As filed with the Securities and Exchange Commission on July 26, 2002
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Medicis Pharmaceutical Corporation
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 52-1574808
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8125 North Hayden Road
Scottsdale, Arizona 85258-2463
(602) 808-8800
(Address, including zip code, and Telephone
Number, including area code, of
Registrant's Principal Executive Office)
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Jonah Shacknai
Chairman of the Board of Directors
Chief Executive Officer
Medicis Pharmaceutical Corporation
8125 North Hayden Road
Scottsdale, Arizona 85258-2463
(602) 808-8800
(Name, Address and Telephone Number,
including Area Code, of Agent For Service)
Copies to:
Stephen E. Older, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
(212) 872-1000
Approximate date of commencement of proposed sale to the public: From time
to time as determined by the selling securityholders.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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Amount Proposed Proposed Amount of
To Be Maximum Offering Maximum Aggregate Registration
Title of Securities To Be Registered Registered Price Per Unit Offering Price Fee
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2.5% Contingent Convertible Senior Notes $400,000,000(1) 100% (2)(3) $400,000,000(2)(3) $36,800
Due 2032
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Class A common stock, par value $0.014 6,884,681(4)(5) --(4) --(4) --(6)
per share
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(1) Represents the aggregate principal amount of 2.5% Contingent
Convertible Senior Notes Due 2032 that we issued in June 2002.
(2) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(i) under the Securities Act.
(3) Exclusive of accrued interest and distributions, if any.
(4) This number represents the number of shares of Class A common stock
initially issuable upon conversion of the Notes registered hereby.
For purposes of estimating the number of shares of Class A common
stock to be included in this registration statement upon conversion
of the Notes, we calculated the number of shares of Class A common
stock issuable upon conversion of the Notes at a conversion rate of
approximately 17.2117 shares per $1,000 principal amount of the
Notes. In addition to the shares of Class A common stock set forth
in the table above, pursuant to Rule 416 under the Securities Act,
we are registering an indeterminate number of shares of Class A
common stock issuable upon conversion of the Notes in connection
with stock splits, stock dividends, recapitalizations or similar
events.
(5) Also being registered are the rights to purchase shares of Series A
Junior Participating Preference Stock, which are attached to the
shares of Class A common stock registered hereby. These rights, if
issued, will be issued for no additional consideration. Pursuant to
Rule 457(g) under the Securities Act, no additional registration fee
is required in connection with the registration of the rights.
(6) No additional consideration will be received for the Class A common
stock. Therefore, no registration fee is required pursuant to Rule
457(i) under the Securities Act.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act, or until this registration statement shall become effective
on such date as the Commission, acting pursuant to Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. The
selling securityholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission,
of which this prospectus is a part, is effective. This prospectus is not
an offer to sell these securities, nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 26, 2002
PROSPECTUS
[MEDICIS LOGO]
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$400,000,000
2.5% Contingent Convertible Senior Notes Due 2032 and
Class A Common Stock Issuable Upon Conversion of the Notes
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We sold $400,000,000 aggregate principal amount of our 2.5% Contingent
Convertible Notes Due 2032 in private transactions on June 4, 2002 and June 10,
2002. Selling securityholders may use this prospectus to resell from time to
time their Notes and shares of our Class A common stock issuable upon conversion
of the Notes, including the rights attached to our Class A common stock as
described in "Description of Capital Stock." We will not receive any of the
proceeds from the sale by the selling securityholders of the Notes or the shares
of our Class A common stock issuable upon conversion of the Notes.
The Notes are convertible, at your option, prior to the maturity date into
shares of our Class A common stock in the following circumstances:
o during any quarter commencing after June 30, 2002, if the closing sale
price of our Class A common stock over a specified number of trading days
during the previous quarter is more than 110% of the conversion price of
the Notes on the last trading day of the previous quarter;
o if we have called the Notes for redemption;
o during the five trading day period immediately following any nine
consecutive trading day period in which the trading price of the Notes per
$1,000 principal amount for each day of such period was less than 95% of
the product of the closing sale price of our Class A common stock on that
day multiplied by the number of shares of our Class A common stock
issuable upon conversion of $1,000 principal amount of the Notes; or
o upon the occurrence of specified corporate transactions.
The Notes are initially convertible at a conversion price of $58.10 per share,
which is equal to a conversion rate of approximately 17.2117 shares per $1,000
principal amount of Notes, subject to adjustment. Our Class A common stock is
listed on the New York Stock Exchange under the symbol "MRX." On July 26, 2002,
the closing sale price of our Class A common stock was $36.38 per share.
The Notes bear interest at a rate of 2.5% per annum. Interest on the Notes is
payable on June 4 and December 4 of each year, beginning on December 4, 2002. We
also will pay contingent interest at a rate equal to 0.5% per annum during any
six-month period, with the initial six-month period commencing June 4, 2007, if
the average trading price of the Notes per $1,000 principal amount for the five
trading day period ending on the third trading day immediately preceding the
first day of the applicable six-month period equals $1,200 or more.
The Notes will mature on June 4, 2032. We may redeem some or all of the Notes at
any time on or after June 11, 2007, at a redemption price, payable in cash, of
100% of the principal amount of the Notes, plus accrued and unpaid interest
(including contingent interest, if any) to the date of redemption. Holders may
require us to repurchase all or a portion of their Notes on June 4, 2007, 2012
and 2017, and upon a change in control, as defined in the indenture governing
the Notes, at 100% of the principal amount of the Notes, plus accrued and unpaid
interest (including contingent interest, if any) to the date of repurchase,
payable in cash.
The Notes issued in the private placements are eligible for trading in the
PORTAL(SM) market of the National Association of Securities Dealers, Inc. The
Notes sold using this prospectus, however, will no longer be eligible for
trading in the PORTAL market. We do not intend to list the Notes on any other
national securities exchange or automated quoting system.
Investing in the Notes and our Class A common stock issuable upon their
conversion involves certain risks. See "Risk Factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Notes or the Class A common stock
issuable upon conversion of the Notes or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2002.
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TABLE OF CONTENTS
Page
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FORWARD-LOOKING STATEMENTS.....................................................i
SUMMARY........................................................................1
RISK FACTORS...................................................................7
USE OF PROCEEDS...............................................................19
RATIOS OF EARNINGS TO FIXED CHARGES...........................................19
PRICE RANGE OF CLASS A COMMON STOCK...........................................20
DIVIDEND POLICY...............................................................20
DESCRIPTION OF NOTES..........................................................21
DESCRIPTION OF CAPITAL STOCK..................................................33
SELLING SECURITYHOLDERS.......................................................35
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS................................38
PLAN OF DISTRIBUTION..........................................................45
LEGAL MATTERS.................................................................47
EXPERTS.......................................................................47
WHERE YOU CAN FIND MORE INFORMATION...........................................47
INCORPORATION BY REFERENCE....................................................47
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In connection with this offering, no person is authorized to give any
information or to make any representations not contained or incorporated by
reference in this prospectus. If information is given or representations are
made, you may not rely on that information or representations as having been
authorized by us. This prospectus is neither an offer to sell nor a solicitation
of an offer to buy any securities other than those registered by this
prospectus, nor is it an offer to sell or a solicitation of an offer to buy
securities where an offer or solicitation would be unlawful. You may not imply
from the delivery of this prospectus, nor from any sale made under this
prospectus, that our affairs are unchanged since the date of this prospectus or
that the information contained in this prospectus is correct as of any time
after the date of this prospectus. The information in this prospectus speaks
only as of the date of this prospectus unless the information specifically
indicates that another date applies.
We are not making any representation to any purchaser of the Notes and the
shares of Class A common stock underlying the Notes regarding the legality of an
investment in the Notes and the shares of Class A common stock underlying the
Notes by such purchaser under any legal investment or similar laws or
regulations. You should not consider any information in this prospectus to be
legal, business or tax advice. You should consult your own attorney, business
advisor and tax advisor for legal, business and tax advice regarding an
investment in the Notes and the shares of Class A common stock underlying the
Notes.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain both historical and forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, or Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or
Exchange Act. All statements other than statements of historical fact are, or
may be deemed to be, forward-looking statements. These forward-looking
statements include, but are not limited to, statements regarding the following:
growth opportunities and increasing market share, earnings estimates, future
financial performance and other matters. Although we believe that the
expectations contained in these forward-looking statements are reasonable, you
cannot be assured that these expectations will prove correct.
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The words "anticipate," "believe," "estimate," "expect," "intend," "will"
and similar expressions, as they relate to us, are intended to identify
forward-looking statements. Similarly, statements that describe our objectives,
plans and goals are or may be forward-looking statements. These forward-looking
statements are not based on historical facts, but rather reflect our current
views with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should our underlying assumptions prove incorrect,
actual results may vary materially from those described in this prospectus as
anticipated, believed, estimated, expected or intended. Whether actual results
will conform with expectations and predictions is subject to a number of risks
and uncertainties, including, but not limited to, those described in "Risk
Factors."
You should carefully review all information, including the information
included in the section entitled "Risk Factors" and the financial statements and
the notes to the financial statements and related disclosures incorporated by
reference in this prospectus. We do not assume any responsibility for updating
forward-looking information contained in this prospectus.
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SUMMARY
As used in this prospectus, unless the context otherwise requires, "we,"
"us," "our" or "Medicis" refers to Medicis Pharmaceutical Corporation and its
subsidiaries. "Ascent" refers to Ascent Pediatrics, Inc. The following summary
is not complete and does not contain all of the information that may be
important to you. We encourage you to read the entire prospectus and the
documents incorporated by reference in this prospectus. Our registered
trademarks include, but are not limited to, BUPHENYL(R), DYNACIN(R), LOPROX(R),
LUSTRA(R), ORAPRED(R), OVIDE(R), PLEXION(R) and TRIAZ(R). OMNICEF(R) is a
registered trademark of Abbott Laboratories, Inc. under a license from Fujisawa
Pharmaceutical Co., Ltd. All other brand names and trademarks appearing in this
prospectus are the property of their respective holders.
Our Company
We are a leading specialty pharmaceutical company focusing primarily on
developing and marketing drugs in the U.S. for the treatment of dermatological,
pediatric and podiatric conditions. We believe that annual U.S. pharmaceutical
sales in these markets exceed $10 billion. We offer a broad range of drugs
addressing various conditions including acne, fungal infections, asthma,
rosacea, hyperpigmentation, photoaging, psoriasis, eczema, skin and
skin-structure infections, seborrheic dermatitis, head lice and cosmesis
(improvement in the texture and appearance of skin).
We currently offer 17 branded products. Our eight core brands, DYNACIN(R),
LOPROX(R), LUSTRA(R), OMNICEF(R), ORAPRED(R), OVIDE(R), PLEXION(R) and TRIAZ(R),
account for substantially all of our revenue. Most of our core brands enjoy
market leadership in the segments in which they compete. Because of the
significance of these brands to our business, we concentrate our sales and
marketing efforts in promoting them to physicians in our target markets. We also
sell a number of other products, all of which are profitable, but which are
considered less critical to our business.
Our dedicated sales force, consisting of approximately 170 employees,
focuses on high prescribing dermatologists, pediatricians and podiatrists. Since
a relatively small number of physicians is responsible for writing a majority of
prescriptions, we believe that the size of our sales force is appropriate to
reach our target physicians. Our dermatology sales force consists of
approximately 95 employees who regularly call on approximately 4,500
dermatologists and 2,500 podiatrists. Our pediatric sales force, which became
part of Medicis following the merger with Ascent, consists of approximately 75
employees who call on approximately 12,000 pediatricians.
We have built our business by executing a four-part growth strategy. This
strategy consists of growing existing core brands, developing new products and
important product line extensions, entering into strategic collaborations and
acquiring complementary products, technologies and businesses.
During the past five years, we have consummated a number of strategic
mergers and acquisitions. In November 2001, we expanded into the pediatric
market through our merger with Ascent. Ascent markets products to U.S.-based
pediatricians, including an oral treatment for children with asthma and other
inflammatory respiratory conditions. Since the merger, this sales force has
introduced three of our core dermatological brands to high prescribing
pediatricians.
Over the five-year period ended June 30, 2001, we grew net revenues and
net income, absent a special charge associated with a research and development
payment in fiscal 2001, at compound annual growth rates of 42.1% and 31.5%,
respectively. For the nine months ended March 31, 2002, we achieved gross
margins of 83.2% and operating margins of 35.0% (39.0% excluding a special
research and development charge associated with the Ascent merger). During this
nine-month period we generated $53.4 million in cash flow from operations.
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Our principal executive offices are currently located at 8125 North Hayden
Road, Scottsdale, Arizona 85258-2463, and our telephone number is (602)
808-8800. Although we maintain a website at www.medicis.com, we do not intend
that the information available through our website be incorporated into this
prospectus.
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The Offering
Issuer.................... Medicis Pharmaceutical Corporation.
Notes Offered............. $400,000,000 aggregate principal amount of 2.5%
Contingent Convertible Senior Notes Due 2032.
Maturity.................. June 4, 2032.
Ranking................... The Notes are our senior unsecured obligations.
The Notes rank senior in right of payment to all
of our existing and future subordinated
indebtedness and rank equal in right of payment
to all of our existing and future senior
unsecured liabilities.
We are not restricted by the Notes from incurring
additional indebtedness, and we and our
subsidiaries have significant ability to incur
liens.
Interest Payment Dates.... June 4 and December 4, beginning December 4, 2002.
Contingent Interest....... We will pay contingent interest during any six-month
period from June 4 to December 3 and from December 4
to June 3, with the initial six-month period
commencing June 4, 2007, if the average trading
price of the Notes per $1,000 principal amount for
the five trading day period ending on the third
trading day immediately preceding the first day of
the applicable six-month period equals $1,200 or
more. During any period when contingent interest is
payable, it will be payable at a rate equal to 0.5%
per annum.
Conversion Rights......... Holders may surrender Notes for conversion into
shares of our Class A common stock prior to the
maturity date in the following circumstances:
o during any quarter commencing after June 30,
2002, if the closing sale price of our Class A
common stock for at least 20 trading days in
the period of 30 consecutive trading days
ending on the last trading day of the quarter
preceding the quarter in which the conversion
occurs, is more than 110% of the conversion
price per share of our Class A common stock on
that 30th trading day;
o if we have called the Notes for redemption;
o during the five trading day period immediately
following any nine consecutive trading day
period in which the trading price per $1,000
principal amount of the Notes for each day of
such period was less than 95% of the product
of the closing sale price of our Class A
common stock on that day multiplied by the
number of shares of our Class A common stock
issuable upon conversion of $1,000 principal
amount of the Notes; or
o upon the occurrence of specified corporate
transactions described under "Description of
Notes--Conversion Rights."
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Holders may convert any outstanding Notes into
shares of our Class A common stock at the initial
conversion price per share of $58.10. This
represents a conversion rate of approximately
17.2117 shares of Class A common stock per $1,000
principal amount of Notes. The conversion price
may be adjusted for certain reasons, but will not
be adjusted for accrued interest. Upon conversion,
the holder will not receive any cash payment
representing accrued and unpaid interest,
including contingent interest, if any.
Optional Redemption....... We may redeem some or all of the Notes at any time
on or after June 11, 2007, at a price equal to
100% of the principal amount of the Notes, plus
accrued and unpaid interest, including contingent
interest, if any, up to but not including the date
of redemption, payable in cash.
Repurchase of Notes at the
Option of the Holder... On June 4, 2007, 2012 and 2017, you may require us
to repurchase your Notes for a purchase price,
payable in cash, equal to 100% of the principal
amount of the Notes, plus accrued and unpaid
interest, including contingent interest, if any,
up to, but not including, the date of repurchase.
See "Description of Notes--Repurchase of Notes at
the Option of the Holder."
Change in Control......... When a change in control, as that term is defined
in "Description of Notes--Right to Require
Purchase of Notes upon a Change in Control"
occurs, you will have the right to require us to
repurchase your Notes at a purchase price equal to
100% of the principal amount of the Notes, plus
accrued and unpaid interest, including contingent
interest, if any, up to, but not including, the
date of repurchase payable in cash.
Form of the Notes......... The Notes are represented by one or more Global
Notes in fully registered form, without coupons,
deposited with a custodian for, and registered in
the name of a nominee of, The Depository Trust
Company, or DTC. Beneficial interests in the
Global Notes will be shown on, and transfers of
the Global Notes will be effected only through,
records maintained by DTC and its participants.
See "Description of Notes--Book-Entry System."
Registration Rights....... We have agreed to use all reasonable efforts to
keep the shelf registration statement, of which
this prospectus forms a part, effective until the
earlier of:
o the second anniversary of the date on which
the Notes were initially issued;
o the sale pursuant to the shelf registration of
all of the Notes and any shares of our Class A
common stock issued upon conversion of the
Notes; and
o the expiration of the holding period
applicable to the Notes and the shares of
Class A common stock issuable upon conversion
of the Notes held by non-affiliates of Medicis
under Rule 144(k) of the Securities Act, or
any successor provision, subject to certain
exceptions.
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Trading................... The Notes issued in the private placements are
eligible for trading in the PORTAL market. The
Notes sold using this prospectus, however, will no
longer be eligible for trading in the PORTAL
market. We do not intend to list the Notes on any
other national securities exchange or automated
quotation system. Our Class A common stock is
traded on the New York Stock Exchange under the
symbol "MRX."
Use of Proceeds........... We will not receive any proceeds from the sale by
any selling securityholder of the Notes or our
Class A common stock issuable upon conversion of
the Notes.
Risk Factors.............. See "Risk Factors" and the other information in
this prospectus for a discussion of the factors
you should carefully consider before deciding to
invest in the Notes and our Class A common stock
issuable upon conversion of the Notes.
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Tax Summary
We intend to treat the Notes as contingent payment debt instruments for
U.S. federal income tax purposes. Based on this treatment, in general,
beneficial owners of the Notes will be required to accrue interest income on the
Notes in the manner described in this prospectus, regardless of whether the
beneficial owner uses the cash or accrual method of tax accounting. Beneficial
owners will be required, in general, to accrue interest based on the rate at
which we would issue a fixed rate nonconvertible debt instrument with terms and
conditions similar to the Notes (which we have determined to be 9.5%), rather
than at a lower rate based on the accruals of stated interest on the Notes.
Accordingly, beneficial owners of Notes will be required to include interest in
taxable income in each year in excess of the accruals of stated interest on the
Notes. Furthermore, upon a sale, purchase by us at your option, exchange,
conversion or redemption of the Notes, you will recognize gain or loss equal to
the difference between your amount realized and your adjusted tax basis in the
Notes. The amount realized by you will include, in the case of a conversion, the
fair market value of the stock you receive. Any gain on a sale, purchase by us
at your option, exchange, conversion or redemption of the Notes will be treated
as ordinary interest income. Non-U.S. Investors considering a purchase of the
Notes may be subject to significantly different rules. You should consult your
tax advisor as to the U.S. federal, state, local, foreign or other tax
consequences of acquiring, owning and disposing of the Notes. See "Certain U.S.
Federal Income Tax Considerations."
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RISK FACTORS
In considering whether to purchase the Notes and the shares of Class A
common stock issuable upon conversion of the Notes, you should carefully
consider all the information we have included or incorporated by reference in
this prospectus. In particular, you should carefully consider the risk factors
described below. The risks and uncertainties set forth below are not the only
risks and uncertainties that we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business and results of operations.
Risks Related to Our Business
We derive a majority of our prescription volume from our core branded products,
and any factor adversely affecting the prescription volume related to these
products could harm our business, financial condition and results of operations.
We derive a majority of our prescription volume from our core branded
products. We believe that the prescription volume of our core branded products
will constitute the majority of our prescription volume for the foreseeable
future. Accordingly, any factor adversely affecting our prescription volume
related to our core products, individually or collectively, could harm our
business, financial condition and results of operations. Many of our core
branded products are subject to generic competition currently or may be in the
near future. Each of our core branded products could be rendered obsolete or
uneconomical by regulatory or competitive changes. Prescription volume related
to our core branded products could also be adversely affected by other factors,
including:
o manufacturing or supply interruptions;
o the development of new competitive pharmaceuticals and technological
advances to treat the conditions addressed by our core branded
products;
o marketing or pricing actions by one or more of our competitors;
o regulatory action by the FDA and other government regulatory
agencies;
o changes in the prescribing practices of dermatologists,
pediatricians and/or podiatrists;
o restrictions on travel affecting the ability of our sales force to
market to prescribing physicians in person;
o changes in the reimbursement or substitution policies of third-party
payors or retail pharmacies;
o product liability claims; and
o the outcome of disputes relating to trademarks, patents, license
agreements and other rights.
Our operating results and financial condition may fluctuate.
Our operating results and financial condition may fluctuate from quarter
to quarter and year to year depending upon the relative timing of events or
uncertainties which may arise. The following events or occurrences, among
others, could cause fluctuations in our financial performance from period to
period:
o changes in the amount we spend to develop, acquire or license new
products, technologies or businesses;
o changes in the amount we spend to promote our products;
o delays between our expenditures to acquire new products,
technologies or businesses and the generation of revenues from those
acquired products, technologies or businesses;
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o changes in treatment practices of physicians that currently
prescribe our products;
o changes in reimbursement policies of health plans and other similar
health insurers, including changes that affect newly developed or
newly acquired products;
o increases in the cost of raw materials used to manufacture our
products;
o manufacturing and supply interruptions, including failure to comply
with manufacturing specifications;
o development of new competitive products by others;
o the mix of products that we sell during any time period;
o our responses to price competition;
o expenditures as the result of legal actions;
o market acceptance of our products;
o the impairment and write-down of goodwill or other intangible
assets;
o implementation of new or revised accounting or tax rules or
policies;
o disposition of non-core products, technologies and other rights;
o termination or expiration of, or the outcome of disputes relating
to, trademarks, patents, license agreements and other rights;
o increases in insurance rates for existing products and the cost of
insurance for new products;
o general economic and industry conditions, including changes in
interest rates affecting returns on cash balances and investments,
that affect customer demand;
o seasonality of demand for our products; and
o our level of research and development activities.
We depend upon our key personnel and our ability to attract, train and retain
employees.
Our success depends significantly on the continued individual and
collective contributions of our senior management team. We have not entered into
employment agreements with any of our key managers, with the exception of our
Chairman and Chief Executive Officer. The loss of the services of any member of
our senior management or the inability to hire and retain experienced management
personnel could harm our operating results. In addition, our future success
depends on our ability to hire, train and retain skilled employees. Competition
for these employees is intense.
We may not be able to identify and acquire products, technologies and businesses
on acceptable terms, if at all, which may constrain our growth.
Our strategy for continued growth includes the acquisition of products,
technologies and businesses. These acquisitions could involve acquiring other
pharmaceutical companies' assets, products or technologies. In addition, we may
seek to obtain licenses or other rights to develop, manufacture and distribute
products. We cannot be certain that we will be able to identify suitable
acquisition or licensing candidates or if any will be available on acceptable
terms. Other pharmaceutical companies, with greater financial, marketing and
sales resources than we have, have
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also tried to grow through similar acquisition and licensing strategies. Because
of their greater resources, our competitors may be able to offer better terms
for an acquisition or license than we can offer, or they may be able to
demonstrate a greater ability to market licensed products.
We may not be able to achieve the anticipated benefits of our recent merger with
Ascent.
In November 2001, we completed our merger with Ascent for consideration of
approximately $60.0 million in cash plus up to an additional $10.0 million per
year for each of the first five years following closing based upon reaching
certain sales threshold milestones on Ascent's products. We now market, through
the Ascent sales force, a leading pediatric product for the treatment of acute
asthma as well as other products.
We expect that the transaction will result in opportunities for economies
of scale and operating efficiencies. We will not be able to achieve the benefits
of the Ascent merger unless we are able to continue to integrate the operations
of Ascent. We cannot assure you that this will occur. In addition, the
consolidation of operations requires substantial attention from management. Any
diversion of management's attention and any difficulties encountered in the
transition and integration process could prevent us from achieving the cost
savings and other benefits anticipated to result from the Ascent transaction.
Our continued growth depends upon our ability to develop new products.
We have internally developed potential pharmaceutical compounds and
agents. We also have acquired the rights to certain potential compounds and
agents in various stages of development. We currently have a variety of new
products in various stages of research and development and are working on
possible improvements, extensions and reformulations of some existing products.
These research and development activities, as well as the clinical testing and
regulatory approval process, which must be completed before commercial
quantities of these products can be sold, will require significant commitments
of personnel and financial resources. Due to the limited financial resources
available for research and development, we cannot assure you that we will be
able to develop a product or technology in a timely manner, or at all. Delays in
the research, development, testing or approval processes will cause a
corresponding delay in revenue generation from those products. Regardless of
whether these products are ever released to the market, the expense of such
processes will have already been incurred.
We reevaluate our research and development efforts regularly to assess
whether our efforts to develop a particular product or technology are
progressing at a rate that justifies our continued expenditures. On the basis of
these reevaluations, we have abandoned in the past, and may abandon in the
future, our efforts on a particular product or technology. We cannot assure you
that any product we are researching or developing will ever be successfully
released to the market. If we fail to take a product or technology from the
development stage to market on a timely basis, we may incur significant expenses
without a near-term financial return.
We have in the past, and may in the future, supplement our internal
research and development by entering into research and development agreements
with other pharmaceutical companies. We may, upon entering into such agreements,
be required to make significant up-front payments to fund the project. We cannot
be sure, however, that we will be able to locate adequate research partners or
that supplemental research will be available on terms acceptable to us in the
future. If we are unable to enter into additional research partnership
arrangements, we may incur additional costs to continue research and development
internally or abandon certain projects. Even if we are able to enter into
collaborations, we cannot assure you that these arrangements will result in
successful product development or commercialization.
We depend on licenses from others, and any loss of such licenses could harm our
business, market share and profitability.
We have acquired the rights to manufacture, use and/or market certain
products, including certain of our core products. We also expect to continue to
obtain licenses for other products and technologies in the future. Our license
agreements generally require us to develop a market for the licensed products.
If we do not develop these markets, the licensors may be entitled to terminate
these license agreements.
9
We cannot be certain that we will fulfill all of our obligations under any
particular license agreement for any variety of reasons, including insufficient
resources to adequately develop and market a product, and lack of market
development despite our diligence and lack of product acceptance. Our failure to
fulfill our obligations could result in the loss of our rights under a license
agreement.
Our inability to continue the distribution of any particular licensed
product could harm our business, market share and profitability. Also, certain
products we license are used in connection with other products we own or
license. A loss of a license in such circumstances could materially harm our
ability to market and distribute these other products.
Our growth and acquisition strategy depends upon the successful
integration of licensed products with our existing products. Therefore, any
loss, limitation or flaw in a licensed product could impair our ability to
market and sell our products, delay new product development and introduction,
and/or harm our reputation. These problems, individually or together, could harm
our business and results of operation.
We depend on a limited number of customers, and if we lose any of them, our
business could be harmed.
Our customers include some of the nation's leading wholesale
pharmaceutical distributors, such as McKesson Corporation, AmerisourceBergen
Corporation, Cardinal Health, Inc., Quality King Distributors, and major drug
chains. During fiscal 2001, Cardinal Health, McKesson and Quality King accounted
for 22.2%, 18.0% and 10.3%, respectively, of our net revenues. The loss of any
of these customers' accounts or a reduction in their purchases could harm our
business, financial condition or results of operations. In addition, we may face
pricing pressure from our larger customers.
The distribution network for pharmaceutical products has, in recent years,
been subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market. In addition, the number
of independent drug stores and small chains has decreased as retail
consolidation has occurred. Further consolidation among, or any financial
difficulties of, distributors or retailers could result in the combination or
elimination of warehouses which may result in product returns to our company,
cause a reduction in the inventory levels of distributors and retailers, or
otherwise result in reductions in purchases of our products, any of which could
harm our business, financial condition and results of operations.
We rely on others to manufacture our products.
Currently, we outsource all of our product manufacturing needs and do not
manufacture any of our products. Typically, our manufacturing contracts are
short-term. We are dependent upon renewing agreements with our existing
manufacturers or finding replacement manufacturers to satisfy our requirements.
As a result, we cannot be certain that manufacturing sources will continue to be
available or that we can continue to outsource the manufacturing of our products
on reasonable or acceptable terms. In addition to our manufacturing agreements,
we outsource the manufacture of OVIDE(R) on a purchase order basis.
The underlying cost to us for manufacturing our products is established in
our agreements with these outside manufacturers. Because of the short-term
nature of these agreements, our expenses for manufacturing are not fixed and
could change from contract to contract. If the cost of production increases, our
gross margins could be negatively affected.
In addition, we rely on outside suppliers to provide us with an adequate
and reliable supply of our products on a timely basis. Any loss of a supplier or
any difficulties that arise in the supply chain could significantly affect our
inventories and supply of products available for sale. In some cases, we do not
have alternative sources of supply for our products. In the event our primary
suppliers are unable to fulfill our requirements for any reason, it could reduce
our sales, margins and market share, as well as harm our overall business and
financial results. If we are unable to supply sufficient amounts of our products
on a timely basis, our revenues and market share could decrease and,
correspondingly, our profitability could decrease.
10
Under several exclusive supply agreements, with certain exceptions, we
must purchase most of our product supply from specific manufacturers. If any of
these exclusive manufacturer or supplier relationships were terminated, we would
be forced to find a replacement manufacturer or supplier. The FDA requires that
all manufacturers used by pharmaceutical companies comply with the FDA's
regulations, including the current Good Manufacturing Practices, or cGMP,
regulations applicable to manufacturing processes. The cGMP validation of a new
facility and the approval of that manufacturer for a new drug product may take a
year or more before manufacture can begin at the facility. Delays in obtaining
FDA validation of a replacement manufacturing facility could cause an
interruption in the supply of our products. Although we have business
interruption insurance covering the loss of income for up to 12 months, which
may mitigate the harm to us from the interruption of the manufacturing of our
largest selling products caused by certain events, the loss of a manufacturer
could still cause a reduction in our sales, margins and market share, as well as
harm our overall business and financial results.
Our reliance on third-party manufacturers and suppliers can be disruptive to our
inventory supply.
We and the manufacturers of our products rely on suppliers of raw
materials used in the production of our products. Some of these materials are
available from only one source and others may become available from only one
source. Any disruption in the supply of raw materials or an increase in the cost
of raw materials to our manufacturers could have a significant effect on their
ability to supply us with our products.
We try to maintain inventory levels that are no greater than necessary to
meet our current projections. Any interruption in the supply of finished
products could hinder our ability to timely distribute finished products. If we
are unable to obtain adequate product supplies to satisfy our customers' orders,
we may lose those orders and our customers may cancel other orders and stock and
sell competing products. This in turn could cause a loss of our market share and
reduce our revenues.
We cannot be certain that supply interruptions will not occur or that our
inventory will always be adequate. Numerous factors could cause interruptions in
the supply of our finished products including:
o timing, scheduling and prioritization of production by our contract
manufacturers;
o labor interruptions;
o changes in our sources for manufacturing;
o the timing and delivery of domestic and international shipments;
o our failure to locate and obtain replacement manufacturers as needed
on a timely basis; and
o conditions affecting the cost and availability of raw materials.
Fluctuations in demand for our products create inventory maintenance
uncertainties.
We typically experience greater revenues and, correspondingly, greater
income during the last month of each fiscal quarter. We attempt to match our
expenditures for inventory with these historical fluctuations in demand.
However, if these demand patterns change or we experience even a short delay in
delivery of inventory, revenue could be deferred or even lost if products are
unavailable to meet peak demand. A deferral of revenue to a later period, or the
loss of revenue completely, could cause significant period to period
fluctuations in our operating results, as a significant portion of our operating
expenses are fixed in the short term. These fluctuations could result in us not
meeting earnings expectations or result in operating losses for a particular
period.
Our success depends on our ability to manage our growth.
We recently experienced a period of rapid growth from both acquisitions
and internal expansion of our operations. This growth has placed significant
demands on our human and financial resources. We must continue to improve our
operational, financial and management information controls and systems and
effectively motivate, train
11
and manage our employees to properly manage this growth. Even if these steps are
taken, we cannot be sure that our recent acquisitions will be assimilated
successfully into our business operations. If we do not manage this growth
effectively, maintain the quality of our products despite the demands on our
resources and retain key personnel, our business could be harmed.
If we are unable to protect our intellectual property and proprietary rights,
our business could suffer.
We believe that the protection of our trademarks and service marks is an
important factor in product recognition and in our ability to maintain or
increase market share. If we do not adequately protect our rights in our various
trademarks and service marks from infringement, their value to us could be lost
or diminished. If the marks we use are found to infringe upon the trademark or
service mark of another company, we could be forced to stop using those marks
and, as a result, we could lose the value of those marks and could be liable for
damages caused by an infringement.
The patents and patent applications in which we have an interest may be
challenged as to their validity or enforceability. Challenges may result in
potentially significant harm to our business. The cost of responding to these
challenges and the inherent costs to defend the validity of our patents,
including the prosecution of infringements and the related litigation, could be
substantial. Such litigation also could require a substantial commitment of our
management's time.
We are pursuing several U.S. patent applications, although we cannot be
sure that any of these patents will ever be issued. We also have acquired rights
under certain patents and patent applications in connection with our licenses to
distribute products and by assignment of rights to patents and patent
applications from certain of our consultants and officers. These patents and
patent applications may be subject to claims of rights by third parties. If
there are conflicting claims to the same patent or patent application, we may
not prevail and, even if we do have some rights in a patent or application,
those rights may not be sufficient for the marketing and distribution of
products covered by the patent or patent application.
The ownership of a patent or an interest in a patent does not always
provide significant protection. Others may independently develop similar
technologies or design around the patented aspects of our technology. We only
conduct patent searches to determine whether our products infringe upon any
existing patents when we think such searches are appropriate. As a result, the
products and technologies we currently market, and those we may market in the
future, may infringe on patents and other rights owned by others. If we are
unsuccessful in any challenge to the marketing and sale of our products or
technologies, we may be required to license the disputed rights, if the holder
of those rights is willing, or to cease marketing the challenged products, or to
modify our products to avoid infringing upon those rights. A claim or finding of
infringement regarding one of our products could harm our business, financial
condition and results of operations. The costs of responding to infringement
claims could be substantial and could require a substantial commitment of our
management's time.
The expiration of patents may expose our products to additional
competition. For example, our patent covering BUPHENYL(R) expires in 2004.
We also rely upon trade secrets, unpatented proprietary know-how and
continuing technological innovation in developing and manufacturing many of our
core products. We require all of our employees, consultants and advisors to
enter into confidentiality agreements prohibiting them from taking or disclosing
our proprietary information and technology. Nevertheless, these agreements may
not provide meaningful protection for our trade secrets and proprietary know-how
if they are used or disclosed. Despite all of the precautions we may take,
people who are not parties to confidentiality agreements may obtain access to
our trade secrets or know-how. In addition, others may independently develop
similar or equivalent trade secrets or know-how.
If we become subject to product liability claims, our earnings and financial
condition could suffer.
We are exposed to risks of product liability claims from allegations that
our products resulted in adverse effects to the patient or others. These risks
exist even with respect to those products that are approved for commercial sale
by the FDA and manufactured in facilities licensed and regulated by the FDA.
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In addition to our desire to reduce the scope of our potential exposure to
these types of claims, many of our customers require us to maintain product
liability insurance as a condition of conducting business with us. We currently
carry product liability insurance in the amount of $50.0 million per claim and
$50.0 million in the aggregate on a claims-made basis. Nevertheless, this
insurance may not be sufficient to cover all claims made against us. We also
cannot be certain that our current coverage will continue to be available in the
future on reasonable terms, if at all. If we are liable for any product
liability claims in excess of our coverage or outside of our coverage, the cost
and expense of such liability could cause our earnings and financial condition
to suffer.
We selectively outsource certain non-sales and non-marketing services, and
cannot assure you that we will be able to obtain adequate supplies of such
services on acceptable terms.
To enable us to focus on our core marketing and sales activities, we
selectively outsource certain non-sales and non-marketing functions, such as
laboratory research, manufacturing and warehousing. As we expand our activities
in these areas, additional financial resources are expected to be utilized. We
typically do not enter into long-term manufacturing contracts with third party
manufacturers. Whether or not such contracts exist, we cannot assure you that we
will be able to obtain adequate supplies of such services or products in a
timely fashion, on acceptable terms, or at all.
Risks Related to Our Industry
The growth of managed care organizations, other third party reimbursement
policies, state regulatory agencies and retailer fulfillment policies may harm
our pricing, which may reduce our market share and margins.
Our operating results and business success depend in large part on the
availability of adequate third party payor reimbursement to patients for our
prescription-brand products. These third party payors include government
entities such as Medicaid, private health insurers and managed care
organizations. Because of the size of the patient population covered by managed
care organizations, marketing of prescription drugs to them and the pharmacy
benefit managers that serve many of these organizations has become important to
our business.
Managed care organizations and other third party payors try to negotiate
the pricing of medical services and products to control their costs. Managed
care organizations and pharmacy benefit managers typically develop formularies
to reduce their cost for medications. Formularies can be based on the prices and
therapeutic benefits of the available products. Due to their lower costs,
generic products are often favored. The breadth of the products covered by
formularies varies considerably from one managed care organization to another,
and many formularies include alternative and competitive products for treatment
of particular medical conditions. Exclusion of a product from a formulary can
lead to its sharply reduced usage in the managed care organization patient
population. Payment or reimbursement of only a portion of the cost of our
prescription products could make our products less attractive, from a net-cost
perspective, to patients, suppliers and prescribing physicians. We cannot be
certain that the reimbursement policies of these entities will be adequate for
our branded pharmaceutical products to compete on a price basis. If our products
are not included within an adequate number of formularies or adequate
reimbursement levels are not provided, or if those policies increasingly favor
generic products, our market share and gross margins could be harmed, as could
our overall business and financial condition.
Some of our products are not of a type generally eligible for
reimbursement. It is possible that products manufactured by others could address
the same effects as our products and be subject to reimbursement. If this were
the case, some of our products may be unable to compete on a price basis. In
addition, decisions by state regulatory agencies, including state pharmacy
boards, and/or retail pharmacies may require substitution of generic for branded
products, may prefer competitors' products over our own, and may impair our
pricing and thereby constrain our market share and growth.
Managed care initiatives to control costs have influenced primary-care
physicians to refer fewer patients to dermatologists and other specialists.
Further reductions in these referrals could reduce the size of our potential
market, and harm our business, financial condition and results of operation.
13
Obtaining FDA and other regulatory approvals is time consuming and expensive.
The process of obtaining FDA and other regulatory approvals is time
consuming and expensive. Clinical trials are required and the marketing and
manufacturing of pharmaceutical products are subject to rigorous testing
procedures. We may not be able to obtain FDA approval to conduct clinical trials
or to manufacture and market any of the products we develop, acquire or license.
Moreover, the costs to obtain approvals could be considerable and the failure to
obtain or delays in obtaining an approval could significantly harm our business
performance and financial results. Even if pre-marketing approval from the FDA
is received, the FDA is authorized to impose post-marketing requirements such
as:
o testing and surveillance to monitor the product and its continued
compliance with regulatory requirements;
o submitting products for inspection and, if any inspection reveals
that the product is not in compliance, prohibiting the sale of all
products from the same lot;
o suspending manufacturing;
o switching status from prescription to over-the-counter drug;
o recalling products; and
o withdrawing marketing clearance.
In their regulation of advertising, the FDA and FTC from time to time
issue correspondence to pharmaceutical companies alleging that some advertising
or promotional practices are false, misleading or deceptive. The FDA has the
power to impose a wide array of sanctions on companies for such advertising
practices, and the receipt of correspondence from the FDA alleging these
practices could result in the following:
o incurring substantial expenses, including fines, penalties, legal
fees and costs to comply with the FDA's requirements;
o changes in the methods of marketing and selling products;
o taking FDA-mandated corrective action, which may include placing
advertisements or sending letters to physicians rescinding previous
advertisements or promotion; and
o disruption in the distribution of products and loss of sales until
compliance with the FDA's position is obtained.
We are subject to extensive governmental regulation.
Pharmaceutical companies are subject to significant regulation by a number
of national, state and local agencies. The FDA has jurisdiction over all of our
business and administers requirements covering testing, manufacturing, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our products. In addition, the FTC and state and local authorities
regulate the advertising of over-the-counter drugs and cosmetics. Failure to
comply with applicable regulatory requirements could, among other things, result
in:
o fines;
o changes to advertising;
o suspensions of regulatory approvals of products;
o product recalls;
14
o delays in product distribution, marketing and sale; and
o civil or criminal sanctions.
Our prescription and over-the-counter products receive FDA review
regarding their safety and effectiveness. However, the FDA is permitted to
revisit and change its prior determinations. We cannot be sure that the FDA will
not change its position with regard to the safety or effectiveness of our
products. If the FDA's position changes, we may be required to change our
labeling or formulations, or cease to manufacture and market the challenged
products. Even prior to any formal regulatory action, we could voluntarily
decide to cease distribution and sale or recall any of our products if concerns
about the safety or effectiveness develop.
Before marketing any drug that is considered a "new drug" by the FDA, the
FDA must provide its pre-marketing approval of the product. All products which
are considered drugs which are not "new drugs" and that generally are recognized
by the FDA as safe and effective for use do not require the FDA's premarketing
approval. We believe that some of our products, as they are promoted and
intended for use, are exempt from treatment as "new drugs" and are not subject
to premarketing approval by the FDA. The FDA, however, could take a contrary
position and we could be required to seek FDA approval of those products and the
marketing of those products. We could also be required to withdraw those
products from the market.
In recent years, various legislative proposals have been offered in
Congress and in some state legislatures that include major changes in the health
care system. These proposals have included price or patient reimbursement
constraints on medicines, restrictions on access to certain products and
mandatory substitution of generic for branded products. We cannot predict the
outcome of such initiatives, and it is difficult to predict the future impact of
the broad and expanding legislative and regulatory requirements affecting us.
We face significant competition within our industry.
The pharmaceutical industry is highly competitive. Competition in our
industry occurs on a variety of fronts, including:
o developing and bringing new products to market before others;
o developing new technologies to improve existing products;
o developing new products to provide the same benefits as existing
products at less cost; and
o developing new products to provide benefits superior to those of
existing products.
Many of our competitors are large, well-established companies in the
fields of pharmaceuticals, chemicals, cosmetics and health care. Our competitors
include Aventis, Bristol-Myers Squibb, Elan, Galderma, GlaxoSmithKline, ICN
Pharmaceuticals, Johnson & Johnson, Pfizer, Pharmacia, Schering-Plough, Wyeth
and others. Many of these companies have greater resources than we do to devote
to marketing, sales, research and development and acquisitions. As a result,
they have a greater ability to undertake more extensive research and
development, marketing and pricing policy programs. It is possible that our
competitors may develop new or improved products to treat the same conditions as
our products or make technological advances reducing their cost of production so
that they may engage in price competition through aggressive pricing policies to
secure a greater market share to our detriment. These competitors also may
develop products which make our current or future products obsolete. Any of
these events could significantly harm our business and financial results,
including reducing our market share and gross margins.
We sell and distribute both prescription brands and over-the-counter
products. Each of these products competes with products produced by others to
treat the same conditions. Several of our prescription products compete with
generic pharmaceuticals, which claim to offer equivalent benefit at a lower
cost. In some cases, insurers and other health care payment organizations try to
encourage the use of these less expensive generic brands through their
prescription benefits coverages and reimbursement policies. These organizations
may make the generic alternative
15
more attractive to the patient by providing different amounts of reimbursement
so that the net cost of the generic product to the patient is less than the net
cost of our prescription brand product. Aggressive pricing policies by our
generic product competitors and the prescription benefits policies of third
party payors could cause us to lose market share or force us to reduce our gross
margins in response.
Risks Related to the Notes
We may not be able to repurchase the Notes when required to.
On June 4, 2007, 2012 and 2017 and upon the occurrence of a change in
control, holders of the Notes may require us to offer to repurchase their Notes
for cash. We may not have sufficient funds at the time of any such events to
make the required repurchases.
The source of funds for any repurchase required as a result of any such
events will be our available cash or cash generated from operating activities or
other sources, including borrowings, sales of assets, sales of equity or funds
provided by a new controlling entity. We cannot assure you, however, that
sufficient funds will be available at the time of any such events to make any
required repurchases of the Notes tendered. Furthermore, the use of available
cash to fund the repurchase of the Notes may impair our ability to obtain
additional financing in the future.
Our reported earnings per share may be more volatile because of the conversion
contingency provision of the Notes.
Holders of the Notes may convert the Notes into our Class A common stock
during any quarter commencing after June 30, 2002, if the closing sale price of
our Class A common stock for at least 20 trading days in the period of 30
consecutive trading days ending on the last trading day of the quarter preceding
the quarter in which the conversion occurs is more than 110% of the conversion
price per share of our Class A common stock on that 30th trading day. Until this
contingency is met, the shares underlying the Notes are not included in the
calculation of basic or fully diluted earnings per share. Should this
contingency be met, earnings per share would be expected to decrease as a result
of the inclusion of the underlying shares in the earnings per share calculation.
Volatility in our stock price could cause this condition to be met in one
quarter and not in a subsequent quarter, increasing the volatility of fully
diluted earnings per share.
You should consider the U.S. federal income tax consequences of owning Notes.
We intend to treat the Notes as contingent payment debt instruments for
U.S. federal income tax purposes. As a result of such treatment, if you are a
U.S. investor who is a holder of Notes, you will be required to include amounts
in income, as ordinary income, in advance of the receipt of the cash or other
property attributable thereto. The amount of interest income required to be
included by you for each year will be in excess of the stated interest (and
contingent interest, if any) that accrues on the Notes. You will recognize gain
or loss on the sale, purchase by us at your option, exchange, conversion or
redemption of a Note in an amount equal to the difference between the amount
realized on the sale, purchase by us at your option, exchange, conversion or
redemption, including the fair market value of any of our Class A common stock
received upon conversion, and your adjusted tax basis in the Note. Any gain
recognized by you on the sale, purchase by us at your option, exchange,
conversion or redemption of a Note generally will be ordinary interest income;
any loss will be ordinary loss to the extent of the interest previously included
in income, and thereafter, capital loss. Non-U.S. persons are urged to consult
their tax advisors regarding a prospective purchase of the Notes. Certain U.S.
federal income tax consequences of ownership of the Notes are summarized in this
prospectus under the heading "Certain U.S. Federal Income Tax Considerations."
We expect that the trading value of the Notes will be significantly affected by
the price of our Class A common stock and other factors.
The market price of the Notes is expected to be significantly affected by
the market price of our Class A common stock. This may result in greater
volatility in the trading value of the Notes than would be expected for
nonconvertible debt securities. In addition, the Notes have a number of
features, including conditions to conversion, which, if not met, could result in
a holder receiving less than the value of our Class A common stock into which a
16
Note would otherwise be convertible. These features could adversely affect the
value and the trading prices for the Notes.
Because there is no current market for the Notes, we cannot assure you that an
active trading market will develop.
There is no established trading market for the Notes. Although the Notes
sold to qualified institutional buyers under Rule 144A are eligible for trading
in the PORTAL market, the Notes resold pursuant to this prospectus will no
longer trade in the PORTAL market. As a result there may be a limited market for
the Notes. We do not intend to apply for listing of the Notes on any securities
exchange or for inclusion of the Notes in any automated quotation system.
Accordingly, we cannot predict whether an active trading market for the Notes,
following their registration, will develop or be sustained. If an active market
for the Notes fails to develop or to be sustained, the trading price of the
Notes could fall. Moreover, the Notes could trade at prices that may be lower
than their initial offering price. In addition, the market price for the Notes
may be adversely affected by changes in our financial performance, changes in
the overall market for similar securities and changes in performance or
prospects for companies in our industry.
Risks Related to Our Class A Common Stock
The price of our Class A common stock has fluctuated significantly during the
past several years and may fluctuate significantly in the future, which may make
it difficult for you to resell the Notes or the shares of our Class A common
stock into which the Notes may be converted at prices you find attractive.
Our Class A common stock is traded on the New York Stock Exchange and has
experienced and may continue to experience significant price and volume
fluctuations that could adversely affect the market price of our Class A common
stock without regard to our operating performance. In addition, we believe that
factors such as quarterly fluctuations in financial results, earnings below
analysts' estimates and financial performance and other activities of other
publicly traded companies in the pharmaceutical and dermatological product
industries could cause the price of our Class A common stock to fluctuate
substantially. The price of the Notes may be affected by changes in the price of
our Class A common stock. Any similar fluctuations in the future could adversely
affect the market price of our Class A common stock. See "Price Range of Class A
Common Stock."
Future sales of our common stock could adversely affect our Class A common stock
price.
As of July 10, 2002, an aggregate of 5,564,483 shares of our Class A
common stock were issuable upon exercise of outstanding stock options under our
stock option plans, and an additional 4,140,132 shares of our Class A common
stock were reserved for the issuance of additional options and shares under
these plans. On July 11, 2002, the Board of Directors approved the Medicis 2002
Stock Option Plan, under which up to 3,000,000 of the foregoing 4,140,132 shares
of our Class A common stock will be issuable. The 2002 Stock Option Plan
excludes officers and directors.
Future sales of our Class A common stock and instruments convertible or
exchangeable into our common stock and transactions involving equity derivatives
relating to our common stock, or the perception that such sales or transactions
could occur, could adversely affect the market price of our common stock. This
could, in turn, have an adverse effect on the trading price of the Notes
resulting from, among other things, a delay in the ability of holders to convert
their Notes into our Class A common stock.
Our charter provisions, rights plan, stock option vesting, employment agreement
and Delaware law may have anti-takeover effects.
Our certificate of incorporation and bylaws authorize the board of
directors to designate and issue, without stockholder approval, preferred stock
with voting, conversion and other rights and preferences that could
differentially and adversely affect the voting power or other rights of the
holders of our common stock. The issuance of preferred stock or of rights to
purchase preferred stock could be used to discourage an unsolicited acquisition
proposal. Moreover, we have granted a dividend of one preference stock purchase
right on each outstanding share of our Class A common stock and Class B common
stock. Under certain circumstances, after a person has acquired
17
beneficial ownership of a certain percentage of our common stock, each right
will entitle the holder to purchase, at the right's then-current exercise price,
stock of our company or our successor at a discount. In addition, certain
provisions of Delaware law applicable to our company and certain provisions of
our certificate of incorporation and bylaws could also delay or make more
difficult a merger, tender offer or proxy contest involving our company,
including Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years unless certain conditions are
met. Our senior management is entitled to certain payments upon a change in
control. All of our stock option plans provide for the acceleration of vesting
in the event of a change in control in our company.
The possible issuance of preferred stock, the rights granted to
stockholders under our rights plan, Delaware law, provisions of our certificate
of incorporation and bylaws and our stock option plans and change of control
payments could each have the effect of delaying, deferring or preventing a
change in control of our company, including, without limitation, discouraging a
proxy contest, making more difficult the acquisition of a substantial block of
our common stock and limiting the price that investors might in the future be
willing to pay for shares of our common stock. Under certain circumstances, our
obligations in a change of control may require us to make payments that would
constitute excess parachute payments under the Internal Revenue Code of 1986, as
amended. In the event that we were required to make payments constituting excess
parachute payments, these payments would not be tax deductible for us. See
"Description of Capital Stock."
18
USE OF PROCEEDS
We will not receive any proceeds from the sale by any selling stockholder
of the Notes or our Class A common stock issuable upon conversion of the Notes.
RATIOS OF EARNINGS TO FIXED CHARGES
We have presented in the table below our historical consolidated ratio of
earnings to fixed charges for the periods shown.
Nine Months
Fiscal Year Ended June 30, Ended
------------------------------------------- March 31,
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- -----------
Ratios of earnings to fixed charges 53.5x 5.3x 26.9x 21.0x 22.2x 41.4x
For purposes of computing the ratios of earnings to fixed charges,
earnings represent pretax income from continuing operations plus fixed charges.
Fixed charges represent interest expense and the portion of rents representative
of interest related to continuing operations.
19
PRICE RANGE OF CLASS A COMMON STOCK
Our Class A common stock trades on the New York Stock Exchange under the
symbol "MRX." The following table sets forth, for the periods indicated, the
high and low sale prices per share for our Class A common stock as reported on
the New York Stock Exchange. On July 26, 2002, the closing sale price of our
Class A common stock as reported on the New York Stock Exchange was $36.38, per
share.
High Low
-------- --------
Fiscal Year 2000
First Quarter............................ $ 32.88 $ 20.25
Second Quarter........................... 43.75 22.75
Third Quarter............................ 51.94 35.25
Fourth Quarter........................... 64.75 34.25
Fiscal Year 2001
First Quarter............................ $ 67.75 $ 50.13
Second Quarter........................... 76.00 45.63
Third Quarter............................ 62.75 31.00
Fourth Quarter........................... 58.35 42.75
Fiscal Year 2002
First Quarter............................ $ 54.95 $ 41.80
Second Quarter........................... 64.60 48.60
Third Quarter............................ 64.59 52.40
Fourth Quarter........................... 55.75 40.27
Fiscal Year 2003
First Quarter (through July 26, 2002).... $ 42.70 $ 33.85
DIVIDEND POLICY
We have never declared or paid a cash dividend. We intend to retain any
earnings to fund future growth and the operation of our business and,
accordingly, do not anticipate paying any cash dividends in the foreseeable
future.
20
DESCRIPTION OF NOTES
The Notes were issued under an indenture between Medicis Pharmaceutical
Corporation and Deutsche Bank Trust Company Americas, as trustee, dated as of
June 4, 2002. The following description is only a summary of the material
provisions of the Notes, the related Indenture and the registration rights
agreement. We urge you to read the Indenture, the Notes and the registration
rights agreement in their entirety because they, and not this description,
define your rights as holders of the Notes. You may request copies of these
documents at our address shown under the caption "Incorporation by Reference."
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended.
For purposes of this section, references to "we," "us," "our" and "Medicis"
include only Medicis Pharmaceutical Corporation and not its subsidiaries.
General
The Notes have been issued in an aggregate principal amount of
$400,000,000. The Notes are our unsecured senior obligations and will mature on
June 4, 2032, unless earlier redeemed at our option as described under
"--Optional Redemption of the Notes," repurchased by us at a holder's option on
certain dates as described under "--Repurchase of Notes at the Option of the
Holder" or repurchased by us at a holder's option upon a change in control of
Medicis as described under "--Right to Require Purchase of Notes upon a Change
in Control." The Notes are convertible into shares of our Class A common stock
as described under "--Conversion Rights."
Interest on the Notes accrues at an interest rate of 2.5% per annum and is
payable semiannually in arrears on June 4 and December 4 of each year,
commencing on December 4, 2002. Interest on the Notes has accrued from June 4,
2002 or, if interest has already been paid, from the date it was most recently
paid. We will make each interest payment to the holders of record of the Notes
on the immediately preceding May 19 and November 19, whether or not this day is
a business day. Interest payable upon redemption will be paid to the person to
whom principal is payable. Interest on the Notes will be computed on the basis
of a 360-day year comprised of twelve 30-day months. We will pay the principal
of, and interest (including contingent interest, if any) on, the Notes at the
office or agency maintained by us in the Borough of Manhattan in New York City.
Holders may register the transfer of their Notes at the same location. We
reserve the right to pay interest to holders of the Notes by check mailed to the
holders at their registered addresses. However, a holder of Notes with an
aggregate principal amount in excess of $1,000,000 will be paid by wire transfer
in immediately available funds. Except under the limited circumstances described
below, the Notes will be issued only in fully registered book-entry form,
without coupons, and will be represented by one or more Global Notes. There will
be no service charge for any registration of transfer or exchange of Notes. We
may, however, require holders to pay a sum sufficient to cover any tax or other
governmental charge payable in connection with any transfer or exchange.
The Indenture does not contain any restriction on the payment of
dividends, the incurrence of indebtedness or the repurchase of our securities,
and does not contain any financial covenants. Other than as described under
"--Right to Require Purchase of Notes upon a Change in Control," the Indenture
contains no covenants or other provisions that afford protection to holders of
Notes in the event of a highly leveraged transaction.
Contingent Interest
We will pay contingent interest during any six-month period, from June 4
to December 3 and from December 4 to June 3, with the initial six-month period
commencing June 4, 2007, if the average trading price of the Notes per $1,000
principal amount for the five trading day period ending on the third trading day
immediately preceding the first day of the applicable six-month period equals
$1,200 or more. The average trading price of the Notes shall be determined no
later than the second trading day immediately preceding the first day of the
applicable six-month period by the conversion agent acting as calculation agent
in the manner set forth in the definition of "trading price" under "--Conversion
Rights; Conversion Upon Satisfaction of Trading Price Condition." During any
period when contingent interest is payable, it will be payable at a rate equal
to 0.5% per annum. We will pay contingent interest, if any, in the same manner
as we will pay interest as described above under "--General."
21
Conversion Rights
A holder may convert any outstanding Notes into shares of our Class A
common stock at an initial conversion price per share of $58.10. This represents
a conversion rate of approximately 17.2117 shares per $1,000 principal amount at
maturity of the Notes. The conversion price (and resulting conversion rate) is,
however, subject to adjustment as described below. A holder may convert Notes
only in denominations of $1,000 and integral multiples of $1,000.
General
Holders may surrender Notes for conversion into shares of our Class A
common stock prior to the maturity date in the following circumstances:
o during any quarter commencing after June 30, 2002, if the closing
sale price per share of our Class A common stock for at least 20
trading days in the period of 30 consecutive trading days ending on
the last trading day of the quarter preceding the quarter in which
the conversion occurs is more than 110% of the conversion price per
share on that 30th trading day;
o if we have called the Notes for redemption;
o during the five trading day period immediately following any nine
consecutive trading day period in which the trading price per $1,000
principal amount of the Notes for each day of such period was less
than 95% of the product of the closing sale price per share of our
Class A common stock on that day multiplied by the number of shares
issuable upon conversion of $1,000 principal amount of the Notes; or
o upon the occurrence of specified corporate transactions.
Conversion Upon Satisfaction of Market Price Condition
A holder may surrender any of its Notes for conversion into shares of our
Class A common stock during any quarter commencing after June 30, 2002 if the
closing sale price of our Class A common stock for at least 20 trading days in
the period of 30 consecutive trading days ending on the last trading day of the
preceding quarter, exceeds 110% of the conversion price per share on that 30th
trading day. The conversion agent, which will initially be the trustee, will
determine on our behalf at the end of each quarter whether the Notes are
convertible as a result of the market price of our Class A common stock.
Conversion Upon Notice of Redemption
A holder may surrender for conversion any Note called for redemption at
any time prior to the close of business on the day that is two business days
prior to the redemption date, even if the Notes are not otherwise convertible at
such time.
Conversion Upon Satisfaction of Trading Price Condition
A holder may surrender any of its Notes for conversion into shares of
Class A common stock during the five trading day period immediately following
any nine consecutive trading day period in which the trading price per $1,000
principal amount of the Notes (as determined following a request by a holder of
the Notes in accordance with the procedures described below) for each day of
such period was less than 95% of the product of the closing sale price per share
of our Class A common stock on that day multiplied by the number of shares
issuable upon conversion of $1,000 principal amount of the Notes; provided,
however, that if, on the date of any conversion pursuant to this 95% price
condition, the closing sale price per share of our Class A common stock is
greater than the conversion price, then a holder surrendering Notes for such
conversion will receive, in lieu of a number of shares of our Class A common
stock based on the conversion price, cash or Class A common stock or a
combination of both, at our option, with a value equal to the principal amount
of such holder's Notes so surrendered as of the conversion date (which we refer
to as a principal value conversion). If a holder surrenders its Notes for such
22
conversion, we will notify such holder by the second trading day following the
date of conversion whether we will pay such holder in cash, our Class A common
stock or a combination of cash and our Class A common stock, and in what
percentage. Any shares of our Class A common stock delivered will be valued at
the greater of (x) the conversion price on the conversion date and (y) the
closing sale price of our Class A common stock on the third trading day after
the conversion date. We will pay such holder any portion of the principal amount
of such holder's Notes so surrendered to be paid in cash on the third trading
day after the conversion date. With respect to any portion of the sum of the
principal amount of such holder's Notes so surrendered to be paid in shares of
our Class A common stock, we will deliver the shares to such holder on the
fourth trading day following the conversion date.
The "trading price" of the Notes on any date of determination means the
average of the secondary market bid quotations per $1,000 principal amount of
Notes obtained by the conversion agent for $5,000,000 principal amount of the
Notes at approximately 3:30 p.m., New York City time, on such determination date
from three independent nationally recognized securities dealers we select,
provided that if at least three such bids cannot reasonably be obtained by the
conversion agent, but two such bids are obtained, then the average of the two
bids shall be used, and if only one such bid can reasonably be obtained by the
conversion agent, this one bid shall be used. If the conversion agent cannot
reasonably obtain at least one bid for $5,000,000 principal amount of the Notes
from a nationally recognized securities dealer or, in our reasonable judgment,
the bid quotations are not indicative of the secondary market value of the
Notes, then the trading price of the Notes will be determined in good faith by
the conversion agent acting as calculation agent taking into account in such
determination such factors as it, in its sole discretion after consultation with
us, deems appropriate. Other than in connection with a determination of whether
contingent interest shall be payable, the conversion agent shall have no
obligation to determine the trading price of the Notes unless we have requested
such determination; and we shall have no obligation to make such request unless
a holder provides us with reasonable evidence that the trading price of the
Notes is less than 95% of the product of the closing sale price of our Class A
common stock and the number of shares issuable upon conversion of $1,000
principal amount of the Notes; at which time, we shall instruct the conversion
agent to determine the trading price of the Notes beginning on the next trading
day and on each successive trading day until the trading price is greater than
or equal to 95% of the product of the closing sale price of our Class A common
stock and the number of shares of our Class A common stock issuable upon
conversion of $1,000 principal amount of the Notes.
Conversion Upon Specified Corporate Transactions
If we elect to:
o distribute to all holders of our Class A common stock rights,
warrants or options entitling them to subscribe for or purchase, for
a period expiring within 60 days of the date of distribution, shares
of our common stock at less than the then current market price; or
o distribute to all holders of shares of our Class A common stock any
assets, debt securities or certain rights to purchase our
securities, which distribution has a per share value exceeding 10%
of the closing price of our Class A common stock on the day
preceding the declaration date for such distribution,
we must notify the holders of Notes at least 20 days prior to the ex-dividend
date for such distribution. Once we have given such notice, holders may
surrender their Notes for conversion until the earlier of the close of business
on the business day prior to the ex-dividend date or our announcement that such
distribution will not take place. This provision shall not apply if the holder
of a Note otherwise participates in the distribution without conversion.
In addition, if we are a party to a consolidation, merger, share exchange,
sale of all or substantially all of our assets or other similar transaction, in
each case pursuant to which the shares of our Class A common stock would be
converted into cash, securities or other property, a holder may surrender its
Notes for conversion at any time from and after the date which is 15 days prior
to the anticipated effective date of such transaction until and including the
date which is 15 days after the actual date of such transaction. If we are a
party to a consolidation, merger, share exchange, sale of all or substantially
all of our assets or other similar transaction, in each case pursuant to which
the shares of our Class A common stock are converted into cash, securities, or
other property, then at the effective time of the transaction, a holder's right
to convert its Notes into shares of our Class A common stock will be changed
into a right to convert such Notes into the kind and amount of cash, securities
and other property which such holder
23
would have received if such holder had converted such Notes immediately prior to
the transaction. If the transaction also constitutes a change in control, such
holder can require us to repurchase all or a portion of its Notes as described
under "--Right to Require Purchase of Notes upon a Change in Control."
If a holder of a Note has delivered notice of its election to have such
Note repurchased at the option of such holder or as a result of a change in
control, such Note may be converted only if the notice of election is withdrawn
as described, respectively, under "--Repurchase of Notes at the Option of the
Holder" or "--Right to Require Purchase of Notes upon a Change in Control."
We will adjust the conversion price if (without duplication):
(1) we issue to all holders of shares of our Class A common stock or
other capital stock as a dividend or distribution on our common
stock;
(2) we subdivide, combine or reclassify our common stock;
(3) we issue to all holders of our Class A common stock rights, warrants
or options entitling them to subscribe for or purchase shares of our
common stock at less than the then current market price;
(4) we distribute to all holders of our Class A common stock evidences
of our indebtedness, shares of capital stock (other than shares of
our common stock), securities, cash, property, rights, warrants or
options, excluding:
o those rights, warrants or options referred to in clause (3)
above;
o any dividend or distribution paid exclusively in cash not
referred to below; and
o any dividend or distribution referred to in clause (1) above;
(5) we make a cash distribution to all holders of shares of our Class A
common stock that together with all other all-cash distributions and
consideration payable in respect of any tender or exchange offer by
us or one of our subsidiaries for shares made within the preceding
12 months exceeds 5% of our aggregate market capitalization on the
date of the declaration of the distribution;
(6) during any twelve-month period we complete a repurchase (including
by way of a tender offer, but excluding shares purchased by us in
connection with this offering) of shares of our common stock which
involves an aggregate consideration that, together with:
o any cash and other consideration payable in respect of any
tender or exchange offer by us or one of our subsidiaries for
shares of our common stock concluded within the preceding 12
months; and
o the amount of any all-cash distributions to all holders of our
common stock made within the preceding 12 months;
exceeds 5% of our aggregate market capitalization on the expiration of the
tender or exchange offer; or
(7) someone other than Medicis or one of our subsidiaries makes a
payment in respect of a tender offer or exchange offer in which, as
of the closing date of the offer, Medicis' board of directors is not
recommending rejection of the offer. The adjustment referred to in
this clause will only be made if:
o the tender offer or exchange offer is for an amount that
increases the offeror's ownership of common stock to more than
25% of the total shares of Medicis common stock outstanding;
and
24
o the cash and value of any other consideration included in the
payment per share of common stock exceeds the current market
price per share of common stock on the business day next
succeeding the last date on which tenders or exchanges may be
made pursuant to the tender or exchange offer.
However, the adjustment referred to in this clause (7) will not be made if
as of the closing of the offer, the offering documents disclose a plan or
an intention to cause Medicis to engage in a consolidation or merger of
Medicis or a sale of all or substantially all of Medicis' assets.
For purposes of the foregoing, the term "market capitalization" as of any
date of calculation means the closing sale price of our Class A common stock on
the trading day immediately prior to such date of calculation multiplied by the
aggregate number of shares of our Class A common stock and Class B common stock
outstanding on the trading day immediately prior to such date of calculation.
If the rights provided for in our rights agreement dated as of August 17,
1995, as amended, have separated from our Class A common stock in accordance
with the provisions of the rights agreement so that the holders of the Notes
would not be entitled to receive any rights in respect of our Class A common
stock issuable upon conversion of the Notes, the conversion price will be
adjusted as provided in clause (4) above, subject to readjustment in the event
of the expiration, termination or redemption of the rights. In lieu of any such
adjustment, we may amend our rights agreement to provide that upon conversion of
the Notes the holders will receive, in addition to our Class A common stock
issuable upon such conversion, the rights which would have attached to such
shares of our Class A common stock if the rights had not become separated from
our Class A common stock under our rights agreement. See "Description of Capital
Stock--Preference Stock Purchase Rights." To the extent that we adopt any future
rights plan, upon conversion of the Notes into our Class A common stock, you
will receive, in addition to our Class A common stock, the rights under the
future rights plan whether or not the rights have separated from our Class A
common stock at the time of conversion and no adjustment to the conversion price
will be made in accordance with clause (4) above.
The conversion price will not be adjusted until adjustments amount to 1%
or more of the conversion price as last adjusted. We will carry forward any
adjustment we do not make and will include it in any future adjustment.
We will not issue fractional shares of Class A common stock to a holder
who converts a Note. In lieu of issuing fractional shares, we will pay cash
based upon the closing sale price of our Class A common stock on the date of
conversion.
Except as described in this paragraph, no holder of Notes will be
entitled, upon conversion of the Notes, to any actual payment or adjustment on
account of accrued and unpaid interest, including contingent interest, if any,
or on account of dividends on shares issued in connection with the conversion.
If any holder surrenders a Note for conversion between the close of business on
any record date for the payment of an installment of interest (including any
contingent interest, if any) and the opening of business on the related interest
payment date the holder must deliver payment to us of an amount equal to the
interest payable on the interest payment date (including any contingent
interest, if any) on the principal amount to be converted together with the Note
being surrendered. The foregoing sentence shall not apply to Notes called for
redemption on a redemption date within the period between and including the
record date and the interest payment date.
If we make a distribution of property to our stockholders which would be
taxable to them as a dividend for federal income tax purposes and the conversion
price of the Notes is decreased, this decrease may be deemed to be the receipt
of taxable income by holders of the Notes.
We may from time to time reduce the conversion price if our board of
directors determines that this reduction would be in the best interests of
Medicis. Any such determination by our board of directors will be conclusive.
Any such reduction in the conversion price must remain in effect for at least 20
trading days. In addition, we may from time to time reduce the conversion price
if our board of directors deems it advisable to avoid or diminish any income tax
to holders of our Class A common stock resulting from any stock or rights
distribution on our common stock.
25
Optional Redemption of the Notes
Prior to June 11, 2007, we cannot redeem the Notes at our option.
Beginning on June 11, 2007, we may redeem the Notes, in whole at any time, or in
part from time to time, for cash at a price equal to 100% of the principal
amount of the Notes plus accrued and unpaid interest (including contingent
interest, if any) up to but not including the date of redemption. We will give
not less than 20 days' nor more than 60 days' notice of redemption by mail to
holders of the Notes. If we opt to redeem less than all of the Notes at any
time, the trustee will select or cause to be selected the Notes to be redeemed
by any method that it deems fair and appropriate. In the event of a partial
redemption, the trustee may provide for selection for redemption of portions of
the principal amount of any Note of a denomination larger than $1,000.
Repurchase of Notes at the Option of the Holder
A holder has the right to require us to repurchase all or a portion of the
Notes on June 4, 2007, 2012 and 2017. We will repurchase the Notes for an amount
of cash equal to 100% of the principal amount of the Notes on the date of
purchase, plus accrued and unpaid interest (including contingent interest, if
any) to the date of repurchase. To exercise the repurchase right, the holder of
a Note must deliver, during the period beginning at any time from the opening of
business on the date that is 20 business days prior to the repurchase date until
the close of business on the business day before the repurchase date, a written
notice to us and the trustee of such holder's exercise of the repurchase right.
This notice must be accompanied by certificates evidencing the Note or Notes
with respect to which the right is being exercised, duly endorsed for transfer.
This notice of exercise may be withdrawn by the holder at any time on or before
the close of business on the business day preceding the repurchase date.
Mandatory Redemption
Except as set forth under "--Right to Require Purchase of Notes upon a
Change in Control" and "--Repurchase of Notes at the Option of the Holder," we
are not required to make mandatory redemption of, or sinking fund payments with
respect to, the Notes.
Right to Require Purchase of Notes upon a Change in Control
If a change in control (as defined below) occurs, each holder of Notes may
require that we repurchase the holder's Notes on the date fixed by us that is
not less than 45 days nor more than 60 days after we give notice of the change
in control. We will repurchase the Notes for an amount of cash equal to 100% of
the principal amount of the Notes, plus accrued and unpaid interest, including
contingent interest, if any, to the date of repurchase.
"Change in control" means the occurrence of one or more of the following
events:
o any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of our
assets, to any person or group of related persons, as defined in
Section 13(d) of the Exchange Act (a "Group");
o the approval by the holders of our capital stock of any plan or
proposal for our liquidation or dissolution, whether or not
otherwise in compliance with the provisions of the Indenture;
o any person or Group shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by our issued and
outstanding voting stock of, or any successor to, all or
substantially all of our assets; or
o the first day on which a majority of the members of our board of
directors are not continuing directors.
The definition of "change in control" includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of our assets. Although there is a developing body of case law interpreting
the phrase "substantially all," there is no precise established definition of
the phrase under applicable law. Accordingly,
26
the ability of a holder of Notes to require us to repurchase such Notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of our assets to another person or Group may be uncertain.
"Continuing directors" means, as of any date of determination, any member
of our board of directors who:
o was a member of such board of directors on the date of the original
issuance of the Notes, or
o was nominated for election or elected to such board of directors
with the approval of a majority of the continuing directors who were
members of such board at the time of such nomination or election.
On or prior to the date of repurchase, we will deposit with a paying agent
an amount of money sufficient to pay the aggregate repurchase price of the Notes
which is to be paid on the date of repurchase.
On or before the 30th day after the change in control, we must mail to the
trustee and all holders of the Notes a notice of the occurrence of the change
offer in control, stating:
o the repurchase date;
o the date by which the repurchase right must be exercised;
o the repurchase price for the Notes; and
o the procedures which a holder of Notes must follow to exercise the
repurchase right.
To exercise the repurchase right, the holder of a Note must deliver, on or
before the third business day before the repurchase date, a written notice to us
and the trustee of the holder's exercise of the repurchase right. This notice
must be accompanied by certificates evidencing the Note or Notes with respect to
which the right is being exercised, duly endorsed for transfer. This notice of
exercise may be withdrawn by the holder at any time on or before the close of
business on the business day preceding the repurchase date.
The effect of these provisions granting the holders the right to require
us to repurchase the Notes upon the occurrence of a change in control may make
it more difficult for any person or group to acquire control of us or to effect
a business combination with us. Our ability to pay cash to holders of Notes
following the occurrence of a change in control may be limited by our then
existing financial resources. We cannot assure you that sufficient funds will be
available when necessary to make any required repurchases. See "Risk
Factors--Risks Related to the Notes and the Offering--We may not be able to
repurchase the Notes when required to."
Our obligation to make a change in control will be satisfied if a third
party makes the change of control offer in the manner and at the times and
otherwise in compliance in all material respects with the requirements
applicable to a change in control offer made by us and purchases all Notes
properly tendered and not withdrawn under the change in control offer.
If a change in control occurs and the holders exercise their rights to
require us to repurchase Notes, we intend to comply with applicable tender offer
rules under the Exchange Act with respect to any repurchase.
The term "beneficial owner" will be determined in accordance with Rules
13d-3 and 13d-5 promulgated by the SEC under the Exchange Act or any successor
provision, except that a person shall be deemed to have "beneficial ownership"
of all shares of our common stock that the person has the right to acquire,
whether exercisable immediately or only after the passage of time.
Consolidation, Merger and Sale of Assets
We may, without the consent of the holders of any of the Notes,
consolidate with, or merge into any other person or convey, transfer or lease
our properties and assets substantially as an entirety to, any other person, if:
27
o we are the resulting or surviving corporation or the successor,
transferee or lessee, if other than us, is a corporation organized
under the laws of any U.S. jurisdiction and expressly assumes our
obligations under the Indenture and the Notes by means of a
supplemental Indenture entered into with the trustee; and
o after giving effect to the transaction, no event of default and no
event which, with notice or lapse of time, or both, would constitute
an event of default, shall have occurred and be continuing.
Under any consolidation, merger or any conveyance, transfer or lease of
our properties and assets as described in the preceding paragraph, the successor
company will be our successor and shall succeed to, and be substituted for, and
may exercise every right and power of, Medicis under the Indenture. If the
predecessor is still in existence after the transaction, it will be released
from its obligations and covenants under the Indenture and the Notes.
Modification and Waiver
We and the trustee may enter into one or more supplemental Indentures that
add, change or eliminate provisions of the Indenture or modify the rights of the
holders of the Notes with the consent of the holders of at least a majority in
principal amount of the Notes then outstanding. However, without the consent of
each holder of an outstanding Note, no supplemental Indenture may, among other
things:
o change the stated maturity of the principal of, or payment date of
any installment of interest (including contingent interest, if any)
on, any Note;
o reduce the principal amount of, or the rate of interest (including
contingent interest, if any) on, any Note;
o change the currency in which the principal of any Note or interest
is payable;
o impair the right to institute suit for the enforcement of any
payment on or with respect to any Note when due;
o adversely affect the right provided in the Indenture to convert any
Note;
o modify the provisions of the Indenture relating to our requirement
to repurchase Notes upon a change in control or on specified dates
in a manner adverse to the holders of the Notes;
o reduce the percentage in principal amount of the outstanding Notes
necessary to modify or amend the Indenture or to consent to any
waiver provided for in the Indenture; or
o waive a default in the payment of principal of, or interest
(including contingent interest, if any) on, any Note.
The holders of a majority in principal amount of the outstanding Notes
may, on behalf of the holders of all Notes:
o waive compliance by us with restrictive provisions of the Indenture
other than as provided in the preceding paragraph; and
o waive any past default under the Indenture and its consequences,
except a default in the payment of the principal of or any interest
(including contingent interest, if any) on any Note or in respect of
a provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Note affected.
Without the consent of any holders of Notes, we and the trustee may enter
into one or more supplemental Indentures for any of the following purposes:
28
o to cure any ambiguity, omission, defect or inconsistency in the
Indenture;
o to evidence a successor to us and the assumption by the successor of
our obligations under the Indenture and the Notes;
o to make any change that does not adversely affect the rights of any
holder of the Notes;
o to comply with any requirement in connection with the qualification
of the Indenture under the Trust Indenture Act; or
o to complete or make provision for certain other matters contemplated
by the Indenture.
Events of Default
Each of the following is an "event of default":
(1) a default in the payment of any interest (including contingent
interest, if any) upon any of the Notes when due and payable, which
continues for 30 days;
(2) a default in the payment of the principal of the Notes when due,
including on a redemption or repurchase date;
(3) failure to pay when due the principal of indebtedness for money
borrowed by us or our subsidiaries in excess of $20 million, or the
acceleration of that indebtedness that is not withdrawn within 15
days after the date of written notice to us by the trustee or to us
and the trustee by the holders of at least 25% in principal amount
of the outstanding Notes;
(4) a default by us in the performance, or breach, of any of our other
covenants in the Indenture which are not remedied within 60 days
after written notice to us by the trustee or to us and the trustee
by the holders of at least 25% in principal amount of the
outstanding Notes; or
(5) events of bankruptcy, insolvency or reorganization involving
Medicis.
If an event of default described in clauses (1), (2), (3) or (4) occurs
and is continuing, either the trustee or the holders of at least 25% in
principal amount of the outstanding Notes may declare the principal amount of
and accrued and unpaid interest on all Notes to be immediately due and payable.
This declaration may be rescinded if the conditions described in the Indenture
are satisfied. If an event of default of the type referred to in clause (5)
occurs, the principal amount of and accrued and unpaid interest, (including
contingent interest, if any) on the outstanding Notes will automatically become
immediately due and payable.
Within 90 days following a default, the trustee must give to the
registered holders of Notes notice of all uncured defaults known to it. The
trustee will be protected in withholding the notice if it in good faith
determines that the withholding of the notice is in the best interests of the
registered holders, except in the case of a default in the payment of the
principal of, or interest, including contingent interest, if any, on, any of the
Notes when due or in the payment of any redemption or repurchase obligation.
The holders of not less than a majority in principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceedings for any remedy available to the trustee, or exercising any trust or
power conferred on the trustee. Subject to the provisions of the Indenture
relating to the duties of the trustee, if an event of default occurs and is
continuing, the trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any of the
holders of the Notes unless the holders have offered to the trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, or interest, including contingent
interest, if any, when due or the right to convert a Note in accordance with the
Indenture, no holder may institute a proceeding or pursue any remedy with
respect to the Indenture or the Notes unless the conditions provided in the
Indenture have been satisfied, including:
29
o holders of at least 25% in principal amount of the outstanding Notes
have requested the trustee to pursue the remedy; and
o holders have offered the trustee security or indemnity satisfactory
to the trustee against any loss, liability or expense.
We are required to deliver to the trustee annually a certificate
indicating whether the officers signing the certificate know of any default by
us in the performance or observance of any of the terms of the Indenture. If the
officers know of a default, the certificate must specify the status and nature
of all defaults.
Book-Entry System
We originally issued the Notes in the form of one global note. The global
securities were deposited with, or on behalf of, DTC and registered in the name
of its nominee. The Notes sold under this prospectus will be represented by a
new unrestricted global security. Notes in definitive certificated form will be
issued only in limited circumstances described below.
Owners of beneficial interests in the Notes represented by the global
securities will hold their interests pursuant to the procedures and practices of
DTC. As a result, beneficial interests in any such securities will be shown on,
and transfers will be effected only through, records maintained by DTC and its
direct and indirect participants. Any such interests may not be exchanged for
certificated securities, except in limited circumstances. Owners of beneficial
interests must exercise any rights in respect of their interests, including any
right to convert or require repurchase of their interests in the Notes, in
accordance with the procedures and practices of DTC. Beneficial owners will not
be holders and will not be entitled to any rights under the global securities or
the Indenture. We and the trustee, and any of our respective agents, may treat
DTC as the sole holder and registered owner of the global securities.
Exchange of Global Securities
The Notes, represented by one or more global securities, will be
exchangeable for certificated securities with the same terms only if:
o DTC is unwilling or unable to continue as depositary or if DTC
ceases to be a clearing agency registered under the Exchange Act and
we do not appoint a successor depositary within 90 days;
o we decide to discontinue use of the system of book-entry transfer
through DTC or any successor depositary; or
o a default under the Indenture occurs and is continuing.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency" for
registered participants, and it facilitates the settlement of transactions among
its participants in those securities through electronic computerized book-entry
changes in participants' accounts, eliminating the need for physical movement of
securities certificates. DTC's participants include securities brokers and
dealers, including the agent, banks, trust companies, clearing corporation and
other organizations, some of whom and/or their representatives own DTC. Access
to DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Registration Rights
We have entered into a registration rights agreement with the initial
purchaser of the Notes for the benefit of the holders of the Notes and the
shares of our Class A common stock issuable on conversion of the Notes. Under
this agreement, we agreed that we will at our cost:
30
o on or prior to the 90th day after the first date of original
issuance of the Notes, file a shelf registration statement with the
SEC covering resales of the Notes and the shares of our Class A
common stock issuable on conversion of the Notes;
o use all reasonable efforts to cause the shelf registration statement
to be declared effective under the Securities Act no later than 180
days after the first date of original issuance of the Notes; and
o use all reasonable efforts to keep the shelf registration statement
effective after its effective date until the earlier of:
o the second anniversary of the date on which the Notes were
initially issued;
o the sale pursuant to the shelf registration statement of all
of the Notes and any shares of our Class A common stock issued
upon conversion of the Notes; and
o the expiration of the holding period applicable to the Notes
and the shares of our Class A common stock issuable upon
conversion of the Notes held by non-affiliates of Medicis
under Rule 144(k) under the Securities Act, or any successor
provision, subject to certain exceptions.
We have the right to suspend use of the shelf registration statement
during specified periods of time relating to pending corporate developments and
public filings with the SEC and similar events. If we fail to file the shelf
registration statement on or prior to the 90th day after original issuance of
the Notes, the shelf registration statement is not declared effective on or
prior to the 180th day after original issuance of the Notes or, after the shelf
registration statement has been declared effective, we fail to keep the shelf
registration statement effective or usable in accordance with and during the
periods specified in the registration rights agreement, then, in each case, we
will pay liquidated damages to all holders of Notes and all holders of our
common stock issued on conversion of the Notes equal to (i) in respect of each
$1,000 principal amount of Notes, at a rate per annum equal to 0.5% of such
principal amount, plus accrued interest thereon to the date of determination,
and (ii) in respect of any shares of Class A common stock issued upon conversion
of Notes, at a rate per year equal to 0.5% of the principal amount of Notes that
would then be convertible into such shares, plus accrued interest to the date of
determination. So long as the failure to file or become effective or such
unavailability continues, we will pay liquidated damages in cash on June 4 and
December 4 of each year to the holder of record of the Notes or common stock
issuable in respect of the Notes on the immediately preceding May 19 or November
19. When such registration default is cured, accrued and unpaid liquidated
damages will be paid in cash on the subsequent interest payment date to the
record holder as of the date of such cure.
A holder who elects to sell any securities pursuant to the shelf
registration statement:
o will be required to be named as selling security holder;
o will be required to deliver a prospectus to purchasers;
o will be subject to the civil liability provisions under the
Securities Act in connection with any sales; and
o will be bound by the provisions of the registration rights
agreement, which are applicable, including indemnification
obligations.
We refer to the Notes and the Class A common stock issuable on conversion
of the Notes as registrable securities. Promptly upon request from any holder of
registrable securities, we will provide a form of notice and questionnaire to be
completed and delivered by that holder to us at least three business days before
any intended distribution of registrable securities under the shelf registration
statement. If we receive from a holder of registrable securities a completed
questionnaire, together with such other information as we may reasonably
request, after the effectiveness of the shelf registration statement, we will
file an amendment to the shelf registration statement, or a supplement to the
related prospectus, to permit the holder to deliver a prospectus to purchasers
of registrable securities. Any holder that does not complete and deliver a
questionnaire or provide such other information will not
31
be named as a selling security holder in the prospectus and therefore will not
be permitted to sell any registrable securities under the shelf registration
statement.
Governing Law
The Indenture and the Notes are governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflict
of laws.
32
DESCRIPTION OF CAPITAL STOCK
Common Stock
We have two classes of authorized common stock: Class A common stock, par
value $0.014 per share, of which we are authorized to issue 50,000,000 shares,
and Class B common stock, par value $0.014 per share, of which we are authorized
to issue 1,000,000 shares. As of March 31, 2002, 30,743,267 shares of Class A
common stock were issued and outstanding and held by approximately 248 holders
of record. As of March 31, 2002, 379,016 shares of Class B common stock were
issued and outstanding and held by a single holder. As of July 26, 2002, an
additional 5,564,483 shares of Class A common stock were issuable upon exercise
of outstanding options.
Except as noted below, the designations, preferences, limitations and
relative rights of the Class A common stock and Class B common stock are
substantially identical. Holders of Class A common stock are entitled to one
vote per share while holders of Class B common stock are entitled to ten votes
per share. Except as required by law, holders of Class A common stock and Class
B common stock vote together as a class on all matters with respect to which our
stockholders are entitled to vote.
Holders of Class A common stock and Class B common stock have equal rights
to receive dividends and other distributions, if any, as may be declared from
time to time by our board of directors. However, any dividend declared and paid
to the holders of Class A common stock must be accompanied by the declaration
and payment of an equivalent dividend to the holders of Class B common stock. If
we in any manner subdivide, combine or reclassify the outstanding shares of
Class A common stock or Class B common stock, as the case may be, the
outstanding shares of the other class shall be subdivided, combined or
reclassified proportionately in the same manner and on the same basis as the
outstanding shares of Class A common stock or Class B common stock, as the case
may be.
Holders of Class A common stock and Class B common stock are not entitled
to preemptive or similar rights. The Class B common stock may be converted into
Class A common stock on a share-for-share basis at any time at the election of
the holder and will automatically convert into Class A common stock upon sale or
transfer of Class B common stock other than to another holder of Class B common
stock.
Preferred Stock
We currently have authorized 5,000,000 shares of preferred stock, par
value $0.01 per share, of which no shares are issued or outstanding. See
"--Preference Stock Purchase Rights."
Upon liquidation, dissolution or winding up of our company, any holders of
preferred stock will be paid in full any amounts to which they may be entitled,
prior to any distribution of our assets to the holders of Class A common stock
and Class B common stock on a pro rata basis.
Preference Stock Purchase Rights
On August 17, 1995, our board of directors adopted a stockholder rights
plan, pursuant to which it declared a dividend of one preference stock purchase
right on each outstanding share of Class A common stock and Class B common
stock. The description and terms of these rights are set forth in a Rights
Agreement, dated as of August 17, 1995, as amended, between our company and
Norwest Bank Minnesota, N.A., as rights agent. These rights are exercisable only
if a person or group acquires beneficial ownership of 15% or more of the then
outstanding shares of Class A common stock or announces a tender offer the
consummation of which would result in beneficial ownership by a person or group
of 15% or more of the then outstanding shares of Class A common stock. Each
right entitles the holder to buy one one-hundredth of a share of a new Series A
junior participating preference stock at an exercise price of $185.00 per share,
subject to adjustment.
If we are acquired in a merger or other business combination transaction
after a person, with limited exceptions, has acquired beneficial ownership of
15% or more of the then outstanding shares of Class A common stock, each right
will entitle the holder to purchase, at the right's then-current exercise price,
a number of shares of the acquiring
33
person's common stock having a market value of twice such price. In addition, if
a person or group acquires 50% or more of the then outstanding shares of Class A
common stock, each right will entitle the holder, other than such person or
members of such group, to purchase, at the right's then-current exercise price,
a number of shares of Class A common stock of such other person or group,
including our company as successor to the acquiring company or as the surviving
corporation, having a market value of twice such price.
Following the acquisition by a person or group of beneficial ownership of
15% or more of the then outstanding shares of Class A common stock and prior to
an acquisition of 50% or more of the then outstanding shares of Class A common
stock, our board of directors may exchange the rights, other than rights owned
by such person or group, in whole or in part, at an exchange ratio of one share
of Class A common stock, one one-hundredth of a share of the Series A junior
participating preference stock or a share of a class or series of our preferred
stock having equivalent rights, preferences and privileges as the Series A
junior participating preference stock, per right. Prior to the acquisition by a
person or group of beneficial ownership at 15% or more of the then outstanding
shares of Class A common stock, the rights are redeemable for $0.001 per right
at the option of our board of directors.
Delaware Anti-Takeover Law
We are subject to Section 203 of the Delaware General Corporation Law
("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless:
o prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
o upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange
offer; or
o on or subsequent to such date, the business combination is approved
by the Board of Directors and is authorized at an annual or special
meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A common stock is Wells
Fargo Shareholders Services.
34
SELLING SECURITYHOLDERS
On June 4, 2002, we issued and sold $350,000,000 in aggregate principal
amount of the Notes to Deutsche Bank Securities Inc. to whom we refer to as the
initial purchaser in a transaction exempt from the registration requirements of
the federal securities laws. On June 10, 2002, pursuant to an over-allotment
option provided in the purchase agreement between our company and the initial
purchaser that was entered into in connection with the initial private placement
of the Notes, the initial purchaser acquired an additional $50,000,000 in
aggregate principal amount of the Notes. The initial purchaser resold the Notes
to persons reasonably believed to be qualified institutional buyers as defined
by Rule 144A under the Securities Act.
The selling securityholders, which term includes their transferees,
pledgees, donees and successors, may from time to time offer and sell pursuant
to this prospectus any and all of the Notes and the shares of Class A common
stock issuable upon conversion of the Notes. The following table sets forth
recent information about the principal amount of Notes beneficially owned by
each selling securityholder and the number of shares of Class A common stock
issuable upon conversion of the Notes, in each case to the extent known to us as
of the date of this prospectus. Beneficial ownership is determined in accordance
with SEC rules and includes voting or investment power with respect to the
securities. Unless set forth below, to our knowledge none of the selling
securityholders has had a material relationship with us or any of our
predecessors or affiliates within the past three years.
The number of shares of Class A common stock shown in the table set forth
below assumes the conversion of the full amount of Notes held by such holder at
the initial conversion rate of 17.2117 shares per $1,000 principal amount of the
Notes. This conversion rate is subject to adjustment as described under
"Description of Notes--Conversion Rights." Accordingly, the number of shares of
Class A common stock may increase or decrease from time to time. Under the terms
of the Indenture, fractional shares will not be issued upon conversion of the
Notes. Cash will be paid instead of fractional shares, if any.
Class A
Common Stock Class A
Aggregate Principal Percentage of Beneficially Common Stock
Amount of Notes Notes Owned Prior to Registered
Name(1) that may be sold Outstanding Conversion Hereby
---------------------------------------------- ------------------- ------------- -------------- -------------
Advent Convertible Master Cayman, L.P. $ 4,773,000 1.19 -- 82,151
Akela Capital Master Fund, Ltd. 2,000,000 * -- 34,423
Allentown City Firefighters Pension Plan 20,000 * -- 344
Allentown City Officers & Employees
Pension Fund 15,000 * -- 258
Allentown City Police Pension Plan 25,000 * -- 430
Allstate Life Insurance Company 600,000 * 10,200 10,327
Allstate Insurance Company 900,000 * 10,200 15,490
Alpha U.S. Sub Fund VIII, LLC 120,000 * -- 2,065
Alpha U.S. Sub Fund 4, LLC 532,000 * -- 9,156
American Motorist Insurance Company 448,000 -- 7,710
Arapahoe County Colorado 44,000 * -- 757
Argent LowLev Convertible Arbitrage Fund
Ltd. 3,000,000 * -- 51,635
Arlington County Employees Retirement
System 476,000 * -- 8,192
Bank Austria Cayman Islands, Ltd. 1,100,000 * -- 18,932
Black Diamond Capital I, Ltd. 224,000 * -- 3,855
Black Diamond Convertible Offshore LDC 1,491,000 * -- 25,662
Black Diamond Offshore Ltd. 896,000 * -- 15,421
British Virgin Islands Social Security Board 63,000 * -- 1,084
Calamos Market Neutral Fund-Calamos
Investment Trust 13,000,000 3.25 -- 223,752
Chrysler Corporation Master Retirement
Trust 3,970,000 * -- 68,330
35
Class A
Common Stock Class A
Aggregate Principal Percentage of Beneficially Common Stock
Amount of Notes Notes Owned Prior to Registered
Name(1) that may be sold Outstanding Conversion Hereby
---------------------------------------------- ------------------- ------------- -------------- -------------
City of New Orleans 178,000 * -- 3,063
City University of New York 108,000 * -- 1,858
Consulting Group Capital Markets Funds 550,000 * -- 9,466
Context Convertible Arbitrage Fund, LP 500,000 * -- 8,605
Deephaven Domestic Convertible Trading
Ltd. 2,880,000 * -- 49,569
Delta Air Lines Master Trust 1,025,000 * -- 17,641
Delta Pilots D&S Trust 510,000 * -- 8,777
Double Black Diamond Offshore LDC 4,165,000 1.04 -- 71,686
Grace Brothers Management L.L.C. 2,750,000 * -- 47,332
Grady Hospital Foundation 94,000 * -- 1,617
HFR Convertible Arbitrage Account 450,000 * -- 7,745
Independence Blue Cross 290,000 * -- 4,991
Jersey (IMA) Ltd. 1,500,000 * -- 25,817
JMG Triton Offshore Fund, Ltd. 1,500,000 * -- 25,817
KBC Financial Products USA Inc. 850,000 * -- 14,629
Liberty View Funds, LLC 900,000 * -- 15,490
Liberty View Funds, L.P. 3,600,000 * -- 61,962
Local Initiatives Support Corporation 19,000 * -- 327
Lyxor 964,000 * -- 16,592
McMahan Securities Co., L.P. 3,500,000 * -- 60,240
Merrill Lynch Insurance Group 235,000 * -- 4,044
Microsoft Corporation 1,315,000 * -- 22,633
Minnesota Power and Light 128,000 * -- 2,203
MLQA Convertible Securities Arbitrage
Ltd. 7,500,000 1.87 -- 129,087
Motion Picture Industry Health Plan -
Active Member Fund 240,000 * -- 4,130
Motion Picture Industry Health Plan -
Retire Member Fund 150,000 * -- 2,581
Municipal Employees Benefit Trust 161,000 * -- 2,771
Nabisco Holdings 20,000 * -- 344
New Orleans Firefighters Pension/Relief
Fund 97,000 * -- 1,669
1976 Distribution Trust FBO A.R.
Lauder/Zinetrhofer 6,000 * -- 103
1976 Distribution Trust FBO Jane A.
Lauder 11,000 * -- 189
Nomura Securities Intl. Inc. 4,000,000 1.00 200 68,846
OCM Convertible Trust 2,735,000 * -- 47,074
Occidental Petroleum Corporation 186,000 * -- 3,201
Ohio Bureau of Workers Compensation 127,000 * -- 2,185
Partner Reinsurance Company Ltd. 750,000 * -- 12,908
Policeman and Fireman Retirement System
of the City of Detroit 443,000 * -- 7,624
Pro-Mutual 530,000 * -- 9,122
Quest Occupational Health Trust 190,000 * -- 3,270
RAM Trading, Ltd. 5,000,000 1.25 -- 86,058
36
Class A
Common Stock Class A
Aggregate Principal Percentage of Beneficially Common Stock
Amount of Notes Notes Owned Prior to Registered
Name(1) that may be sold Outstanding Conversion Hereby
---------------------------------------------- ------------------- ------------- -------------- -------------
RCG Halifax Master Fund, Ltd. 825,000 * -- 14,999
RCG Latitude Master Fund, Ltd. 1,375,000 * -- 23,666
RCG Multi Strategy, LP 2,200,000 * -- 37,865
RJR Reynolds 38,000 * -- 654
Shell Pension Trust 389,000 * -- 6,695
State Employees' Retirement Fund of the
State of Delaware 1,495,000 * -- 25,731
State of Connecticut Combined Investment
Funds 3,095,000 * -- 53,270
State of Maryland Retirement Agency 2,272,000 * -- 39,104
Sturgeon Limited 1,229,000 * -- 21,153
Tag Associates 119,000 * -- 2,048
TD Securities (USA) Inc. 21,750,000 5.43 -- 374,354
The Estate of James Campbell 274,000 * -- 4,716
The Grable Foundation 84,000 * -- 1,445
The James Campbell Corporation 226,000 * -- 3,889
Trustmark Insurance 243,000 * -- 4,182
2000 Revocable Trust FBO A.R.
Lauder/Zineterhofer 6,000 * -- 103
Wachovia Securities, Inc. 34,020,000 8.50 -- 585,542
Wachovia Securities International Ltd. 12,000,000 3.00 -- 206,540
Worldwide Transactions Ltd. 224,000 * -- 3,855
Subtotal $165,718,000 41.43 2,853,051
Any other Notes or future transferees from
any holder(2)(3)
Total $400,000,000 100% -- 6,884,681
----------
* Less than one percent
(1) Information regarding the selling securityholders may change from time to
time. Any such changed information will be set forth in supplements to
this prospectus, if and when necessary.
(2) Information concerning other selling securityholders of the Notes will be
set forth in prospectus supplements from time to time, if and when
necessary.
(3) Assumes that any other holders of Notes or any future transferee from any
holder does not beneficially own any Class A common stock other than Class
A common stock into which the Notes are convertible at the conversion
price of 17.2117 shares per $1,000 principal amount of the Notes.
The preceding table has been prepared based upon the information furnished
to us by the selling securityholders. The selling securityholders identified
above may have sold, transferred or otherwise disposed of some or all of their
Notes in transactions exempt from the registration requirements of the
Securities Act since the dates on which they provided the information regarding
the Notes beneficially owned by them. The selling securityholders purchased all
of the Notes in private placements consummated in June 2002. Information
concerning the selling securityholder may change from time to time and, if
necessary, we will supplement this prospectus accordingly. We cannot give an
estimate as to the amount of the Notes or Class A common stock issuable upon
conversion of the Notes that will be held by the selling securityholders upon
the termination of this offering because the selling securityholders may offer
some or all of their Notes or Class A common stock pursuant to the offering
contemplated by this prospectus. See "Plan of Distribution."
37
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
This discussion describes the material U.S. federal income tax
consequences of purchasing, owning and disposing of the Notes and Class A common
stock. It applies to you only if you hold your Notes or Class A common stock as
capital assets for U.S. federal income tax purposes. This section does not apply
to you if you are a member of a class of holders subject to special rules, such
as:
o a dealer in securities or currencies;
o a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;
o a bank, an insurance company or other financial institution;
o a tax-exempt organization;
o a person treated as a partnership for U.S. federal income tax
purposes or a partner thereof;
o a person that owns Notes that are a hedge or that are hedged against
interest rate risks;
o a person that owns Notes or Class A common stock as part of a
straddle, conversion or other risk reduction transaction for U.S.
federal income tax purposes; or
o a person whose functional currency for U.S. federal income tax
purposes is not the U.S. dollar.
The summary below does not address all of the tax consequences that may be
relevant to you. In particular, it does not address:
o U.S. federal estate, gift or alternative minimum tax consequences of
the purchase, ownership or disposition of the Notes or Class A
common stock;
o state, local or foreign tax consequences of the purchase, ownership
or disposition of the Notes; or
o state, local or foreign tax consequences of owning or disposing of
our Class A common stock.
This discussion is based on the Internal Revenue Code of 1986, as amended,
or the Code, the Treasury Regulations promulgated under the Code and
administrative and judicial interpretation of the Code and the Treasury
Regulations, all as of the date of this prospectus, and all of which are subject
to differing interpretations and to change, possibly on a retroactive basis.
No statutory, administrative or judicial authority directly addresses the
treatment of the Notes for U.S. federal income tax purposes. We have not sought,
nor do we expect to seek, a ruling from the Internal Revenue Service, or the
IRS, with respect to any of the U.S. federal income tax consequences discussed
below. No assurance can be given that the IRS will not take contrary positions
to the U.S. federal income tax consequences discussed below. As a result, no
assurance can be given that the IRS will agree with the tax characterizations
and the tax consequences described below.
We urge you to consult your tax advisors with respect to the tax
consequences to you of the purchase, ownership and disposition of the Notes and
shares of our Class A common stock in light of your own particular
circumstances, including the tax consequences under state, local, foreign and
other tax laws and the possible effects of changes in U.S. federal or other tax
laws.
38
Classification of the Notes
We intend to treat the Notes as debt instruments subject to the rules
governing contingent payment debt instruments for U.S. federal income tax
purposes. Pursuant to the terms of the indenture relating to the Notes, you
agree, for U.S. federal income tax purposes, to treat your Notes as indebtedness
subject to the Treasury Regulations governing contingent payment debt
instruments and to be bound by our application of those regulations to the
Notes, including our determination of the rate at which interest will be deemed
to accrue on the Notes. The remainder of this discussion assumes that the Notes
will be treated in accordance with this determination. However, there is some
uncertainty as to the proper application of the Treasury Regulations governing
contingent payment debt instruments, and no assurance can be given that the IRS
will not assert that the Notes should be treated differently or that such an
assertion would not prevail. Such treatment could affect the amount, timing and
character of income, gain or loss in respect of an investment in the Notes. In
particular, it might be determined that you should have accrued interest income
at a lower rate, should not have recognized ordinary income upon the conversion
of your Notes, or should have recognized capital gain or loss upon a taxable
disposition of your Notes. Additionally, it may be determined that a non-U.S.
Holder is subject to withholding tax on interest payments on the Notes.
Treatment of U.S. Holders of Notes
You are a U.S. holder of Notes if you are a beneficial owner of a Note and
you are, for United States federal income tax purposes:
o a citizen or resident of the United States;
o a domestic corporation;
o an estate whose income is subject to U.S. federal income tax
regardless of its source; or
o a trust over whose administration a U.S. court can exercise primary
supervision and one or more U.S. persons are authorized to control
all substantial decisions of the trust.
If you are a non-U.S. holder of Notes (as defined below), this section
does not apply to you. If you are a non-U.S. holder of Notes, please see the
discussion below under the heading "Treatment of Non-U.S. Holders of Notes and
Class A Common Stock."
Accrual of Interest on the Notes
Under the rules governing contingent payment debt obligations, a U.S.
holder of Notes generally will be required to accrue interest income on the
Notes, in the amounts described below, regardless of whether the U.S. holder of
Notes uses the cash or accrual method of tax accounting. Accordingly, U.S.
holders of Notes will likely be required to include interest in taxable income
in each year in excess of the stated interest that accrues on the Notes and in
excess of any contingent interest payments actually received in that year.
A U.S. holder of Notes must accrue an amount of interest as ordinary
income for U.S. federal income tax purposes, for each accrual period prior to
and including the maturity date of the Notes that equals:
o the product of (i) the adjusted issue price (as defined below) of
the Notes as of the beginning of the accrual period, and (ii) the
comparable yield (as defined below) of the Notes, adjusted for the
length of the accrual period;
o divided by the number of days in the accrual period; and
o multiplied by the number of days during the accrual period that the
U.S. holder of Notes held the Notes.
The issue price of a Note is the first price at which a substantial amount
of the Notes was sold to unaffiliated third parties, excluding bond houses,
brokers or similar persons or organizations acting in the capacity of
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underwriters, placement agents or wholesalers. The adjusted issue price of a
Note is its issue price increased by any interest income previously accrued,
determined without regard to any adjustments to interest accruals described
below, and decreased by the amount of any projected payments actually made with
respect to the Notes.
Under the rules governing contingent payment debt instruments, we are
required to establish the "comparable yield" for the Notes. We determined that
the comparable yield for the Notes is the annual yield we would incur, as of the
initial issue date, on a fixed rate nonconvertible debt security with no
contingent payments, but with terms and conditions otherwise comparable to those
of the Notes, including the rank, term and general market conditions, but
excluding any adjustments for liquidity or the riskiness of the contingencies
with respect to the Notes. Accordingly, we have determined the comparable yield
to be 9.5% compounded semi-annually.
We are required to provide to U.S. holders of the Notes, solely for U.S.
federal income tax purposes, a schedule of the projected amounts of payments on
the Notes. This schedule must produce the comparable yield. Our determination of
the projected payment schedule for the Notes includes estimates for payments of
contingent interest and an estimate for a payment at maturity taking into
account the conversion feature. U.S. holders of Notes may obtain the projected
payment schedule by submitting a written request to our Executive Director of
Finance, c/o Medicis Pharmaceutical Corporation, 8125 North Hayden Road,
Scottsdale, Arizona 85258-2463.
For U.S. federal income tax purposes, holders must use the comparable
yield and projected payment schedule determined by us in calculating interest
accruals, and the adjustments thereto described below, in respect of the Notes,
unless the holder timely discloses and justifies the use of other estimates to
the IRS. This requirement for holders to use the comparable yield and projected
payment schedule determined by us is imposed by Treasury Regulations issued by
the IRS, and is in addition to your agreement to treat the Notes consistently
with our treatment pursuant to the indenture.
THE COMPARABLE YIELD AND THE SCHEDULE OF PROJECTED PAYMENTS ARE NOT DETERMINED
FOR ANY PURPOSE OTHER THAN FOR THE DETERMINATION OF INTEREST ACCRUALS AND
ADJUSTMENTS THEREOF IN RESPECT OF THE NOTES OF A HOLDER OF NOTES FOR U.S.
FEDERAL INCOME TAX PURPOSES AND DO NOT CONSTITUTE A PROJECTION OR REPRESENTATION
REGARDING THE ACTUAL AMOUNTS PAYABLE TO HOLDERS OF NOTES.
Adjustments to Interest Accruals on the Notes
If a U.S. holder of Notes receives actual payments with respect to the
Notes in a taxable year that in the aggregate exceed the total amount of
projected payments for that taxable year, the U.S. holder of Notes would incur a
"net positive adjustment" equal to the amount of such excess. The U.S. holder of
Notes would treat the "net positive adjustment" as additional interest income
for the taxable year. For this purpose, the payments in a taxable year include
the fair market value of property received (including any of our Class A common
stock received on conversion of the Notes) in that year.
If a U.S. holder of Notes receives actual payments with respect to the
Notes in a taxable year that in the aggregate are less than the amount of the
projected payments for that taxable year, the U.S. holder of Notes would incur a
"net negative adjustment" equal to the amount of such deficit. This adjustment
would (a) reduce the interest income on the Notes of the U.S. holder of Notes
for that taxable year, and (b) to the extent of any excess after the application
of (a), give rise to an ordinary loss to the extent of the interest income on
the Notes of the U.S. holder of Notes during prior taxable years, reduced to the
extent such interest was offset by prior net negative adjustments. Any excess
would be carried forward to the next taxable year as a net negative adjustment
or would reduce the amount realized upon sale, purchase by us at your option,
exchange, conversion or redemption of the Notes.
Discount or Premium
A U.S. holder of Notes that acquires a Note after its initial issuance is
required to accrue interest for U.S. federal income tax purposes based upon the
original projected payment schedule as if the Note had been acquired directly
from us. However, except to the extent described in the third paragraph below as
to Notes that are deemed to be "exchange listed," a U.S. holder of Notes must
allocate any difference between the holder's cost basis and the then
40
adjusted issue price of the Note to daily portions of interest or the projected
payments over the remaining term of the Note on some reasonable basis, taking
into account then applicable interest rates and changes in the projected value
of our Class A common stock.
Thus, if a U.S. holder of Notes acquired a Note after its initial issuance
at an amount that was less than the Note's then adjusted issue price, a U.S.
holder of Notes would be required to allocate the "discount" among the daily
portions of interest or projected payments to be made on the Note. The portion
of the discount allocated to a daily portion of interest would be treated as a
positive adjustment on the date the daily portion accrues, and the portion
allocated to a projected payment would be treated as a positive adjustment on
the date the projected payment was scheduled to be made. A U.S. holder's
adjusted basis in the Note would be increased by the amount of any such positive
adjustment.
On the other hand, if a U.S. holder of Notes acquired a Note after its
initial issuance at an amount that exceeded the Note's then adjusted issue
price, the amount of the "premium" allocated to a daily portion of interest is
treated as a negative adjustment on the date it accrues and the amount allocated
to a projected payment is treated as a negative adjustment on the date the
payment was scheduled to be made and, correspondingly, a U.S. holder's adjusted
basis in the Note is reduced by the amount of the negative adjustment.
Finally, if the Note at the time of a U.S. holder's acquisition is deemed
to be "exchange listed" property then, instead of allocating the discount or
premium to projected payments, a U.S. holder of Notes generally would be
permitted, but not required, unless any other method was unreasonable, to
allocate the discount or premium pro rata to the accrual of interest on the
Notes. Notes will be considered "exchange listed" if they are listed on either a
national securities exchange or an interdealer quotation system sponsored by a
national securities association.
Sale, Exchange, Conversion or Redemption
Generally, the sale or exchange of a Note, or the redemption of a Note for
cash, will result in taxable gain or loss to a U.S. holder of Notes. In
addition, as described above, our calculation of the comparable yield and the
schedule of projected payments for the Notes includes the receipt of Class A
common stock upon conversion of a Note into our Class A common stock as a
contingent payment with respect to the Notes. Accordingly, we intend to treat
the receipt of our Class A common stock by a U.S. holder of Notes upon the
conversion of a Note, as a contingent payment. As described above, you are
generally bound by our determination of the comparable yield and the schedule of
projected payments. Under this treatment, a conversion also will result in
taxable gain or loss to the U.S. holder of Notes. The amount of gain or loss on
a taxable sale, purchase by us at your option, exchange, conversion or
redemption will equal the difference between (a) the amount of cash plus the
fair market value of any other property received by the U.S. holder of Notes,
including the fair market value of any Class A common stock received, and (b)
the adjusted tax basis in the Notes of the U.S. holder of Notes. The adjusted
tax basis in a Note of a U.S. holder of Notes generally will equal the original
purchase price for the Note of the U.S. holder of Notes, increased by any
interest income previously accrued by the U.S. holder of Notes (determined
without regard to any positive or negative adjustments to interest accruals
described above), and decreased by the amount of any projected payments actually
made on the Note and increased or decreased by the amount of any positive or
negative adjustment, respectively, that a U.S. holder of Notes is required to
make if the U.S. holder of Notes purchases Notes at a price other than their
adjusted issue price. Gain recognized upon a sale, purchase by us at your
option, exchange, conversion or redemption of a Note generally will be treated
as ordinary interest income; any loss will be ordinary loss to the extent of the
excess of interest previously included in income over the total negative
adjustments previously taken into account as ordinary loss and, thereafter,
capital loss (which will be long-term if the Note is held for more than one
year). The deductibility of net capital losses is subject to limitations.
The tax basis of a U.S. holder of Notes in the Class A common stock
received upon a conversion of a Note will equal the then current fair market
value of our Class A common stock. The holding period of the U.S. holder of
Notes for such Class A common stock received will commence on the day after the
date of conversion.
Constructive Dividends
If at any time we make a distribution of property to our stockholders that
would be taxable to the stockholders as a dividend for U.S. federal income tax
purposes and, in accordance with the anti-dilution provisions of the Notes,
41
the conversion rate of the Notes is increased, such increase may be deemed to be
the payment of a taxable dividend to you.
Treatment of Non-U.S. Holders of Notes and Class A Common Stock
You are a non-U.S. holder of Notes or Class A common stock if you are a
beneficial owner of a Note or a share of Class A common stock and you are, for
U.S. federal income tax purposes:
o a nonresident alien individual (other than a U.S. expatriate);
o a foreign corporation; or
o a foreign estate or trust that is not subject to U.S. federal income
taxation on its worldwide income.
The rules governing the U.S. federal income taxation of non-U.S. holders
of Notes are complex and no attempt will be made in this prospectus to provide
more than a summary of such rules. We urge non-U.S. holders of Notes to consult
with their tax advisors to determine the effect of U.S. federal, state, local
and foreign income tax laws, as well as treaties, with regard to an investment
in the Notes and the Class A common stock, including any reporting requirements.
In particular, it should be noted that the IRS might assert that payment on the
Notes (including amounts taken into income under the accrual rules described
above under "--Accrual of Interest on the Notes" and amounts attributable to the
Class A common stock received upon a conversion of the Notes) are subject to a
30% U.S. federal withholding tax.
Payments Made With Respect to the Notes
The 30% U.S. federal withholding tax will not apply to any payment to a
non-U.S. holder of Notes of principal or interest (including amounts taken into
income as interest under the accrual rules described under "--Accrual of
Interest on the Notes" and amounts attributable to Class A common stock received
upon a conversion of the Notes) on, or of any gain realized on a sale or
exchange of Notes, provided that (i) the non-U.S. holder of Notes does not own,
actually or constructively, 10% or more of the total combined voting power of
all classes of stock of Medicis entitled to vote; (ii) the non-U.S. holder of
Notes is not a controlled foreign corporation related, directly, indirectly or
constructively, to Medicis thorough stock ownership; (iii) the non-U.S. holder
of Notes is not a bank which acquired the Notes in consideration for an
extension of credit made pursuant to a loan agreement entered into in the
ordinary course of its business; (iv) the Notes and Class A common stock are
actively traded within the meaning of Section 871(h)(4)(C)(v)(I) of the Internal
Revenue Code; and (v) either (a) the beneficial owner of Notes certifies to us
or its paying agent on IRS form W-8BEN, under penalties of perjury, that it is
not a U.S. person and provides its name, address and certain other information
or (b) the beneficial owner holds its Notes through certain foreign
intermediaries or certain foreign partnerships and such holder of Notes
satisfies certain certification requirements.
If the non-U.S. holder of Notes cannot satisfy the requirements described
above, payments of interest (including amounts taken into income under the
accrual rules described above under "--Accrual of Interest on the Notes" and
amounts attributable to the Class A common stock received upon a conversion of
the Notes) will be subject to the 30% U.S. federal withholding tax unless the
non-U.S. holder of Notes provides us with a properly executed (1) IRS Form
W-8BEN (or a successor form) claiming an exemption from or reduction in
withholding under an applicable tax treaty or (2) IRS Form W-8ECI (or a
successor form) stating that interest paid on the Notes is not subject to
withholding tax because it is effectively connected with the conduct of a trade
or business by the non-U.S. holder of Notes in the U.S.
If a non-U.S. holder of Notes is engaged in a trade or business in the
U.S., and if interest on the Notes is effectively connected with the conduct of
such trade or business, the non-U.S. holder of Notes, although exempt from the
withholding tax discussed in the preceding paragraphs, will generally be subject
to regular U.S. federal income tax on interest and on any gain realized on the
sale or exchange of the Notes in the same manner as if it were a U.S. holder of
Notes. Such a non-U.S. holder of Notes will be required to provide to the
withholding agent a properly executed IRS Form W-8ECI (or a successor form) in
order to claim an exemption from withholding tax. In addition, if such a
non-U.S. holder of Notes is a foreign corporation, such non-U.S. holder of Notes
may be subject
42
to a branch profits tax equal to 30% (or such lower tax rate provided by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments.
Payment of Dividends on Class A Common Stock
Dividends paid on Class A common stock to a non-U.S. holder of Class A
common stock, to the extent they are paid out of our current and accumulated
earnings and profits as determined for U.S. federal income tax purposes, will be
subject to U.S. withholding tax at a 30% rate, except where an applicable tax
treaty provides for the reduction or elimination of such withholding tax.
If a non-U.S. holder of Class A common stock is engaged in a trade or
business in the U.S. and dividends on the Class A common stock are effectively
connected with the conduct of such trade or business, such non-U.S. holder will
be required to pay U.S. federal income tax on those dividends on a net income
basis in the same manner as if such non-U.S. holder were a U.S. person as
defined under the Code, except as otherwise provided by an applicable tax
treaty. In addition, a non-U.S. holder of Class A common stock that is a foreign
corporation may be subject to a branch profits tax equal to 30% (or such lower
tax rate provided by an applicable treaty) of its effectively connected earnings
and profits for the taxable year, subject to certain adjustments.
Sale, Exchange or Other Taxable Disposition of Class A Common Stock
Any gain realized by a non-U.S. holder of Class A common stock upon the
sale, exchange, or other taxable disposition of Class A common stock generally
will not be subject to U.S. federal income tax unless: (i) that gain is
effectively connected with the conduct by such non-U.S. holder of a trade or
business in the U.S.; or (ii) such non-U.S. holder is an individual who is
present in the U.S. for 183 days or more in the taxable year of that
disposition, and certain other conditions are met. A non-U.S. holder described
in clause (i) above will be required to pay U.S. federal income tax on the net
gain derived from the sale, except as otherwise required by an applicable tax
treaty, and if such non-U.S. holder is a foreign corporation, it may also be
required to pay a branch profits tax at a 30% rate (or such lower tax rate
provided by an applicable treaty). A non-U.S. holder of Class A common stock
described clause (ii) above will be subject to a 30% U.S. federal income tax on
the gain derived from the sale, which may be offset by U.S. source capital
losses, even though the holder is not considered a resident of the U.S. The tax
basis of a non-U.S. holder of Class A common stock in the Class A common stock
received upon a conversion of a Note will equal the fair market value of the
Class A common stock at the time of the conversion. The holding period of the
non-U.S. holder of Class A common stock for such Class A common stock received
will commence on the day after the date of conversion.
Backup Withholding and Information Reporting
U.S. Holders
Payments of interest (including interest accrued under the rules described
above) on the Notes, or dividends made by us on our Class A common stock, or the
proceeds of the sale or other disposition of the Notes (including upon maturity
or conversion) or shares of our Class A common stock, may be subject to
information reporting and U.S. federal backup withholding tax if the recipient
of such payment fails to supply an accurate taxpayer identification number or
otherwise fails to comply with applicable U.S. information reporting or
certification requirements. Any amount withheld from a payment to a U.S. holder
of Notes under the backup withholding rules is allowable as a credit against the
holder's U.S. federal income tax, provided that the required information is
furnished to the IRS.
Non-exempt U.S. holders of Notes may be subject to information reporting
with respect to certain reportable payments, including payments of principal and
interest on the Notes and the proceeds of the sale or other disposition of the
Notes. We will report to the U.S. holders of Notes and to the IRS the amount of
any reportable payments for each calendar year.
43
Non-U.S. Holders
A non-U.S. holder of Notes or Class A common stock may be required to
comply with certification procedures to establish that the holder is not a U.S.
person in order to avoid backup withholding tax requirements with respect to our
payments of principal and interest on the Notes, including cash payments in
respect of interest deemed to accrue on the Notes, and dividends on the Class A
common stock, or the proceeds of the sale or other disposition of Notes or Class
A common stock.
THE PROPER TAX TREATMENT OF A HOLDER OF NOTES IS UNCERTAIN. AS A RESULT, YOU ARE
URGED TO CONSULT YOUR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES AND WHETHER AN INVESTMENT
IN THE NOTES IS ADVISABLE IN LIGHT OF THE AGREED UPON TAX TREATMENT AND YOUR
PARTICULAR TAX SITUATION.
44
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the Notes and the
Class A common stock issuable upon conversion of the Notes offered by this
prospectus. The aggregate proceeds to the selling securityholders from the sale
of the Notes or Class A common stock issuable upon conversion of the Notes will
be the purchase price of the Notes or Class A common stock issuable upon
conversion of the Notes less any discounts and commissions. A selling
securityholder reserves the right to accept and, together with its agents, to
reject, any proposed purchased of Notes or Class A common stock to be made
directly or through agents.
The Notes and the Class A common stock issuable upon conversion of the
Notes may be sold from time to time to purchasers:
o directly by the selling securityholders and their successors, which
includes their transferees, pledges or donees or their successors;
or
o through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions
from the selling securityholders or the purchasers of the Notes and
the Class A common stock issuable upon conversion of the Notes.
These discounts, concessions or commissions may be in excess of
those customary in the types of transactions involved.
The selling securityholders and any underwriters, broker-dealers or agents
who participate in the distribution of the Notes and the Class A common stock
issuable upon conversion of the Notes may be deemed to be "underwriters" within
the meaning of the Securities Act. As a result, any profits on the sale of the
Notes and the Class A common stock issuable upon the conversion of the Notes by
selling securityholders and any discounts, commissions or concessions received
by any such broker-dealers or agents may be deemed to be underwriting discounts
and "underwriters" within the meaning of the Securities Act will be subject to
prospectus deliver requirements of the Securities Act. If the selling
securityholders were deemed to be underwriters, the selling securityholders may
be subject to certain statutory liabilities of the Securities Act and the
Exchange Act. If the Notes and the Class A common stock issuable upon conversion
of the Notes are sold through underwriters, broker-dealers or agents the selling
securityholders will be responsible for underwriting discounts or commissions or
agent's commissions.
The Notes and the Class A common stock issuable upon conversion of the
Notes may be sold in one or more transactions at:
o fixed prices;
o prevailing market prices at the time of sale;
o prices related to such prevailing market prices;
o varying prices determined at the time of sale; or
o negotiated prices.
These sales may be effected in transactions:
o on any national securities exchange or quotation service on which
the Notes and Class A common stock issuable upon conversion of the
Notes may be listed or quoted at the time of the sale;
o in the over-the-counter market;
o in transactions otherwise than on such exchanges or services or in
the over-the-counter market;
45
o through the writing and exercise of options, whether such options
are listed on an options exchange or otherwise; or
o through the settlement of short sales.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with the sales of Notes and the Class A common stock
issuable upon conversion of the Notes or otherwise, the selling securityholders
may enter into hedging transactions with broker-dealers or other financial
institutions. These broker-dealers or other financial institutions may in turn
engage in short sales of Notes or the Class A common stock issuable upon
conversion of the Notes in the course of hedging their positions. The selling
securityholders may also sell the Notes and Class A common stock issuable upon
conversion of the Notes short and deliver Notes and the Class A common stock
issuable upon conversion of the Notes to close out short positions, or loan or
pledge Notes or the Class A common stock issuable upon conversion of the Notes
to broker-dealers that in turn may sell the Notes and the Class A common stock
issuable upon conversion of the Notes.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the Notes and the Class A common
stock issuable upon conversion of the Notes by the selling securityholders.
Our Class A common stock trades on the New York Stock Exchange under the
symbol "MRX." We do not intend to apply for listing of the Notes on any
securities exchange or for inclusion of the Notes in any automated quotations
system. Accordingly, no assurances can be given as to the development of
liquidity or any trading market for the Notes. See "Risk Factors - Risk Related
to the Notes - Because there is no current market for the Notes, we cannot
assure you that an active trading market will develop."
There can be no assurance that any selling securityholder will sell any or
all of the Notes or the Class A common stock issuable upon conversion of the
Notes pursuant to this prospectus. Further, we cannot assure you that any such
selling securityholder will not transfer, devise or gift the Notes and the Class
A common stock issuable upon conversion of the Notes by other means not
described in this prospectus. In addition, any Note or Class A common stock
issuable upon conversion of the Notes covered by this prospectus that qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than under this prospectus. The Notes and the
Class A common stock issuable upon conversion of the Notes may be sold in some
states only through registered or licensed brokers or dealers. In addition, in
some states the Notes and Class A common stock issuable upon conversion of the
Notes may not be sold unless they have been registered or qualified for sale or
an exemption from registration or qualification is available and complied with.
The selling securityholders and any other person participating in the sale
of Notes or the class A common stock issuable upon conversion of the Notes will
be subject to the Exchange Act. The Exchange Act rules include, without
limitations Regulation M, which may limit the timing of purchases and sales of
any of the Notes and the Class A common stock issuable upon conversion of the
Notes by the selling securityholders and any other such person. In addition,
Regulation M may restrict the ability of any person engaged in the distribution
of the Notes and the Class A common stock issuable upon conversion of the Notes
and the ability of any person or entity to engage in market-making activities
with respect to the Notes and the Class A common stock issuable upon conversion
of the Notes.
We have agreed to indemnify the selling securityholders against certain
liabilities, including liabilities under the Securities Act.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the Notes and Class A common stock issuable
upon conversion of the Notes to the public, other than commissions, fees and
discounts of underwriters, brokers, dealers and agents.
46
LEGAL MATTERS
The validity of the Notes and our Class A common stock issuable upon
conversion of the Notes offered by this prospectus will be passed upon for us by
Akin, Gump, Strauss, Hauer & Feld, L.L.P., New York, New York.
EXPERTS
Our consolidated financial statements appearing in our Annual Report on
Form 10-K for the year ended June 30, 2001, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report included therein and
incorporated into this prospectus by reference. Such consolidated financials
statements are incorporated into this prospectus by reference in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Ascent Pediatrics, Inc. incorporated in this
prospectus by reference to the audited historical financial statements included
in our Current Report on Form 8-K/A dated January 29, 2002 have been so
incorporated in reliance on the report (which contains an explanatory paragraph
relating to Ascent's ability to continue as a going concern) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the SEC. You may read and copy any materials that we file with the SEC at the
SEC's public reference room at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C., as well as at the SEC's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois and 233 Broadway, New York, New York. You
can request copies of these documents by writing to the SEC and paying a fee for
the copying cost. Please call the SEC at 1-800-SEC-0330 for more information
about the operation of the public reference rooms. Our SEC filings are also
available at the SEC's Internet website at http://www.sec.gov. In addition, you
can read and copy our SEC filings at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York.
INCORPORATION BY REFERENCE
We disclose important information to you by referring you to documents
that we have previously filed with the SEC or documents that we will file with
the SEC in the future. The information incorporated by reference is considered
to be part of this prospectus, and information in documents that we file later
with the SEC will automatically update and supersede information in this
prospectus. We incorporate by reference the documents listed below into this
prospectus, and any future filings made by us with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, until we close this offering. The
documents we incorporate by reference are:
o Annual Report on Form 10-K for the fiscal year ended June 30, 2001;
o Quarterly Report on Form 10-Q for the quarter ended September 30,
2001;
o Quarterly Report on Form 10-Q for the quarter ended December 31,
2001;
o Quarterly Report on Form 10-Q for the quarter ended March 31, 2002;
o Current Report on Form 8-K filed on October 2, 2001;
o Current Report on Form 8-K filed on November 14, 2001;
o Current Report on Form 8-K filed on November 16, 2001;
o Amendment No. 1 to Current Report on Form 8-K filed on January 29,
2002;
47
o Current Report on Form 8-K filed on May 28, 2002; and
o Current Report on Form 8-K filed on June 6, 2002.
You may request a copy of these filings (other than exhibits to those
filings that we have not specifically incorporated by reference into this
filing) at no cost, by writing us at the following address:
Medicis Pharmaceutical Corporation
8125 North Hayden Road
Scottsdale, Arizona 85258-2463
Attention: Investor Relations
48
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses of the
sale and distribution of the securities being registered, all of which are being
borne by us.
Amount
Securities and Exchange Commission filing fee ......... $ 36,800
Printing expenses ..................................... $ 5,000
Legal fees and expenses ............................... $100,000
Accounting fees and expenses .......................... $ 24,750
Miscellaneous ......................................... $ 10,000
--------
Total ............................................. $176,550
========
All of the amounts shown are estimates except for the fee payable to the
Securities and Exchange Commission.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL"), inter alia,
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A similar indemnity is
authorized for such persons against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
any such threatened, pending or completed action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and provided further that
(unless a court of competent jurisdiction otherwise provides) such person shall
not have been adjudged liable to the corporation. Any such indemnification may
be made only as authorized in each specific case upon a determination by the
stockholders or disinterested directors or by independent legal counsel in a
written opinion that indemnification is proper because the indemnitee has met
the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145. We maintain
policies insuring our and our subsidiaries' officers and directors against
certain liabilities for actions taken in such capacities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
Article VI of our Certificate of Incorporation, as amended, and Article
VII of our Bylaws provide for indemnification of our directors to the full
extent permitted by the law, as now in effect or later amended. Article VII of
our Bylaws also permits the indemnification to the same extent of our officers,
employees or agents if, and to the extent, authorized by the Board of Directors.
In addition, our Bylaws provide for indemnification against expenses incurred by
a director to be paid by us at reasonable intervals in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it shall be
ultimately determined that he is not entitled to be indemnified by us. The
Bylaws further
II-1
provide for a contractual cause of action on the part of our directors for
indemnification claims that we have not paid.
We also have provided liability insurance for each director and officer
for certain losses arising from claims or charges made against them while acting
in their capacities as our directors or officers.
Article VI of our Certificate of Incorporation, as amended, limits under
certain circumstances the liability of our directors for a breach of their
fiduciary duty as directors. These provisions do not eliminate the liability of
a director (i) for a breach of the director's duty of loyalty to our company or
our stockholders; (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the DGCL (relating to the declaration of dividends and purchase or redemption of
shares in violation of the DGCL); or (iv) for any transaction from which the
director derived an improper personal benefit.
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ITEM 16. EXHIBITS
The following is a list of exhibits filed as part of this registration
statement.
Exhibit
Number Description
------------ --------------------------------------------------
*3.1 Certificate of Incorporation of Medicis, as
amended (incorporated by reference to Medicis'
Annual Report on Form 10-K for the fiscal year
ended June 30, 1995).
*3.2 Amended and Restated By-laws of Medicis
(incorporated by reference to Medicis' Quarterly
Report on Form 10-Q for the quarter ended March
31, 1999).
*4.1 Rights Agreement, dated as of August 17, 1995, by
and between Medicis and American Stock Transfer &
Trust Company, as rights agent (incorporated by
reference to Medicis' Annual Report on Form 10-K
for the fiscal year ended June 30, 1995).
**4.2 Amendment No. 1 to Rights Agreement, dated as of
April 15, 1996, by and between Medicis and
American Stock Transfer & Trust Company, as rights
agent.
*4.3 Amendment No. 2 to Rights Agreement, dated as of
March 17, 1997, by and between Medicis and Norwest
Bank Minnesota, N.A. (incorporated by reference to
Medicis' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
4.4 Amendment No. 3 to Rights Agreement, dated as of
May 31, 2002, by and between Medicis and Wells
Fargo Bank Minnesota, N.A., as
successor-in-interest to American Stock Transfer &
Trust Company.
*4.5 Indenture, dated as of June 4, 2002, by and
between Medicis and Deutsche Bank Trust Company
Americas, as trustee (incorporated by reference to
Medicis' Current Report on Form 8-K filed with the
SEC on June 6, 2002).
*4.6 Registration Rights Agreement, dated as of June 4,
2002, by and between Medicis and Deutsche Bank
Securities Inc. (incorporated by reference to
Medicis' Current Report on Form 8-K filed with the
SEC on June 6, 2002).
*4.7 Form of Global 2.5% Contingent Convertible Senior
Note (included in Exhibit 4.5).
5 Opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P.
12 Computation of Ratios of Earnings to Fixed
Charges.
23.1 Consent of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. (included in the opinion filed as Exhibit
5).
23.2 Consent of Ernst & Young LLP, Independent
Accountants.
23.3 Consent of PricewaterhouseCoopers, Independent
Accountants.
24 Power of Attorney (included in the signature page
of this Registration Statement).
25 Statement of Eligibility and Qualification of the
Trustee under the Trust Indenture Act of 1939, as
amended, on Form T-1.
----------
*Incorporated by reference as indicated.
**To be filed by Amendment.
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ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply if the
registration statement is on Form S-3, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification is against public policy as expressed
in the Securities Act, and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Medicis Pharmaceutical Corporation certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, Arizona on
July 26, 2002.
MEDICIS PHARMACEUTICAL CORPORATION
By: /s/ Jonah Shacknai
---------------------------------------------
Name: Jonah Shacknai
Title: Chairman of the Board of Directors and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below each severally constitutes and appoints Jonah Shacknai and Mark A.
Prygocki, Sr., or either of them, as true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for them in their
name, place and stead, in any and all capacities, to sign any and all amendments
(including pre-effective and post-effective amendments) to this registration
statement and to sign any registration statement (and any post-effective
amendments) relating to the same offering as this registration statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as they might or could
do in person, hereby ratifying and confirming all which said attorneys-in-fact
and agents, or their substitute, may lawfully do, or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Jonah Shacknai Chairman of the Board of Directors and July 26, 2002
---------------------------- Chief Executive Officer
Jonah Shacknai (Principal Executive Officer)
/s/ Mark A. Prygocki, Sr. Executive Vice President, Chief Financial July 26, 2002
---------------------------- Officer, Corporate Secretary and
Mark A. Prygocki, Sr. Treasurer
(Principal Financial and Accounting
Officer)
/s/ Arthur G. Altschul, Jr. Director July 26, 2002
----------------------------
Arthur G. Altschul, Jr.
/s/ Spencer Davidson Director July 26, 2002
----------------------------
Spencer Davidson
/s/ Peter S. Knight, Esq.
---------------------------- Director July 26, 2002
Peter S. Knight, Esq.
/s/ Michael A. Pietrangelo Director July 26, 2002
----------------------------
Michael A. Pietrangelo
II-5
/s/ Philip S. Schein, M.D. Director July 26, 2002
----------------------------
Philip S. Schein, M.D.
/s/ Lottie Shackelford Director July 26, 2002
----------------------------
Lottie Shackelford
II-6
EXHIBIT INDEX
The following is a list of exhibits filed as part of this registration
statement.
Exhibit
Number Description
-------- --------------------------------------------------
*3.1 Certificate of Incorporation of Medicis, as
amended (incorporated by reference to Medicis'
Annual Report on Form 10-K for the fiscal year
ended June 30, 1995).
*3.2 Amended and Restated By-laws of Medicis
(incorporated by reference to Medicis' Quarterly
Report on Form 10-Q for the quarter ended March
31, 1999).
*4.1 Rights Agreement, dated as of August 17, 1995, by
and between Medicis and American Stock Transfer &
Trust Company, as rights agent (incorporated by
reference to Medicis' Annual Report on Form 10-K
for the fiscal year ended June 30, 1995).
**4.2 Amendment No. 1 to Rights Agreement, dated as of
April 15, 1996, by and between Medicis and
American Stock Transfer & Trust Company, as rights
agent.
*4.3 Amendment No. 2 to Rights Agreement, dated as of
March 17, 1997, by and between Medicis and Norwest
Bank Minnesota, N.A. (incorporated by reference to
Medicis' Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997).
4.4 Amendment No. 3 to Rights Agreement, dated as of
May 31, 2002, by and between Medicis and Wells
Fargo Bank Minnesota, N.A., as
successor-in-interest to American Stock Transfer &
Trust Company.
*4.5 Indenture, dated as of June 4, 2002, by and
between Medicis and Deutsche Bank Trust Company
Americas, as trustee (incorporated by reference to
Medicis' Current Report on Form 8-K filed with the
SEC on June 6, 2002).
*4.6 Registration Rights Agreement, dated as of June 4,
2002, by and between Medicis and Deutsche Bank
Securities Inc. (incorporated by reference to
Medicis' Current Report on Form 8-K filed with the
SEC on June 6, 2002).
*4.7 Form of Global 2.5% Contingent Convertible Senior
Note (included in Exhibit 4.5).
5 Opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P.
12 Computation of Ratios of Earnings to Fixed
Charges.
23.1 Consent of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. (included in the opinion filed as Exhibit
5).
23.2 Consent of Ernst & Young LLP, Independent
Accountants.
23.3 Consent of PricewaterhouseCoopers, Independent
Accountants.
24 Power of Attorney (included in the signature page
of this Registration Statement).
25 Statement of Eligibility and Qualification of the
Trustee under the Trust Indenture Act of 1939, as
amended, on Form T-1.
----------
*Incorporated by reference as indicated.
**To be filed by Amendment.
II-7