately following the Repurchase Date or Repurchase Event Repurchase Date, as the case may be, then, immediately after the Repurchase Date or Repurchase Event Repurchase Date, as applicable, such Notes will cease to be outstanding and interest (including Contingent Interest, if any) and Special Interest, if any, on such Notes will cease to accrue and the Holder thereof shall have no other rights as such other than the right to receive the Repurchase Price or Repurchase Event Repurchase Price upon surrender of such Note.

 

9. CONVERSION

 

Subject to and in compliance with the provisions of the Indenture (including, without limitation, the conditions to conversion of this Security set forth in Section 4.1 and Section 4.2 thereof), a Holder is entitled, at such Holder’s option, to convert the Holder’s Note (or any portion of the principal amount thereof that is $1,000 or an integral multiple $1,000), into fully paid and nonassessable of shares of Common Stock at the Conversion Rate in effect on the date of conversion.

 

The Company will notify Holders of any event triggering the right to convert the Notes as specified above in accordance with the Indenture.

 

A Note in respect of which a Holder has delivered a Repurchase Notice or Repurchase Event Repurchase Notice, as the case may be, exercising the right of such Holder to require the Company to repurchase such Note may be converted only if such Repurchase Notice or Repurchase Event Repurchase Notice is withdrawn in accordance with the terms of the Indenture.

 

The initial Conversion Rate is 33.4874 shares per $1,000 principal amount of Notes, subject to adjustment in certain events described in the Indenture.

 

To surrender a Note for conversion, a Holder must, in the case of Global Notes, comply with the Applicable Procedures of the Depositary in effect at that time, and in the case of Certificated Notes, (1) surrender the Security to the Conversion Agent, (2) complete and manually sign the conversion notice below (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent, (3) furnish appropriate endorsements and transfer documents and (4) pay all funds required, if any, relating to interest (including Contingent Interest, if any) or Special Interest, if any, and any withholding, transfer or similar tax, if required.

 

No fractional share of Common Stock shall be issued upon conversion of any Note. Instead, the Company shall pay a Cash adjustment as provided in the Indenture.

 

No payment or adjustment will be made for accrued and unpaid interest (including Contingent Interest, if any) and Special Interest, if any, or dividends on the shares of Common Stock, except as provided in the Indenture.

 

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If the Company (i) is a party to a consolidation, merger, statutory share exchange or combination of the Company with another corporation and as a result of which all the holders of the outstanding Common Stock shall be entitled to receive stock, securities or other property or assets (including Cash or a combination thereof) with respect to or in exchange for all of their Common Stock, (ii) reclassifies or changes the shares of Common Stock or (iii) conveys, transfers or leases its properties and assets as, or substantially as, an entirety to any person, the right to convert a Note into shares of Common Stock may be changed into a right to convert a Note into the kind and amount of shares of stock and other securities or property or assets (including Cash) which such Holder would have been entitled to receive upon such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance had such Holder converted its Note into Common Stock immediately prior to such transaction, in each case, in accordance with the Indenture.

 

10. OTHER ARRANGEMENT ON CALL FOR REDEMPTION

 

Any Notes called for redemption, unless surrendered for conversion before the close of business on the Business Day immediately preceding the Redemption Date, may be deemed to be purchased from the Holders of such Notes at an amount not less than the Redemption Price, together with accrued interest (including Contingent Interest, if any) and Special Interest, if any, to, but not including, the Redemption Date, by one or more investment bankers or other purchasers who may agree with the Company to purchase such Notes from the Holders and to make payment for such Notes to the Paying Agent in trust for such Holders.

 

11. [RESERVED]

 

12. DENOMINATIONS, TRANSFER, EXCHANGE

 

The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder may register the transfer of or exchange 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 any taxes or other governmental charges that may be imposed in relation thereto by law or permitted by the Indenture.

 

13. PERSONS DEEMED OWNERS

 

The Holder of a Note may be treated as the owner of it for all purposes.

 

14. UNCLAIMED MONEY

 

If money for the payment of principal or interest (including Contingent Interest, if any) and Special Interest, if any, remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its written request, subject to applicable unclaimed property law. After that, Holders entitled to money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

 

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15. AMENDMENT, SUPPLEMENT AND WAIVER

 

Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and an existing default or Event of Default and its consequence or compliance with any provision of the Indenture or the Notes may be waived in a particular instance with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without the consent of or notice to any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency or make any other change that does not adversely affect the rights of any Holder in any material respect.

 

16. SUCCESSOR ENTITY

 

When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture in accordance with the terms and conditions of the Indenture, the predecessor corporation (except in certain circumstances specified in the Indenture) shall be released from those obligations.

 

17. DEFAULTS AND REMEDIES

 

Under the Indenture, an Event of Default includes: (i) default for 30 days in payment of any interest (including Contingent Interest, if any) or Special Interest on any Notes; (ii) default in payment of any principal on the Notes when due; (iii) failure by the Company to satisfy its conversion obligation following the exercise by the Holder of the right to convert all or a portion of this Note into shares of Common Stock; (iv) default in the payment of the Repurchase Price or the Repurchase Event Repurchase Price when due; (v) failure by the Company for 60 days after notice to it to comply with any of its other agreements contained in the Indenture or the Notes; (vi) acceleration of the maturity at certain indebtedness of the Company or a Significant Subsidiary; and (vii) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary. If an Event of Default (other than as a result of certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare all unpaid principal to the date of acceleration on the Notes then outstanding to be due and payable immediately, all as and to the extent provided in the Indenture. If an Event of Default occurs as a result of certain events of bankruptcy, insolvency or reorganization of the Company, unpaid principal of the Notes then outstanding shall become due and payable immediately without any declaration or other act on the part of the Trustee or any Holder, all as and to the extent provided in the Indenture. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company is required to file periodic reports with the Trustee as to the absence of default.

 

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18. TRUSTEE DEALINGS WITH THE COMPANY

 

U.S. Bank National Association, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or an Affiliate of the Company, and may otherwise deal with the Company or an Affiliate of the Company, as if it were not the Trustee.

 

19. NO RECOURSE AGAINST OTHERS

 

A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture nor for any claim based on, in respect of or by reason of such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note.

 

20. AUTHENTICATION

 

This Note shall not be valid until the Trustee or an authenticating agent manually signs the certificate of authentication on the other side of this Note.

 

21. ABBREVIATIONS AND DEFINITIONS

 

Customary abbreviations may be used in the name of the Holder 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 UGMA (= Uniform Gifts to Minors Act).

 

All terms defined in the Indenture and used in this Note but not specifically defined herein are defined in the Indenture and are used herein as so defined.

 

22. INDENTURE TO CONTROL; GOVERNING LAW

 

In the case of any conflict between the provisions of this Note and the Indenture, the provisions of the Indenture shall control. This Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principals of conflicts of law.

 

The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Requests may be made to: IVAX Corporation, 4400 Biscayne Boulevard, Miami, FL 33137, Attention: Treasurer.

 

8


ASSIGNMENT FORM

 

To assign this Note, fill in the form below:

 

I or we assign and transfer this Note to

 


(Insert assignee’s soc. sec. or tax I.D. no.)

 


 


 


 


(Print or type assignee’s name, address and zip code)

 

and irrevocably appoint

 


agent to transfer this Note on the books of the Company. The agent may substitute another to act for him or her.

 

   

Your Signature:

Date:                                 

 

 


   

(Sign exactly as your name appears on the other side of this Note)

 

* Signature guaranteed by:

By:

 

 



* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

 

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CONVERSION NOTICE

 

To convert this Note into Common Stock of the Company, check the box:  ¨

 

To convert only part of this Note, state the principal amount to be converted (must be $1,000 or a integral multiple of $1,000): $                        .

 

If you want the stock certificate made out in another person’s name, fill in the form below:

 


(Insert assignee’s soc. sec. or tax I.D. no.)

 


 


 


 


(Print or type assignee’s name, address and zip code)

 

   

Your Signature:

Date:                                

 

 


   

(Sign exactly as your name appears on the other side of this Note)

 

* Signature guaranteed by:

By:

 

 



* The signature must be guaranteed by an institution which is a member of one of the following recognized signature guaranty programs: (i) the Securities Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other guaranty program acceptable to the Trustee.

 

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SCHEDULE OF EXCHANGES OF NOTES

 

The following exchanges, redemptions, repurchases or conversions of a part of this global Note have been made:

 

Principal Amount of this Global Note
Following Such Decrease Date of
Exchange (or Increase)


 

Authorized Signatory of Securities
Custodian


 

Amount of Decrease in Principal Amount
of this Global Note


 

11

EX-10.18 5 dex1018.htm REGISTRATION RIGHTS AGREEMENT Registration Rights Agreement

EXHIBIT 10.18

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is made and entered into as of March 3, 2004, by and between IVAX Corporation, a Florida corporation (the “Company”) and UBS Securities LLC and the other Initial Purchasers named in the Purchase Agreement referred to below, for whom UBS Securities LLC is acting as representative, (collectively, “Initial Purchasers”) pursuant to that certain Purchase Agreement, dated as of February 27, 2004 (the “Purchase Agreement”) between the Company and the Initial Purchasers.

 

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. The execution of this Agreement is a condition to the closing under the Purchase Agreement.

 

The Company agrees with the Initial Purchasers (i) for their benefit as Initial Purchasers and (ii) for the benefit of the beneficial owners (including the Initial Purchasers) from time to time of the Notes (as defined herein) and the beneficial owners from time to time of the Underlying Common Stock (as defined herein) issued upon conversion of the Notes (each of the foregoing a “Holder” and together the “Holders”), as follows:

 

Section 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

 

Affiliate” means with respect to any specified person, an “affiliate,” as defined in Rule 144, of such person.

 

Amendment Effectiveness Deadline Date” has the meaning set forth in Section 2(d) hereof.

 

Applicable Conversion Price” means, as of any date of determination, $1,000 divided by the Conversion Rate then in effect as of the date of determination or, if no Notes are then outstanding, the Conversion Rate that would be in effect were Notes then outstanding.

 

Business Day” means each day on which the American Stock Exchange is open for trading.

 

Common Stock” means the shares of common stock, par value $0.10 per share, of the Company and any other shares of capital stock as may constitute “Common Stock” for purposes of the Indenture, including the Underlying Common Stock.


Conversion Rate” has the meaning assigned to such term in the Indenture.

 

Effectiveness Deadline Date” has the meaning set forth in Section 2(a) hereof.

 

Effectiveness Period” means a period (subject to extension pursuant to Section 3(i) hereof ) commencing on the Issue Date and ending on the earlier of (1) the first date on which all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement, (2) the date on which all Registrable Securities held by non-affiliates are eligible to be sold in the absence of any registration, (3) the date on which there cease to be outstanding any Registrable Securities, and (4) two years after the Issue Date.

 

Event” has the meaning set forth in Section 2(e) hereof.

 

Event Date” has the meaning set forth in Section 2(e) hereof.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

 

Filing Deadline Date” has the meaning set forth in Section 2(a) hereof.

 

Holder” has the meaning set forth in the third paragraph of this Agreement.

 

Indenture” means the Indenture, dated as of March 3, 2004, between the Company and U.S. Bank National Association, as trustee, pursuant to which the Notes are being issued.

 

Initial Purchasers” has the meaning set forth in the preamble hereto.

 

Initial Shelf Registration Statement” has the meaning set forth in Section 2(a) hereof.

 

Issue Date” means the first date of original issuance of any Notes.

 

Material Event” has the meaning set forth in Section 3(i) hereof.

 

Notes” means the 1.5% Convertible Senior Notes due 2024 of the Company to be purchased pursuant to the Purchase Agreement.

 

Notice and Questionnaire” means a written notice and questionnaire delivered to the Company containing substantially the information called for by the Selling Securityholder Notice and Questionnaire attached as Annex A to the Offering Memorandum dated February 27, 2004, relating to the Notes.

 

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Notice Holder” means, on any date, any Holder that has delivered a Notice and Questionnaire to the Company on or prior to such date, so long as all of their Registrable Securities that have been registered for resale pursuant to a Notice and Questionnaire have not been sold in accordance with a Shelf Registration Statement.

 

Prospectus” means the prospectus included in any Shelf Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 415 promulgated under the Securities Act), as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus.

 

Purchase Agreement” has the meaning set forth in the preamble hereof.

 

Record Holder” means (i) with respect to any Special Interest Payment Date relating to any Notes as to which any such Special Interest Amount has accrued, the holder of record of such Notes on the record date with respect to the interest payment date under the Indenture on which such Special Interest Payment Date shall occur and (ii) with respect to any Special Interest Payment Date relating to the Underlying Common Stock as to which any such Special Interest Amount has accrued, the registered holder of such Underlying Common Stock fifteen (15) days prior to such Special Interest Payment Date.

 

Registrable Securities” means the Notes until such Notes have been converted into the Underlying Common Stock and, at all times the Underlying Common Stock and any securities into or for which such Underlying Common Stock has been converted, and any security issued with respect thereto upon any stock dividend, split or similar event until, in the case of any such security, the earliest of (x) the date on which such security has been effectively registered under the Securities Act and disposed of, whether or not in accordance with the Shelf Registration Statement and (y) the date on which such Note or Underlying Common Stock is sold to the public pursuant to Rule 144 under the Securities Act or is salable pursuant to Rule 144(k) under the Securities Act and (z) the date on which such Note or the Underlying Common Stock ceases to be outstanding.

 

Registration Expenses” has the meaning set forth in Section 5 hereof.

 

Registration Statement” means any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such registration statement.

 

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Rule 144” means Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

Rule 144A” means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.

 

SEC” means the Securities and Exchange Commission.

 

Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder.

 

Shelf Registration Statement” has the meaning set forth in Section 2(a) hereof.

 

Special Interest Amount” has the meaning set forth in Section 2(e) hereof.

 

Special Interest Accrual Period” has the meaning set forth in Section 2(e) hereof.

 

Special Interest Payment Date” means each interest payment date under the Indenture in the case of Notes, and each March 1 and September 1 in the case of the Underlying Common Stock.

 

Subsequent Shelf Registration Statement” has the meaning set forth in Section 2(b) hereof.

 

Suspension Notice” has the meaning set forth in Section 3(i) hereof.

 

Suspension Period” has the meaning set forth in Section 3(i) hereof.

 

TIA” means the Trust Indenture Act of 1939, as amended.

 

Trustee” means U.S. Bank National Association, the Trustee under the Indenture.

 

Underlying Common Stock” means the Common Stock into which the Notes are convertible or issued upon any such conversion.

 

Section 2. Shelf Registration. (a) The Company shall prepare and file or cause to be prepared and filed with the SEC, by the date (the “Filing Deadline Date”) that is ninety (90) days after the Issue Date, a Registration Statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act (a “Shelf Registration Statement”) registering the resale from time to time by Holders thereof of all of the Registrable Securities identified by such Holders in their Notice and Questionnaire (the “Initial Shelf Registration

 

4


Statement”). The Initial Shelf Registration Statement shall be on Form S-1 or S-3 or another appropriate form permitting registration of such Registrable Securities for resale by such Holders in accordance with the reasonable methods of distribution indicated in their Notice and Questionnaire, and set forth in the Initial Shelf Registration Statement (provided, however, that in no event will such methods of distribution take the form of an underwritten offering of Registrable Securities without the Company’s prior written consent, which the Company may withhold in its sole discretion). The Company shall use its reasonable best efforts to cause the Initial Shelf Registration Statement to be declared effective under the Securities Act as promptly as is practicable but in any event by the date (the “Effectiveness Deadline Date”) that is one hundred eighty (180) days after the Issue Date, and to keep the Initial Shelf Registration Statement (or any Subsequent Shelf Registration Statement) continuously effective under the Securities Act until the expiration of the Effectiveness Period (except to the extent contemplated by Section 3 (i)). At the time the Initial Shelf Registration Statement is declared effective, each Holder that became a Notice Holder on or prior to the date that is five (5) Business Days prior to such time of effectiveness shall be named as a selling securityholder in the Initial Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Registrable Securities in accordance with applicable law, assuming the accuracy of the information in such Notice Holder’s Notice and Questionnaire.

 

(b) If the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (except to the extent contemplated by Section 3 (i)), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement covering all of the securities that as of the date of such filing are Registrable Securities (or, if registration of Registrable Securities not held by Notice Holders is not permitted by the rules and regulations of the SEC, then registering all Registrable Securities held by Notice Holders as of such date) (a “Subsequent Shelf Registration Statement”). If a Subsequent Shelf Registration Statement is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is practicable after such filing and to keep such Shelf Registration Statement (or Subsequent Shelf Registration Statement) continuously effective until the end of the Effectiveness Period (except to the extent permitted under Section 3 (i)).

 

(c) The Company shall supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement, if required by the Securities Act or as reasonably requested by the Initial Purchasers or by the Trustee on behalf of the Holders of the Registrable Securities covered by such Shelf Registration Statement.

 

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(d) Each Holder of Registrable Securities agrees that if such Holder wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(d) and Section 3(i). Each Holder of Registrable Securities wishing to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus agrees to deliver a completed and executed Notice and Questionnaire to the Company prior to any attempted or actual distribution of Registrable Securities under a Shelf Registration Statement; provided that Holders of Registrable Securities shall have at least fifteen (15) Business Days from the date on which the Notice and Questionnaire is first sent to such Holders by the Company to complete and return the Notice and Questionnaire to the Company. From and after the date the Initial Shelf Registration Statement is declared effective, the Company shall, as promptly as practicable after the date a Notice and Questionnaire is delivered, and in any event within the later of (x) five (5) Business Days after such date or (y) five (5) Business Days after the expiration of any Suspension Period (1) in effect when the Notice and Questionnaire is delivered or (2) put into effect within five (5) Business Days of such delivery date, (i) if required by applicable law, file with the SEC a post-effective amendment to the Shelf Registration Statement or, if permitted by applicable law, prepare and file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with the Securities Act provided, however, that (i) any supplement to a Prospectus filed pursuant to this Section 2(d) shall be filed within five (5) Business Days after receipt of the related Notice and Questionnaire (provided, that with respect to any Notice and Questionnaire received by the Company after the date that is thirty (30) days after the date the Initial Shelf Registration Statement becomes effective under the Securities Act, the Company shall not be required to file more than one (1) such supplement during any twenty (20) day period) and (ii) if a post-effective amendment or a Subsequent Shelf Registration Statement is required by the rules and regulations of the SEC in order to permit resales by Notice Holders who were not named as selling securityholders in the Initial Shelf Registration Statement as of the time it became effective under the Securities Act, the Company shall not be required to file more than one (1) post-effective amendment or Subsequent Shelf Registration Statement for such purpose in any three (3) month period, and, if the Company shall file a post-effective amendment to the Shelf Registration Statement, use its reasonable best efforts to cause such post-effective amendment to be declared effective under the Securities Act as promptly as is practicable, but in any event by the date (the “Amendment Effectiveness Deadline Date”) that is thirty (30) days after the date such post-effective amendment is required by this clause to be filed; (ii) provide such Holder such number of copies of any

 

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documents filed pursuant to Section 2(d) (i) as such Holder may reasonably request; and (iii) notify such Holder named as a selling security holder in the applicable Prospectus as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(d) (i); provided that if such Notice and Questionnaire is delivered during a Suspension Period, or a Suspension Period is put into effect within five (5) Business Days after such delivery date, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above within five (5) Business Days after expiration of the Suspension Period in accordance with Section 3(i); provided further that if under applicable law, the Company has more than one option as to the type or manner of making any such filing, the Company shall make the required filing or filings in the manner or of a type that is reasonably expected to result in the earliest availability of the Prospectus for effecting resales of Registrable Securities. Notwithstanding anything contained herein to the contrary, the Company shall be under no obligation to name any Holder that is not a Notice Holder as a selling securityholder in any Shelf Registration Statement or related Prospectus; provided, however, that any Holder that becomes a Notice Holder pursuant to the provisions of this Section 2(d) (whether or not such Holder was a Notice Holder at the time the Shelf Registration Statement was declared effective) shall be named as a selling securityholder in the Shelf Registration Statement or related Prospectus in accordance with the requirements of this Section 2(d).

 

(e) The parties hereto agree that the Holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if (i) the Initial Shelf Registration Statement has not been filed on or prior to the Filing Deadline Date, (ii) the Initial Shelf Registration Statement has not been declared effective under the Securities Act on or prior to the Effectiveness Deadline Date or (iii) the Initial Shelf Registration Statement is filed and declared effective but shall thereafter cease to be effective (without being succeeded by an additional registration statement declared effective under the Securities Act on the same day) or usable for the offer and sale of Registrable Securities in the manner provided for in the applicable Prospectus for a period of time (including any Suspension Period) which shall exceed thirty (30) days in the aggregate in any three (3) month period or sixty (60) days in the aggregate in any twelve (12) month period (each of the events of a type described in any of the foregoing clauses (i) through (iii) are individually referred to herein as an “Event,” and the Filing Deadline Date in the case of clause (i), the Effectiveness Deadline Date in the case of clause (ii), the date on which the duration of the ineffectiveness or unusability of the Initial Shelf Registration Statement in any period exceeds the number of days permitted by clause (iii) hereof in the case of clause (iii), being referred to herein as an “Event Date”). Events shall be deemed to continue until the following dates with respect to the respective types of Events: (A) the date the Initial Shelf Registration Statement is filed in the case of an Event of the type described in clause (i), (B) the date the Initial Shelf Registration Statement is declared effective under the Securities Act in the case of an Event of the type described in clause (ii), and (C) the date the Initial Shelf Registration Statement becomes effective or usable again in the case of an Event of the type described in clause (iii).

 

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Accordingly, commencing on (and including) any Event Date and ending on (but excluding) the next date on which there are no Events that have occurred and are continuing (a “Special Interest Accrual Period”), the Company agrees to pay, as liquidated damages and not as a penalty, an amount (the “Special Interest Amount”) at the rate described below, payable periodically on each Special Interest Payment Date to Record Holders of Notes that are Registrable Securities and of shares of Underlying Common Stock issued upon conversion of Notes that are Registrable Securities, as the case may be, to the extent of, for each such Special Interest Payment Date, accrued and unpaid Special Interest Amount to (but excluding) such Special Interest Payment Date (or, if the Special Interest Accrual Period shall have ended prior to such Special Interest Payment Date, the date of the end of the Special Interest Accrual Period); provided that any Special Interest Amount accrued with respect to any Note or portion thereof called for redemption on a redemption date or converted into Underlying Common Stock on a conversion date prior to the Special Interest Payment Date, shall, in any such event, be paid instead to the Holder who submitted such Note or portion thereof for redemption or conversion on the applicable redemption date or conversion date, as the case may be, on such date (or promptly following the conversion date, in the case of conversion). The Special Interest Amount shall accrue at a rate per annum equal to one-quarter of one percent (0.25%) for the first 90-day period from the Event Date, and thereafter at a rate per annum equal to one-half of one percent (0.5%) of (i) the principal amount of such Notes or, without duplication, (ii) in the case of Notes that have been converted into Underlying Common Stock, the Applicable Conversion Price of such shares of Underlying Common Stock, as the case may be, in each case determined as of the Business Day immediately preceding the next Special Interest Payment Date. Notwithstanding the foregoing, no Special Interest Amounts shall accrue as to any Registrable Security from and after the earlier of (x) the date such security is no longer a Registrable Security and (y) expiration of the Effectiveness Period. The rate of accrual of the Special Interest Amount with respect to any period shall not exceed the rate provided for in this paragraph notwithstanding the occurrence of multiple concurrent Events. Following the cure of all Events requiring the payment by the Company of Special Interest Amounts to the Holders of Registrable Securities pursuant to this Section, the accrual of Special Interest Amounts shall cease (without in any way limiting the effect of any subsequent Event requiring the payment of Special Interest Amount by the Company).

 

The Trustee shall be entitled, on behalf of Holders of Notes, to seek any available remedy for the enforcement of this Agreement, including for the payment of any Special Interest Amount. Notwithstanding the foregoing, the parties agree that the sole and exclusive damages payable for a violation of the terms of this Agreement with respect to which Special Interest damages are expressly provided shall be such Special Interest.

 

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All of the Company’s obligations set forth in this Section 2(e) that are outstanding with respect to any Registrable Security at the time such security ceases to be a Registrable Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding termination of this Agreement pursuant to Section 8(k)).

 

The parties hereto agree that the Special Interest provided for in this Section 2(e) constitutes a reasonable estimate of the damages that may be incurred by Holders of Registrable Securities by reason of the failure of the Shelf Registration Statement to be filed or declared effective or available for effecting resales of Registrable Securities in accordance with the provisions hereof.

 

Section 3. Registration Procedures. In connection with the registration obligations of the Company under Section 2 hereof, the Company shall:

 

(a) Prepare and file with the SEC a Shelf Registration Statement or Shelf Registration Statements on Form S-1 or S-3 or any other appropriate form under the Securities Act available for the sale of the Registrable Securities by the Holders thereof in accordance with the method or methods of distribution thereof described in the Notice and Questionnaire, and use its reasonable best efforts to cause each such Shelf Registration Statement to become effective and remain effective as provided herein; provided that before filing any Shelf Registration Statement or Prospectus or any amendments or supplements thereto with the SEC, the Company shall furnish to the Initial Purchasers and counsel for the Initial Purchasers copies of all such documents proposed to be filed and use its best efforts to reflect in each such document when so filed with the SEC such comments as the such counsel reasonably shall propose within three (3) Business Days of the delivery of such copies to the Initial Purchasers and such counsel.

 

(b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement as may be necessary to keep such Shelf Registration Statement continuously effective until the expiration of the Effectiveness Period (except as contemplated by Section 3(i)); cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and use its reasonable best efforts to comply with the provisions of the Securities Act applicable to it with respect to the disposition of all securities covered by such Shelf Registration Statement during the Effectiveness Period in accordance with the intended methods of disposition by the sellers thereof set forth in such Shelf Registration Statement as so amended or such Prospectus as so supplemented.

 

(c) As promptly as practicable give notice to the Notice Holders, the Initial Purchasers and counsel for the Initial Purchasers (i) when any Prospectus, Prospectus supplement, Shelf Registration Statement or post-effective amendment to a Shelf Registration Statement has been filed with the SEC and, with respect to a Shelf Registration Statement or any post-effective amendment, when the same

 

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has been declared effective, (ii) of any request, following the effectiveness of the Initial Shelf Registration Statement under the Securities Act, by the SEC or any other federal or state governmental authority for amendments or supplements to any Shelf Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Shelf Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) after the effective date of any Shelf Registration Statement filed pursuant to this Agreement of the occurrence of (but not the nature of or details concerning) a Material Event and (vi) of the determination by the Company that a post-effective amendment to a Shelf Registration Statement will be filed with the SEC, which notice may, at the discretion of the Company (or as required pursuant to Section 3(i)), state that it constitutes a Suspension Notice, in which event the provisions of Section 3(i) shall apply.

 

(d) Use its reasonable best efforts to prevent the issuance of, and, if issued, to obtain the withdrawal of any order suspending the effectiveness of a Shelf Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which they have been qualified for sale, in either case at the earliest possible time, and provide prompt notice to each Notice Holder and the Initial Purchasers of the withdrawal or lifting of any such order.

 

(e) If requested by any Initial Purchaser or any Notice Holder, as promptly as practicable incorporate in a Prospectus supplement or post-effective amendment to a Shelf Registration Statement such information as such Initial Purchaser, such Notice Holder or counsel for the such Initial Purchaser shall determine to be required to be included therein by applicable law and make any required filings of such Prospectus supplement or such post-effective amendment; provided that the Company shall not be required to take any actions under this Section 3(e) unless the Company receives the written opinion of counsel for the Company, that such actions are not in compliance with applicable law.

 

(f) Upon request, as promptly as practicable furnish upon request to each Notice Holder, counsel for the Initial Purchasers and the Initial Purchasers, without charge, at least one (1) conformed copy of the Shelf Registration Statement and any amendment thereto, including financial statements but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference and all exhibits (unless requested in writing to the Company by such Notice Holder, such counsel or the Initial Purchasers).

 

(g) During the Effectiveness Period, deliver to each Notice Holder, counsel for the Initial Purchasers and the Initial Purchasers, in connection with

 

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any sale of Registrable Securities pursuant to a Shelf Registration Statement, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary prospectus) and any amendment or supplement thereto as such Notice Holder and the Initial Purchasers may reasonably request; and the Company hereby consents (except during such periods that a Suspension Notice is outstanding and has not been revoked) to the use of such Prospectus or each amendment or supplement thereto by each Notice Holder, in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in the manner set forth therein.

 

(h) Prior to any public offering of the Registrable Securities pursuant to the Shelf Registration Statement, use its reasonable best efforts to register or qualify or cooperate with the Notice Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Notice Holder reasonably requests in writing (which request may be included in the Notice and Questionnaire); prior to any public offering of the Registrable Securities pursuant to the Shelf Registration Statement, use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period in connection with such Notice Holder’s offer and sale of Registrable Securities pursuant to such registration or qualification (or exemption therefrom) and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities in the manner set forth in the relevant Shelf Registration Statement and the related Prospectus; provided that the Company will not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Agreement or (ii) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not then so subject.

 

(i) Upon (A) the issuance by the SEC of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact as a result of which any Shelf Registration Statement shall 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, or any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (C) the occurrence or existence of any pending corporate development (a “Material Event”) that, in the reasonable discretion of the Company, makes it appropriate to suspend the availability of the Shelf Registration Statement and the related Prospectus, (i) in the case of clause (B) or (C) above, subject to the next sentence, as promptly as practicable, prepare and file, if necessary pursuant to applicable

 

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law, a post-effective amendment to such Shelf Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Shelf Registration Statement and Prospectus so that such Shelf Registration Statement does 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 such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that the Company may rely on information provided by each Notice Holder with respect to such Notice Holder), as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Shelf Registration Statement, subject to the next sentence, use its reasonable best efforts to cause it to be declared effective as promptly as is practicable, and (ii) give notice to the Notice Holders and counsel for the Initial Purchasers that the availability of the Shelf Registration Statement is suspended (a “Suspension Notice”) and, upon receipt of any Suspension Notice, each Notice Holder agrees not to sell any Registrable Securities pursuant to such Shelf Registration Statement until such Notice Holder’s receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The Company will use its reasonable best efforts to ensure that the use of the Prospectus may be resumed (x) in the case of clause (A) above, as promptly as is practicable, (y) in the case of clause (B) above, as soon as, in the reasonable judgment of the Company, the Shelf Registration Statement does not contain any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and the Prospectus does not contain any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (z) in the case of clause (C) above, as soon as, in the reasonable discretion of the Company, such suspension is no longer appropriate. The period during which the availability of the Shelf Registration Statement and any Prospectus may be suspended (the “Suspension Period”) without the Company incurring any obligation to pay liquidated damages pursuant to Section 2(e) shall not exceed thirty (30) days in any three (3) month period and sixty (60) days in any twelve (12) month period. The Effectiveness Period shall be extended by the number of days from and including the date of the giving of the Suspension Notice to and including the date on which the Notice Holder received copies of the supplemented or amended Prospectus provided in clause (i) above, or the date on which it is advised in writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus.

 

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(j) Make available for inspection during normal business hours by representatives for the Notice Holders of such Registrable Securities, and any broker-dealers, attorneys and accountants retained by such Notice Holders, all relevant financial and other records and pertinent corporate documents and properties of the Company and its subsidiaries, and cause the appropriate officers, directors and employees of the Company and its subsidiaries to make available for inspection during normal business hours all relevant information reasonably requested by such representatives for the Notice Holders, or any such broker-dealers, attorneys or accountants in connection with such disposition, in each case as is customary for similar “due diligence” examinations; provided, however, that (i) such persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons and shall be used solely for the purposes of exercising rights under this Agreement, unless (A) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (B) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of any Shelf Registration Statement or the use of any Prospectus referred to in this Agreement), (C) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such person or (D) such information becomes available to any such person from a source other than the Company and such source is not bound by a confidentiality agreement or is not otherwise under a duty of trust to the Company, and (ii) that the foregoing inspection and information gathering shall, to the greatest extent possible, be coordinated on behalf of all the Notice Holders and the other parties entitled thereto by the one firm of counsel referred to in Section 5.

 

(k) Comply with all applicable rules and regulations of the SEC to the extent and so long as they are applicable to the shelf Registration Statement and make generally available to its securityholders earning statements (which need not be audited) 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) commencing on the first day of the first fiscal quarter of the Company commencing after the effective date of a Shelf Registration Statement, which statements shall cover said 12-month periods.

 

(l) Cooperate with each Notice Holder to the extent reasonably necessary to facilitate the timely preparation and delivery of certificates representing Registrable Securities sold pursuant to a Shelf Registration Statement (except to the extent that such Registrable Securities are then represented by a global security), which certificates shall not bear any restrictive legends, and cause such Registrable Securities to be in such denominations as are permitted by the Indenture and registered in such names as such Notice Holder may request in writing at least (2) Business Days prior to any sale of such Registrable Securities.

 

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(m) Provide a CUSIP number for all Registrable Securities covered by each Shelf Registration Statement not later than the effective date of such Shelf Registration Statement and provide the Trustee and the transfer agent for the Common Stock with certificates for the Registrable Securities that are in a form eligible for deposit with The Depository Trust Company.

 

(n) Cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc. by the Initial Purchasers or any Notice Holder.

 

(o) Enter into such customary agreements consistent with this agreement and take all such other necessary actions in connection therewith (including those requested by the holders of a majority of the Registrable Securities being sold) in order to expedite or facilitate disposition of such Registrable Securities; provided that the Company shall not be required pursuant to this paragraph (o) to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Agreement or (ii) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not then so subject.

 

(p) Cause the Indenture to be qualified under the TIA not later than the effective date of any Shelf Registration Statement; and in connection therewith, cooperate with the Trustee to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and execute, and use its reasonable best efforts to cause the 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 SEC to enable the Indenture to be so qualified in a timely manner.

 

Section 4. Holder’s Obligations. Each Holder agrees, by acquisition of the Registrable Securities, that no Holder of Registrable Securities shall be entitled to sell any of such Registrable Securities pursuant to a Shelf Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with a Notice and Questionnaire as required pursuant to Section 2(d) hereof (including the information required to be included in such Notice and Questionnaire) and the information set forth in the next sentence. Each Notice Holder agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Registrable Securities as the Company may from time to time reasonably request. Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan

 

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of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its plan of distribution necessary in order to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading. Each Holder and the Initial Purchasers agree to keep the receipt of any Suspension Notice and the contents thereof confidential except as required by law.

 

Section 5. Registration Expenses. The Company shall bear all fees and expenses incurred in connection with the performance by the Company of its obligations under Section 2 and 3 of this Agreement whether or not any of the Shelf Registration Statements are declared effective. Such fees and expenses (“Registration Expenses”) shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made by the Company with the National Association of Securities Dealers, Inc. and (y) of compliance by the Company with federal and state securities or Blue Sky laws (including, without limitation, reasonable fees and expenses in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as the Notice Holders of a majority of the Registrable Securities being sold pursuant to a Shelf Registration Statement may reasonably designate), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company), (iii) duplication and mailing expenses relating to copies of any Shelf Registration Statement or Prospectus delivered to any Notice Holders hereunder, (iv) fees and disbursements of counsel for the Company, (v) fees and disbursements of the Trustee and its counsel and of the registrar and transfer agent for the Common Stock and (vi) Securities Act liability insurance obtained by the Company in its sole discretion. In addition, the Company shall pay the internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing by the Company of the Registrable Securities on any securities exchange on which similar securities of the Company are then listed and the fees and expenses of any person, including special experts, retained by the Company. Except as provided above, each Holder shall pay all expenses and fees relating to such Holder’s disposition to Registrable Securities including without limitation, all brokerage fees and commissions, all transfer and the fees and expenses of any advisors or counsel the Holder engages.

 

Section 6. Indemnification; Contribution.

 

(a) The Company agrees to indemnify, defend and hold harmless each Holder and each person who controls any Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a “Holder

 

15


Indemnified Party”), from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which such Holder Indemnified Party may incur under the Securities Act, the Exchange Act or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in any Shelf Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arises out of or is based upon any omission or alleged omission to state a material fact required to be stated in any Shelf Registration Statement or in any amendment or supplement thereto or necessary to make the statements therein not misleading, or arises out of or is based upon any omission or alleged omission to state a material fact necessary in order to make the statements made in any Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, in the light of the circumstances under which they were made, not misleading, except insofar as any such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or omission or alleged untrue statement or omission of a material fact contained in, or omitted from, and in conformity with information furnished in writing by or on behalf of any Holder to the Company expressly for use therein, provided, however, that the Company shall not be required to provide any indemnify pursuant to this Section 6(a) in any such case insofar as any such loss, damage, expense, liability, claim or action arises out of or is based upon any untrue statement or omission or alleged untrue statement or omission of a material fact contained in, or omitted from, and in conformity with written information pertaining to an Initial Purchaser or Holder furnished by or on behalf of such Initial Purchaser or Holder to the Company expressly for use in, any Shelf Registration Statement or any Prospectus, including information provided by such Holder in a Notice and Questionnaire; provided further that, with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder from whom the person asserting any such losses, damages, expenses, liabilities, claims or actions purchased such Registrable Securities, to the extent that a prospectus relating to such Registrable Securities was required to be delivered by such Holder under the Securities Act in connection with such purchase and any such loss, damage, expense, liability, claim or action of such Holder results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Registrable Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder; provided further, that this indemnity agreement will not apply to any loss, damage, expense, liability or claim arising from an offer or sale, occurring during a Suspension Period, of Registrable Securities by a Notice Holder to whom the Company theretofore provided a Suspension Notice in accordance with Section 3(i).

 

(b) Each Holder, severally and not jointly, agrees to indemnify, defend and hold harmless the Company, its directors, officers and any person who controls the Company within the meaning of Section 15 of the Securities Act or

 

16


Section 20 of the Exchange Act (each, a “Company Indemnified Party”) from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which such Company Indemnified Party may incur under the Securities Act, the Exchange Act or otherwise, insofar as such loss, damage, expense, liability or claim (i) arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in information furnished in writing by or on behalf of such Holder to the Company expressly for use in any Shelf Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arises out of or is based upon any omission or alleged omission to state a material fact required to be stated in any Shelf Registration Statement or in any amendment or supplement thereto or necessary to make the statements therein not misleading, or arises out of or is based upon any omission or alleged omission to state a material fact necessary in order to make the statements in any Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, in the light of the circumstances under which they were made, not misleading, in connection with such information, (ii) arises out of or is based upon a sale of Registrable Securities during a Suspension Period by a Notice Holder to whom the Company theretofore provided a Suspension Notice in accordance with Section 3(i), or (iii) arises out of or is based upon a sale of Registrable Securities by a Notice Holder without delivery of the most recent applicable Prospectus provided to such Holder by the Company pursuant to Section 3(g) or Section 2(d); and, subject to the limitation set forth immediately preceding this clause, each Holder shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any Company Indemnified Party in connection with investigating or defending any loss, damage, expense, liability, claim or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities pursuant to the Shelf Registration Statement giving rise to such indemnification obligation.

 

(c) If any action, suit or proceeding (each, a “Proceeding”) is brought against any person in respect of which indemnity may be sought pursuant to either subsection (a) or (b) of this Section 6, such person (the “Indemnified Party”) shall promptly notify the person against whom such indemnity may be sought (the “Indemnifying Party”) in writing of the institution of such Proceeding and the Indemnifying Party shall assume the defense of such Proceeding; provided, however, that the omission to notify such Indemnifying Party shall not relieve such Indemnifying Party from any liability which it may have to such Indemnified Party or otherwise except to the extent that the Indemnifying Party is prejudiced thereby. Such Indemnified Party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless the employment of such counsel shall have been authorized in writing by such Indemnifying Party in connection with the defense of such Proceeding or such Indemnifying Party shall not have employed counsel

 

17


to have charge of the defense of such Proceeding within 30 days of the receipt of notice thereof or such Indemnified Party shall have reasonably concluded upon the written advice of counsel that there may be one or more defenses available to it that are different from, additional to or in conflict with those available to such Indemnifying Party (in which case such Indemnifying Party shall not have the right to direct that portion of the defense of such Proceeding on behalf of the Indemnified Party, but such Indemnifying Party may employ counsel and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such Indemnifying Party), in any of which events such reasonable fees and expenses shall be borne by such Indemnifying Party and paid as incurred (it being understood, however, that such Indemnifying Party shall not be liable for the expenses of more than one separate counsel in any one Proceeding or series of related Proceedings together with reasonably necessary local counsel representing the Indemnified Parties who are parties to such action). An Indemnifying Party shall not be liable for any settlement of such Proceeding effected without the written consent of such Indemnifying Party, but if settled with the written consent of such Indemnifying Party, such Indemnifying Party agrees to indemnify and hold harmless an Indemnified Party from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an Indemnified Party shall have requested an Indemnifying Party to reimburse such Indemnified Party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then such Indemnifying Party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 Business Days after receipt by such Indemnifying Party of the aforesaid request, (ii) such Indemnifying Party shall not have reimbursed such Indemnified Party in accordance with such request prior to the date of such settlement and (iii) such Indemnified Party shall have given such Indemnifying Party at least 30 days’ prior notice of its intention to settle. No Indemnifying Party shall, without the prior written consent of any Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which such Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such Indemnified Party.

 

(d) If the indemnification provided for in this Section 6 is unavailable to an Indemnified Party under subsections (a) and (b) of this Section 6 in respect of any losses, damages, expenses, liabilities or claims referred to therein, then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, damages, expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Holders on the other hand from the offering of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not

 

18


only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Holders on the other in connection with the statements or omissions which resulted in such losses, damages, expenses, liabilities or claims, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Holders on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company or by the Holders and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, damages, expenses, liabilities and claims referred to above shall be deemed to include any reasonable legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any Proceeding.

 

(e) The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in subsection (d) above. Notwithstanding the provisions of this Section 6, no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by it were offered to the public exceeds the amount of any damages which it has otherwise been required to pay 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. The Holders’ respective obligations to contribute pursuant to this Section 6 are several in proportion to the respective amount of Registrable Securities they have sold pursuant to a Shelf Registration Statement, and not joint. The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Party at law or in equity.

 

(f) The indemnity and contribution provisions contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder or any person controlling any Holder, or the Company, or the Company’s officers or directors or any person controlling the Company and (iii) the sale of any Registrable Security by any Holder.

 

Section 7. Information Requirements. (a) The Company covenants that, if at any time before the end of the Effectiveness Period it is not subject to the reporting requirements of the Exchange Act, it will cooperate with any Holder of Registrable Securities and take such further action as any Holder of Registrable Securities may reasonably request in writing (including, without limitation, making such representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable

 

19


Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144, Rule 144A, Regulation S and Regulation D under the Securities Act and customarily taken in connection with sales pursuant to such exemptions. Upon the written request of any Holder of Registrable Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such filing requirements, unless such a statement has been included in the Company’s most recent report filed with the SEC pursuant to Section 13 or Section 15(d) of Exchange Act. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities (other than the Common Stock) under any section of the Exchange Act.

 

(b) The Company shall file the reports required to be filed by it under the Exchange Act and shall comply with all other requirements set forth in the instructions to Form S-1 or Form S-3, as the case may be, in order to allow the Company to be eligible to file registration statements on Form S-1 or Form S-3.

 

Section 8. Miscellaneous.

 

(a) No Conflicting Agreements. The Company is not, as of the date hereof, a party to, nor shall it, on or after the date of this Agreement, enter into, any agreement with respect to its securities that conflicts with the rights granted to the Holders of Registrable Securities in this Agreement. The Company represents and warrants that the rights granted to the Holders of Registrable Securities hereunder do not in any way conflict with the rights granted to the holders of the Company’s securities under any other agreements.

 

(b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority of the then outstanding Underlying Common Stock constituting Registrable Securities (with Holders of Notes deemed to be the Holders, for purposes of this Section, of the number of outstanding shares of Underlying Common Stock into which such Notes are or would be convertible as of the date on which such consent is requested). 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 Securities whose securities are being sold pursuant to a Shelf Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders pursuant to such Shelf Registration Statement; provided that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. Each Holder of Registrable Securities outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification,

 

20


supplement, waiver or consent effected pursuant to this Section 8(b), whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Registrable Securities or is delivered to such Holder.

 

(c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, by telecopier, by courier guaranteeing overnight delivery or by first-class mail, return receipt requested, and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after being deposited with such courier, if made by overnight courier or (iv) on the date indicated on the notice of receipt, if made by first-class mail, to the parties as follows:

 

(x) if to a Holder of Registrable Securities, at the most current address given by such Holder to the Company in a Notice and Questionnaire or any amendment thereto;

 

  (y) if to the Company, to:

 

IVAX Corporation

4400 Biscayne Boulevard

Miami, FL 33137

Attention: General Counsel

Telecopy No.: (305) 575-6049

 

with a copy to

 

Stearns Weaver Miller

150 West Flagler Street

Suite 2200

Miami, FL 33130

Attention: Alison W. Miller, Esq.

Telecopy No.: (305) 789-3395

 

  (z) if to the Initial Purchasers, to:

 

UBS Securities LLC

299 Park Avenue

New York, New York 10171

Attention: Syndicate Department

Telecopy No.: (212) 821-4998

 

with a copy to (for informational purposes only):

 

UBS Securities LLC

299 Park Avenue

 

21


New York, New York 10171

Attention: Legal Department

Telecopy No.: (212) 821-4042

 

or to such other address as such person may have furnished to the other persons identified in this Section 8(c) in writing in accordance herewith.

 

(d) Approval of Holders. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than the Initial Purchasers or subsequent Holders of Registrable Securities if such subsequent Holders are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

 

(e) Successors and Assigns. Any person who purchases any Registrable Securities from the Initial Purchaser or any Holder shall be deemed, for purposes of this Agreement, to be an assignee of the Initial Purchaser or such Holder, as the case may be. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and shall inure to the benefit of and be binding upon each Holder of any Registrable Securities.

 

(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 original and all of which taken together shall constitute one and the same agreement.

 

(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, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.

 

(i) Severability. If any term, provision, covenant or restriction of this Agreement is held 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 thereby, and the parties hereto shall use its 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 being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.

 

22


(j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by the Company with respect to the Registrable Securities. Except as provided in the Purchase Agreement, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights. No party hereto shall have any rights, duties or obligations other than those specifically set forth in this Agreement.

 

(k) Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or obligations under Section 4, 5 or 6 hereof and the obligations to make payments of and provide for liquidated damages under Section 2(e) hereof to the extent such damages accrue prior to the end of the Effectiveness Period, each of which shall remain in effect in accordance with its terms.

 

23


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

IVAX CORPORATION

By:

 

 


Name:

   

Title:

   

 

Confirmed and accepted as of the date

first above written on behalf of itself

and the other several Initial Purchasers:

 

UBS SECURITIES LLC

 

By:

 

 


Name:

   

Title:

   

 

24

EX-21 6 dex21.htm SUBSIDIARIES OF IVAX CORPORATION Subsidiaries of IVAX Corporation

EXHIBIT 21

 

SUBSIDIARIES OF IVAX CORPORATION

 

Name of Subsidiary


  Jurisdiction
of Organization


Domestic

   

American Tobacco Products, Inc.

  Texas

API Industries, Inc.

  Puerto Rico

Baker Cummins Dermatologicals, Inc.

  Florida

Baker Norton U.S., Inc.

  Florida

Cummins Properties, Inc.

  Florida

D & N Holding Company

  Delaware

Doral Manufacturing, Inc.

  Florida

Diamedix Corporation

  Florida

DVM Pharmaceuticals, Inc.

  Florida

Goldline Laboratories, Inc.

  Florida

Goldline Properties Florida, Inc.

  Florida

Immunovision, Inc.

  Florida

Indiana Protein Technologies, Inc.

  Indiana

Ivax D Sub, LLC

  Delaware

IVAX Diagnostics, Inc.

  Delaware

IVAX Far East, Inc.

  Florida

IVAX Laboratories, Inc.

  Florida

IVAX Laboratories Puerto Rico, Inc.

  Florida

IVAX Manufacturing, Inc.

  Florida

IVX Oncology, Inc.

  Florida

IVAX Pharmaceuticals, Inc.

  Florida

IVAX Pharmaceuticals Caribe, Inc.

  Delaware

IVAX Pharmaceuticals Golden Glades, Inc.

  Florida

IVAX Pharmaceuticals NV, Inc.

  Florida

IVAX Pharmaceuticals Pralex, Inc.

  Delaware

IVAX Research, Inc.

  Florida

IVAX Research Institute, Inc.

  Florida

IVAX Specialty Chemicals Sub, LLC

  Delaware

Pet Technology Corp.

  Florida

XAVI Corporation

  Florida

XenoBiotic Laboratories, Inc.

  Delaware


SUBSIDIARIES OF IVAX CORPORATION

(Continued)

 

Name of Subsidiary


 

Jurisdiction

of Organization


International

   

AXIV International Ltd.

  Ireland

Baker Cummins Inc.

  Canada

C.K. Netpharma Oy

  Finland

Coverdale B.V.

  Netherlands

Delta Biologicals S.r.l.

  Italy

Drogueria Sam S.A.

  Argentina

Elmor, S.A.

  Venezuela

Elvetium Peru S.A.

  Peru

Farmagonist AB

  Sweden

Farmasalud S.A.

  Chile

Farma System S.A.

  Argentina

Galena Pharma Limited Liability Company

  Russia

Glaciar S.A.

  Chile

IVAX Argentina S.A.

  Argentina

IVAX Asia Ltd.

  Hong Kong

IVAX (Bermuda) Ltd.

  Bermuda

IVAX Drug Research Institute, Ltd.

  Hungary

IVAX Farma B.V.

  Netherlands

IVAX Farmaceutici S.r.l.

  Italy

IVAX Holdings, A.G.

  Switzerland

IVAX Holdings C.I.

  Cayman Islands

IVAX India PVT Limited

  India

IVAX International, B.V.

  Netherlands

IVAX International GmbH

  Switzerland

IVAX International (Luxembourg) Sarl

  Luxembourg

IVAX Manufacturing Argentina S.A.

  Argentina

IVAX Peru S.A.

  Peru

IVAX Pharma GmbH

  Germany

IVAX Pharmaceuticals (Beijing) Co. Ltd.

  China

IVAX Pharmaceuticals Canada, Inc.

  Canada

IVAX Pharmaceuticals Mexico, S.A. De C.V.

  Mexico

IVAX Pharmaceuticals South Africa (Pty) Ltd.

  South Africa

IVAX Pharmaceuticals Sro

  Czech Republic

IVAX Pharma Poland Sp. z.o.o.

  Poland

IVAX SAS

  France

IVAX Singapore Ptd. Ltd.

  Singapore

IVAX Scandinavia AB

  Sweden

IVAX UK Limited

  England

IVAX Uruguay S.A.

  Uruguay

Kilburn B.V.

  Netherlands

Kunming Baker Norton Pharmaceutical Co. Ltd

  China

LabChile Investment Corp.

  Cayman Islands

Laboratorio Chile S.A.

  Chile

Laboratorios Elmor, S.A.

  Venezuela


SUBSIDIARIES OF IVAX CORPORATION

(Continued)

 

Name of Subsidiary


 

Jurisdiction

of Organization


Laboratorios Elmor S.A. (Guacara)

  Venezuela

LBC International Corp.

  Cayman Islands

LBC Pharmaceuticals Brasil Ltda.

  Brazil

LBC Pharmaceuticals Colombia S.A.

  Colombia

Maancirkel Holding B.V.

  Netherlands

Medimport Scandinavia AB

  Sweden

Moviler S.A.

  Uruguay

Natural Health Products Corporation, C.A.

  Venezuela

Norton Gelkaps Gelatine Kapsel Produktion GmbH

  Germany

Norton Healthcare Limited

  England

Norton Healthcare (1998) Limited

  England

Norton (Waterford) Limited

  Ireland

OFA, CA

  Venezuela

Pharmatrade S.A.

  Chile

Rowan International S.A.

  Uruguay

Vitrium Division Farmaceutica, S.A. de C.V.

  Mexico

Zenith Goldline, S.A.

  Dominican Republic
EX-23.1 7 dex231.htm CONSENT OF ERNST & YOUNG LLP Consent of Ernst & Young LLP

EXHIBIT 23.1

 

Consent of Independent Certified Public Accountants

 

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-30690, 333-30692, 333-07811, 33-82758, 33-67090, 33-39186, 33-44042, 33-53944, 33-88914, 33-88912, 33-65133, 333-24593, and 333-42997, Form S-3 Nos. 33-46173, 333-43176 and 333-51372 and Form S-4 Nos. 333-107351, 33-44116, 33-60847 and 333-51364) of IVAX Corporation and in the related Prospectuses, of our reports dated February 18, 2004, (except for Note 17, as to which the date is March 3, 2004), with respect to the consolidated financial statements and schedule of IVAX Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 2003.

 

/s/ Ernst & Young LLP

 

Miami, Florida

March 9, 2004

EX-23.2 8 dex232.htm INFORMATION REGARDING CONSENT OF ARTHUR ANDERSEN LLP Information Regarding Consent of Arthur Andersen LLP

EXHIBIT 23.2

 

Information Regarding Consent of Arthur Andersen LLP

 

Section 11(a) of the Securities Act of 1933, as amended (the “Securities Act”), provides that if part of a registration statement at the time it becomes effective contains an untrue statement of a material fact, or omits a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may assert a claim against, among others, an accountant who has consented to be named as having certified any part of the registration statement or as having prepared any report for use in connection with the registration statement.

 

IVAX Corporation (“IVAX”) dismissed Arthur Andersen LLP (“Andersen”) as its independent auditors, effective May 24, 2002. For additional information, see IVAX’ Current Report on Form 8-K dated May 24, 2002 (as amended by Form 8-K/A filed May 31, 2002). After reasonable efforts, IVAX has been unable to obtain Andersen’s written consent to the incorporation by reference into IVAX’ registration statements (Form S-8 Nos. 333-30690, 333-30692, 333-07811, 33-82758, 33-67090, 33-39186, 33-44042, 33-53944, 33-88914, 33-88912, 33-65133, 333-24593, and 333-42997, Form S-3 Nos. 33-46173, 333-43176 and 333-51372 and Form S-4 Nos. 33-44116, 33-60847 and 333-51364) and the related prospectuses (the “Registration Statements”) of Andersen’s audit report with respect to IVAX’ consolidated financial statements as of December 31, 2001, and for the two years in the period then ended. Under these circumstances, Rule 437a under the Securities Act permits IVAX to file this Annual Report on Form 10-K, which is incorporated by reference into the Registration Statements, without a written consent from Andersen. As a result, with respect to transactions in IVAX securities pursuant to the Registration Statements that occur subsequent to the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission, Andersen will not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Andersen or any omissions of a material fact required to be stated therein. Accordingly, you would be unable to assert a claim against Andersen under Section 11(a) of the Securities Act.

EX-31.1 9 dex311.htm SECTION 302 CEO CERTIFICATION Section 302 CEO Certification

EXHIBIT 31.1

 

I, Phillip Frost, M.D., certify that:

 

1. I have reviewed this annual report on Form 10-K of IVAX Corporation;

 

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

 

(c) disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ Phillip Frost, M.D.


Phillip Frost, M.D.

Chief Executive Officer

March 12, 2004

EX-31.2 10 dex312.htm SECTION 302 CFO CERTIFICATION Section 302 CFO Certification

EXHIBIT 31.2

 

I, Thomas E. Beier, certify that:

 

1. I have reviewed this annual report on Form 10-K of IVAX Corporation;

 

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

 

(c) disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ Thomas E. Beier


Thomas E. Beier

Chief Financial Officer

March 12, 2004

EX-32.1 11 dex321.htm SECTION 906 CEO CERTIFICATION Section 906 CEO Certification

EXHIBIT 32.1

 

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the annual report on Form 10-K of IVAX Corporation (the “Company”) for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Phillip Frost, M.D., Chief Executive Officer, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2. The information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company.

 

/s/ Phillip Frost, M.D.


Phillip Frost, M.D.

Chief Executive Officer

March 12, 2004

 

The foregoing certificate is provided solely for the purpose of complying with Section 906 of the Sarbanes-Oxley Act of 2002 and for no other purpose whatsoever. Notwithstanding anything to the contrary set forth herein or in any of the Company’s previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate the Company’s future filings, including this annual report on Form 10-K, in whole or in part, this certificate shall not be incorporated by reference into any such filings. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 12 dex322.htm SECTION 906 CFO CERTIFICATION Section 906 CFO Certification

EXHIBIT 32.2

 

Certification Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the annual report on Form 10-K of IVAX Corporation (the “Company”) for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas E. Beier, Chief Financial Officer, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  2. The information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company.

 

/s/ Thomas E. Beier


Thomas E. Beier

Chief Financial Officer

March 12, 2004

 

The foregoing certificate is provided solely for the purpose of complying with Section 906 of the Sarbanes-Oxley Act of 2002 and for no other purpose whatsoever. Notwithstanding anything to the contrary set forth herein or in any of the Company’s previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate the Company’s future filings, including this annual report on Form 10-K, in whole or in part, this certificate shall not be incorporated by reference into any such filings. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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